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Our commitment to constructive engagement towards economic recovery

Our commitment to constructive engagement towards economic recovery

12 Jan 2021

Tengku Zafrul, Finance Minister of Malaysia

Thank you everyone for your feedback on my previous posting. I have read all of them, and I appreciate the constructive feedback.

Without a doubt, Covid-19 has wreaked havoc on all countries and economies. Like other nations, we are also faced with the arduous task of rejuvenating and rebuilding our economy, starting with initiatives introduced through our nation’s short-term economic recovery plan (PENJANA) announced in June 2020. PENJANA has introduced tax and investment incentives such as:

1. 0% tax rate for 10 to 15 years for new investment in manufacturing sectors with capital investment between RM300 million or above; 

2. 100% Investment Tax Allowance for 5 years for existing company in Malaysia relocating overseas facilities/segments into Malaysia (extended to 31 December 2022 under Budget 2021);

3. Special Reinvestment Allowance for manufacturing and selected agriculture activity for year of assessment 2020 until 2022;

4. Additional operating expenditure for MIDA to undertake marketing and promotional activities;

5. Establishment of Project Acceleration & Coordination Unit (PACU) at MIDA to facilitate all necessary approvals;

6.Enhancement of the Domestic Investment Strategic Fund; and

7. Expedited Manufacturing License approval for non-sensitive industry within 2 working days

Under Budget 2021, many of these incentives have either been expanded or extended. The Government is committed to making Malaysia a preferred destination for high-value added service activities, continuing our pursuit of making this a hub for innovation, high-technology and future-ready industries. With this goal in mind,
several initiatives implemented through Budget 2021 include:

1. Relaxation of tax incentive conditions for Principal Hub and the incentive will be extended until 31 December 2022;
2. New tax incentive for the establishment of Global Trading Centre at a concessionary rate of 10% for a period of 5 years and can be renewed for a further 5 years;
3. Limit on the value-added and additional activities to be carried out in the Free Industrial Zone and Licensed Manufacturing

Warehouse be increased from 10% to exceeding 40% from the total annual sales value; and

4. Individual income tax rate of 15% for a period of 5 consecutive years to a maximum of 5 non-resident individuals holding key positions for strategic new investment by companies relocating their operations to Malaysia under the PENJANA incentive package.
5. Tax incentives for non-resource-based R&D findings commercialization activities to be reintroduced this year and tax incentives for commercialization of R&D findings by public research institutions will be extended to private higher education institutions.
6. Incentives including preferential tax rate of up to 10% for a period of up to 20 years for manufacturers of pharmaceutical products including vaccines;
7. Existing tax incentives for the East Coast Economic Region Development Corridor, Iskandar Malaysia and Sabah Development Corridor be extended until 2022.

The list above is non-exhaustive. Furthermore, I can assure you MOF has been working very hard with other agencies and Ministries to ensure that these incentives will be made available to genuine investors. But we must remember two important points: we are still in a health crisis, and every country is unique in terms of attracting FDI.

And while Malaysia is still working tirelessly to contain Covid-19, recovery – in public health, economy or even investments – will take time.

Nonetheless, both international and domestic business communities have remained committed to our country, having perceived our strengths and potential. As much as we want to increase our FDI, equally important is our DDI (Direct Domestic Investment), as it is a show of confidence and trust by our own fellow Malaysians in our national policies and economic resilience. Allow me to share some data and facts:

1. Despite the Covid-19 pandemic, numerous international companies and MNCs have started establishing vendor development programmes and supply chain management initiatives with local companies and suppliers. Over the years, these local suppliers became large manufacturers in their own right, and quite a few are now listed in our stock exchange, providing employment opportunities for our local talents.

2. Notable projects approved for the first nine months of 2020 include LEM (Switzerland), Dexcom, Ultra Clean (USA), Keysight Technologies (USA), Bosch (Germany), as well as Nippon Electric Glass (Malaysia) Sdn. Bhd. (NEGM). NEGM is increasing its production capacity of glass tubing for pharmaceutical use
by approximately 1,000 tons per month at its Shah Alam, Selangor facility. To date, NEGM has invested more than RM6 billion in Malaysia on various investments. Its latest RM200 million investment project reinforces Malaysia’s reputation as a sustainable and profitable investment destination for companies looking to do business in ASEAN and beyond.

3. MIDA, being the country’s principal investment promotion and development agency of the country, has also been focusing on attracting quality investments in capital-intensive, high-value added and high technology projects. This is reflected in the increase of the capital investment per employee (CIPE) ratio to
RM1,276,774 in the first nine months of 2020 from RM1,039,769 during the same period last year.

4. In the first nine months of 2020, our country continues to be a preferred location for investments, particularly for manufacturing projects where it recorded year-on-year growth in approved investments, despite a year of crisis.

5. This includes a 16.6% increase in total approved investments in the manufacturing space to RM65.3 billion across 740 projects (from RM56 billion involving 669 projects in 9M2019). This comprises a 45.5% jump in DDI to RM25.9 billion and a 3.2% increase in FDI to RM39.4 billion; which are expected to create over 51,000 jobs in the field of engineering, equipment maintenance and manufacturing, IT and more.

6. In the same period, Malaysia’s services sector recorded total approved investments of RM42.8 billion on top of RM1.6 billion total investments in the primary sector, bringing the overall total approved investments for 9M2020 to RM109.8 billion.

And don’t just take it from me. If you are looking for objectivity, look at various global rankings that have also validated Malaysia’s position on numerous metrics, and are testimonial to our sound policies and measures. I am pleased to share that Malaysia ranks:

1. Fourth among 17 economies in a recent study by KPMG and the Manufacturing Institute in the USA entitled “Cost of Manufacturing Operations around the Globe”, which assesses the economy’s competitiveness as a manufacturing hub. The study validates Malaysia’s aspirations to become a global supply
chain hub in the region.

2. Second in terms of ease of doing business in ASEAN (12th globally), as well as 2nd for protecting investors according to the World Bank Doing Business Report 2020;

3. Second in terms of trade and connectivity in Southeast Asia (12th globally) according to DHL Global Interconnectedness Index 2019;
4. Second in terms of ease of protecting minority investors according to the Global Innovation Index 2020, by the World Intellectual Property Organisation, WIPO;
5. Third in terms of global offshoring destination according to the A.T. Kearney Global Services Location Index, GSLI 2019;
6. Fourth globally in handling the Covid-19 crisis according to Blackbox Research and Toluna;

7. Fifth amongst emerging economies as a key destination for investment and businesses, on the back of potential rapid economic recovery, stable fiscal and financial position and the ability to contain and alleviate the Covid-19 pandemic according to a recent report by Bloomberg;
8. Twenty-sixth in the Global Talent Competitiveness Index 2020; and
9. Twenty-seventh in the World Economic Forum’s 2019 GlobalCompetitiveness Index

When I first agreed to take on this position, during what is probably the most challenging period for the Malaysian economy in history, I told myself and #teamMOF that it is always easy to focus on what is missing. The real work is in directing our energy towards solutions, and towards what we can achieve with the resources that we have.

This has required a delicate balancing of lives and livelihoods on MOF’s part, and it has not been the easiest of responsibilities to execute. Nonetheless, rest assured that each member in my team has been working extremely hard these past 10 months to deliver the numbers, on which I will certainly keep the public posted.

We value all our stakeholders including our trading partners and the domestic business community. There is no window dressing when I say this: last year alone, despite hurdles presented by the Covid-19 situation, between March and December, the MOF team and myself had directly engaged with more than 125 business-based associations, interest groups and chambers of commerce (both local and foreign), as part of our engagements in creating the four economic stimulus packages, and Budget 2021. For the Budget 2021 alone, we received over 6,000 ideas and suggestions, which we carefully evaluated. We are focused not only on placing our economy back on the right track, but also to start some of the much-needed structural reforms like upskilling our workforce, and reducing dependency on foreign labour, many of which will begin with the 12th Malaysia Plan.

Last year, we were pleased to have had meaningful discussions with multiple local and international agencies and business groups, including the American Malaysian Chamber of Commerce, the French Malaysia Chamber of Commerce and Industry, as well as the British Malaysia Chamber of Commerce, and held discussions with numerous ambassadors, commissioners and ministers. We have not managed to meet every single one, but we are getting there. MOF officials and I very much look forward to meeting all chambers of commerce and other stakeholders in Malaysia to see how best we can work together – particularly with MITI and other investmentfocused agencies – to facilitate more investments from our trading partners in 2021 and beyond. 

I assure you that the Government remains committed to working hand in hand with investors, both local and foreign alike, to accelerate the transformation of Malaysia as an advanced nation with inclusive growth and development by providing a conducive and favourable environment to attract businesses.

We continue to welcome suggestions and well-meaning feedback without prejudice. Given the appropriate channel of engagement, I believe MOF has proven to welcome feedback and respond in the best way practicable. We do this, and more, all in the name of delivering for our beloved nation and rakyat.

Source: The Edge Markets

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