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Budget 2021, RCEP bode well for Malaysia’s competitiveness to lure more FDI

Malaysia’s expansionary Budget 2021 that aims to revitalise the economy, coupled with its participation in the Regional Comprehensive Economic Partnership (RCEP) Agreement, is putting the country in a strategic position to lure more foreign investments, economic experts said.

They believe Malaysia, which foreign investors already view as an excellent investment destination due to its ease of doing business, has strengthened its competitive advantage in the regional market.

AxiCorp chief global market strategist Stephen Innes said the government has signalled its commitment to steer the country’s economy while protecting livelihoods through the numerous Budget 2021 measures, with plenty of healthcare and job creation incentives.

He said this year has been exceptionally challenging given the extent of the many people who have lost their jobs. The government had to dig in deep, probably a lot more than it was prepared to do, while walking a fine line between running up too much debt and covering society’s back but this has positively led to the ringgit’s appreciation and fund flows have started to return into the country.

As for the RCEP, he said the tariff elimination on manufactured products exports is quite advantageous as Malaysia’s open economy would be further enhanced by the free trade facility.

The great thing for Malaysia is its geographical proximity, which is a big win.

“I think Malaysia is uniquely positioned to attract more foreign direct investment (FDI) as foreign companies are looking to shift their operations out of China (due to the trade war),” he told Bernama, adding that China’s robust economy and the favourable vaccine news have also helped to spur sentiment.

Meanwhile, University Malaysia Sarawak economics and business faculty senior professor, Datuk Shazali Abu Mansor, said the Jaringan Prihatin (Network) Programme and the National Digital Networking Plan (Jendela) introduced under Budget 2021 would propel Malaysia’s digital infrastructure.

He also said Malaysia is fortunate to have a highly skilled and professional workforce to compete with other regional countries in attracting FDIs, and the special RM1 billion incentive package for high value-added technology in Budget 2021 complemented the entire ecosystem.

“A country with good infrastructure, prudent government fiscal policy, ease of doing business environment, and high-skilled workers are among key components that investors will look at in choosing their investment destination.

“As an emerging country, Malaysia still relies on foreign investors for its medium- to long-term growth development and I think Budget 2021 truly reflects our image — a nation that strives for foreign investments,” he explained.

In October last year, the World Bank’s Doing Business 2020 Report ranked Malaysia in 12th position among 190 economies worldwide, a further improvement from the 15th spot in the previous year.

However, both Shazali and Innes reckoned that the government needs to “sweeten” its taxation pot under the budget to lure more businesses via FDIs as the global economic landscape is becoming extra competitive in light of the current economic situation due to the COVID-19 pandemic.

“Compared to neighbour Singapore, for example, it (Singapore) offers huge tax concessions to attract business relocation.

“So the government may need to offer more corporate tax cuts,” said Innes.

Shazali said the government should look at a long-term perspective, especially the spillover effect created by those multinational companies when they relocate their businesses in Malaysia such as job creation, business opportunity, transport, food, accommodation and others.

“We are not on the losing side, it’s a long journey but Malaysia will gain tremendously if the government relaxes tax a little bit more,” he added.

The government has offered special tax rates through the National Economic Recovery Plan (PENJANA) to selected manufacturing companies which relocate their businesses to Malaysia and bring in new investments.

In Budget 2021, the government has proposed to extend the incentive application for another year until Dec 31, 2022, and the scope of tax incentives will also be extended to companies in selected services sectors which have a significant multiplier effect by providing an income tax rate of zero to 10 per cent for a period of 10 years.

— BERNAMA