Digital Law Firm Presents: Making Malaysia the Preferred Investment Destination

Making Malaysia the Preferred Destination for Investment

The word “Invest” appears 47 times throughout the entire Budget 2020’s speech, delivered by our Finance Minister, YB Lim Guan Eng on 12 October 2019 in the Parliament of Malaysia.

We have compiled the salient points on investment in both financial capital and human capital from the full text of Budget 2020 (Click here for the full text) :

1. The protracted trade war creates a unique opportunity for Malaysia to again be the preferred destination for high value-added Foreign Direct Investments (FDI). The shift in the global supply chain investments has witnessed approved FDI increasing by 47% to RM80.1 billion in 2018 from RM54.4 billion in 2017.

2. For the first half of this year, approved FDI increased by 97% to RM49.5 billion from RM25.1 billion in the same period last year. The approved manufacturing FDI from the United States of America (US) was the highest at RM11.7 billion, followed by the People’s Republic of China at RM4.8 billion.

3. As China is our largest trading partner, FDI from China should be comparable with the US. As such, a ‘Special Channel’ to attract investments from China shall be established under InvestKL.

4. To overcome delays in approving foreign and domestic investments, the Government has established the National Committee on Investment (NCI), jointly chaired by the Minister of Finance and the Minister of International Trade and Industry. In their inaugural meeting on 28 August this year, three investments worth RM2.2 billion were approved.

5. This year, the Government has embarked on a comprehensive review and revamp of the existing incentive framework, comprising the Promotion of Investments Act 1986, Special Incentive Package and incentives under the Income Tax Act 1967. This new framework is expected to be ready by 1 January 2021.

6. The Government will make available up to RM1 billion worth of customised packaged investment incentives annually over 5 years, as part of the strategic push to attract targeted Fortune 500 companies and global unicorns in high technology, manufacturing, creative and new economic sectors. To qualify, these companies must invest at least RM5 billion each in Malaysia which will generate additional economic activities that will support our Small Medium Enterprises (SMEs), create 150,000 high quality jobs over the next 5 years and strengthen our manufacturing and service ecosystems.

7. To transform Malaysia’s best and most promising businesses into the most competitive enterprises in global export markets, the Government will also make available up to RM1 billion in customised packaged investment incentives annually over 5 years.

8. In addition to expediting approval of investments, the Ministry of International Trade and Industry (MITI) will give additional focus on post-approval investment monitoring and realisation. For this purpose, the Government will allocate RM10 million.

9. The Government will also provide tax incentives to further promote high-value added activities in the Electrical and Electronics (E&E) industry to transition into 5G digital economy and Industry. These incentives include:

• • income tax exemption up to 10 years to E&E companies investing in selected knowledge-based services; and
  • special Investment Tax Allowance to encourage companies in E&E sector that have exhausted the Reinvestment Allowance to further reinvest in Malaysia.

10. The Government intends to strengthen trade with Thailand via our 100-acre logistics hub, Kota Perdana Special Border Economic Zone (SBEZ) at Bukit Kayu Hitam. Further to the development of a Truck Depot as announced in Budget 2019, the Government will allocate an additional RM50 million to stimulate public-private partnerships for the project. The Government would provide support for the construction of primary infrastructure, while the private sector will invest in critical business assets to catalyse potential domestic investment worth RM800 million which would provide job opportunities to more than 600 people.

11. The Government will create the necessary infrastructure to construct a Digital Malaysia by implementing the National Fiberisation & Connectivity Plan (NFCP) over the next 5 years which will provide comprehensive coverage of high speed and quality digital connectivity nationwide including rural areas. The NFCP will adopt a public private partnership approach involving a total investment of RM21.6 billion. The Government, through MCMC, will finance at least half of the required investment with corresponding investments by the private sector telecommunications players via a matching grant mechanism.

12. In addition, an allocation of RM25 million will be given to set up a contestable matching grant fund to spur more pilot projects on digital applications such as drone delivery, autonomous vehicle, blockchain technology, and other products and services that leverage on our investments in fibre optics and 5G infrastructure.

13. To better facilitate access to financing for SMEs in priority segments, the Government will implement enhancements to the Skim Jaminan Pinjaman Perniagaan (SJPP). For Bumiputera SMEs, export-oriented SMEs and SMEs investing in automation and digitalisation, the Government guarantee will be increased from 70% to 80% and in addition, will reduce the guarantee fee to only 0.75%. A new SJPP allocation of RM500 million in guarantee facility will also be launched, earmarked for women entrepreneurs.

14. To further encourage alternative sources of funding for startups companies and to attract more foreign investment to Malaysia, tax incentives given to venture capital and angel investors will be extended until the year 2023.

15. To catalyse and promote financing to construction consortiums bidding for projects and concessions overseas, the Government will provide a RM1 billion 1:5 matching guarantee for dedicated private equity funds to invest in Malaysian consortiums.

16. To further promote Islamic fund and Sustainable and Responsible Investment (SRI) fund management activity, the tax exemption for fund management companies managing Shariah compliant funds and SRI funds, and the tax deduction on the cost of issuing SRI Sukuk will be extended for another 3 years until year of assessment 2023.

17. The Government intends to attain Malaysia’s goal to generate 20% of our energy consumption from renewable sources by 2025. Last year, the Government had significantly expanded the qualifying list of green assets for Green Investment Tax Allowance (GITA) under the MyHijau directory. For Budget 2020, the Government is happy to announce that the GITA and Green Income Tax Exemption (GITE) incentives will be extended to 2023. A 70% income tax exemption of up to 10 years will be given to companies undertaking solar leasing activities.

18. Through Energy Performance Contracting (EPC), the upfront capital investment into energy saving equipment for Government buildings will be repaid through the savings in utility costs achieved. In 2020, the Government will accelerate EPC implementation for Government buildings, prioritising hospitals and education institutions.

19. New investments in international theme park projects will be given income tax exemption of 100% of statutory income or Investment Tax Allowance of 100% to be set off against 70% for 5 years.

20. The Government plans to upgrade the Sultan Azlan Shah Airport in Ipoh including an extension of its runway. Towards this, the Government will invite proposals on public private partnership basis to realise this.

21. To better ease congestion at the Causeway and 2nd Link, the Government will invest RM85 million beginning 2020 towards enhancing vehicle and traffic flow through the Customs, Immigration and Quarantine Complex (CIQ). 

Investing In Malaysians – Levelling Up Human Capital

22. The Government will be launching the Malaysians@Work initiative, aimed at simultaneously creating better employment opportunities for youth and women and reducing our over-dependence on low-skilled foreign workers. Very simply, Malaysians@Work is divided into four programmes directed at providing both wage incentives for workers and hiring incentives for employers as follows:

• • Graduates@Work is designed specifically for the hiring of graduates who have been unemployed for more than 12 months. The graduates who secures work will receive a wage incentive of RM500 per month, for a duration of two 2 years, while employers receive a hiring incentive up to RM300 per month for each new hire, for 2 years;

• • Women@Work seeks to create 33,000 job opportunities per year for women who have stopped working for a year or more, and are between 30-50 years-old. The wage incentive for returning women workers is RM500 per month for two years, and a corresponding hiring incentive for employers up to RM300 per month for 2 years. On top of the above, the current income tax exemption for women who return to work after a career break be extended for another 4 years until 2023;

• • Locals@Work is a hiring cost equalisation programme, aimed at incentivising the shift away from low-skilled foreign workers dependency. The wage incentive for Malaysians who are hired to replace foreign workers is at either RM350 or RM500 per month, depending on the sectors, for a duration of two 2 years, and corresponding hiring incentive for employers up to RM250 per month for 2 years; and

• • Apprentice@Work is a TVET incentive programme, aimed at encouraging more youth to enter TVET courses, in the form of additional RM100 per month on existing allowance for trainees on apprenticeships. The Government will also extend double tax deduction on expenses incurred by companies participating in Skim Latihan Dual Nasional (SLDN) for another two years. In addition, the double tax deduction currently given to companies undertaking Structured Internship Programme (SIP) approved by Talent Corporation Malaysia Berhad (TalentCorp) will be expanded to include students from all academic fields rather than just engineering and technology.

23. The Government believes that Malaysians@Work programme will enable Malaysians who are unemployed to gain the necessary skill sets and capabilities with on-the-job training, to ensure continued employment with the relevant company, with the retention rate expected to exceed 90% after the incentive ends in two years. This will build human capital from the unemployed to become a self-reliant worker, able to contribute productively to the labour market.

24. Other than the Apprentice@Work programme, the Malaysians@Work initiatives will be managed by the EPF, and will be subsequently integrated with the Employment Insurance System (EIS) as well as other active labour market programmes. The Government anticipates that the Malaysians@Work initiative will cost RM6.5 billion over five years and create an additional 350,000 jobs for Malaysians and reduce foreign workers dependency by more than 130,000.

25. The Government will also be undertaking further measures to improve the working environment for women and parents in general. In year 2019, RM10 million was allocated for the development early childhood care facilities in government buildings. Through this, 66 new TASKAs were created in government facilities. The Government will allocate an additional RM30 million in 2020 to provide more TASKAs, focusing especially on hospitals and schools. In addition, to ease the financial burden of parents who enrol their children in registered nurseries and kindergartens, individual tax relief for fees paid will be increased from RM1,000 to RM2,000.