Geoffrey Williams of Malaysia University of Science and Technology said even as non-tax measures were expected to take centre stage in drawing foreign direct investment, Malaysia would have to pay greater heed to the grouses present investors had.
These included the terms for the Malaysia My Second Home (MM2H) programme, mandatory Bumiputera share ownership allocation, the country’s Tier 3 status – the lowest in the US Trafficking in Persons list – and Indonesia’s labour-to-Malaysia freeze over worker treatment.
In line with the greater market liberalisation, more market opportunities must be created, especially in government procurement, Williams told FMT Business, noting that there should be supply side reforms such that government-linked companies’ subsidiaries did not crowd out other players.
“Opening the ownership of shares to foreign investors is also something that should be considered,” he said.
Williams stressed that a decline in FDI would not bode well for the diversification of the Malaysian economy, explaining that generally local businesses were not innovative in exploring new sectors without a push from multinational corporations.
“E-hailing is an exception to this rule but overall any project into new activity tends to be small, of pilot-project size and often government funded,” he said.
InvestKL CEO Muhammad Azmi Zulkifli said the existing tax incentives at a preferential rate of zero to 10% for five or 10 years for MNCs that participate in promoted activities or producing promoted products would still be important and beneficial in order to catalyse and develop new sectors.
He urged both local and foreign multinationals to assess the impact of GMT’s objective to end tax competition and profit shifting.
Azmi said MNCs should identify the entities in their group that would be obliged to pay the top-up tax — to either Malaysian or foreign tax authorities – and determine the impact on cash flows and functions.
This could lead to renegotiating the tax incentives already granted including replacing them with non-tax incentives such as grants.
“Other than such non-tax incentives, more important are progressive policies that enable the ease of doing business and ensure a competitive environment to attract foreign and domestic direct investments,” he said.
In the US, Democratic senator Joe Manchin has expressed opposition to the GMT over concerns that US companies would be at a disadvantage if other countries didn’t also implement it.
Within the European Union, the tax reform would need unanimous backing by all member states. However, Hungary’s foreign minister said the country – which has a 9% corporate tax, the lowest in the region – would not support the GMT as this would put jobs in danger.
On the immediate fiscal impact within Malaysia, TraTax tax adviser Thenesh Kannaa believed GMT would help increase tax revenue.
“It is sometimes misunderstood that the 15% GMT would make tax incentives redundant. That’s not necessarily true,” he told FMT Business. Tax incentives would continue to play an important role in attracting investments.
Nonetheless, there might be a need for Malaysia to have in place a robust non-tax incentive framework to be on a level playing field with other countries in attracting FDI.