Malaysia unveiled its 2020 budget in early October, which focused on providing tax incentives and grants to woo more foreign investments, in particular from China, to develop the digital economy, and improve infrastructure.
Courting Major Multinationals
The government will make available up to RM1 billion worth of incentives over five years for multinational companies.
These incentives are primarily aimed at attracting Fortune 500 companies and global companies engaging in high-end technology, manufacturing, or value-added industries.
To qualify, companies will need to invest at least RM5 billion into the country. The government hopes this investment will create 150,000 jobs over the next five years.
Domestic businesses seeking to become export-orientated are eligible for up to RM1 billion worth of incentives over five years. An RM500 million in loans has also been given to women entrepreneurs.
Increasing Chinese Investments
The government is set to establish a ‘special channel’ to specifically cater to Chinese investors. The special channel will be managed under InvestKL, a government investment promotion agency.
A recent report, a Japanese financial holding company, stated that Malaysia was already the fourth biggest beneficiary of the trade war, gaining some 1.3 percent in GDP from trade diversions since 2018.
In the first half of 2019, Chinese investments totalled RM4.8 billion, second to only the US with RM11.7 billion. Regulations that detail how the special channel will operate are forthcoming.
Growing the Digital Economy
Investors in the electronics and electrical (E&E) industry, especially those investing in selected knowledge-based services, are eligible for a 10-year tax exemption.
Investors will also be entitled to an ‘investment tax allowance’ if they have already exhausted the ‘reinvestment allowance’, to reinvest in the country. Moreover, the budget will distribute an RM50 million under the 5G Ecosystem Development Grant to accelerate the digital economy.
The government hopes the incentives will encourage investors to further advance the industry through the introduction of new technology, re-training of the local workforce, and the development of new E&E subsectors.
While the type of knowledge-based services eligible for the tax exemptions has not yet been detailed, implementation measures are forthcoming.
Grants for Automation
To encourage businesses to implement automation in their business processes, the government will provide the following incentives:
- Accelerated capital allowance and automation capital allowance on the first RM2 million and RM4 million on qualifying capital expenditure will be extended to the year 2023, for companies in the manufacturing sector; and
- The incentive is extended to companies in the services sector on the first RM2 million on qualifying capital expenditure from 2020-2023.
The government will also allocate RM550 million as grants to help companies in the manufacturing and services sector embrace automation.
Foreign Ownership of Property
The threshold on high rise properties (condominiums and apartments) for foreign ownership has been reduced from RM1 million to RM600,000.
The lowering of the threshold is aimed at reducing the supply overhang which amounted to RM8.3 billion. It is worth noting that local buyers will be given priority to buy these units, and if there are no interests from local buyers, the unit will be open for foreigners to purchase.
Infrastructure Development
The budget has allotted RM12.2 billion for various infrastructure megaprojects in urban-rural areas.
These include the Pan Borneo Highway and the Kuala Lumpur mass rapid transit (MRT) project. Other projects include spending more than RM500 million on electricity, RM1 billion on rural roads, and more than RM500 million on electrification projects.
An additional RM1.6 billion will go towards building new hospitals and renovating existing ones.0
Natural Resources
Some RM550 million have been set aside as soft loans for palm oil replanting. The 12-year loan, primarily for smallholder farmers, will only need to be repaid after the fourth year.
Furthermore, the government will accelerate the implementation to raise its biofuel mandate in the transportation sector to B20, from its current level of B10. The government expects this to increase palm oil demand by as much as 500 thousand tons per year.
