KUALA LUMPUR: Malaysia could supercharge its foreign direct investment (FDI) through Budget 2025 by offering bold tax incentives, streamlined regulations, and targeted sector support, said analysts.
SPI Asset Management managing partner Stephen Innes said cutting corporate taxes for key industries like technology, renewable energy, advanced manufacturing, and expanded research and development (R&D) credits would attract long-term investments.
Digitising government processes and simplifying compliance would reduce operational hurdles. Tax breaks, carbon credits, and clean energy incentives should boost green projects, Innes added.
"Training grants and business-education partnerships could build a skilled workforce, while expanded special economic zones with enhanced infrastructure and tax exemptions would support export-driven businesses," he told Bernama.
Innes also said that the digital economy would thrive with artificial intelligence, automation, and digital infrastructure tax perks while easing taxes on repatriated earnings and dividends would enhance long-term investment appeal.
"Stronger intellectual property protections and new bilateral investment treaties would provide legal certainty, while infrastructure bonds and public-private partnerships would lure foreign participation in large-scale projects.
"These measures would create an attractive, forward-looking investment environment, in line with global trends," he added.
Malaysia’s total trade remained on a double-digit growth path in August 2024, boosted by a thriving global economy.
Total trade in August this year increased to RM252.7 billion, a jump of 18.6 per cent from RM213 billion in August 2023, primarily driven by 26.2 per cent growth in imports, which reached RM123.5 billion, and exports by 12.1 per cent, valued at RM129.2 billion.
While tax-sensitive sectors may feel a pinch, Innes said Malaysia's strong economic fundamentals, strategic location, and the fact that regional competitors would implement the same global minimum tax (GMT) should keep Malaysia firmly on investors' radar.
"In short, the GMT is not expected to disrupt Malaysia’s status as a top FDI destination," he added.
The Malaysian government has announced plans to implement the GMT based on the Global Anti-Base Erosion (GloBE) Rules in 2025.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Malaysia has a decent infrastructure that is cost-effective to attract new FDIs and the availability of a talent pool and pro-business government policies are some of the main attractions.
"It would be great if there is an incentive for foreign companies to transfer some of their technology to the local players. This could be done by promoting collaboration with local universities in areas related to research and development and being able to commercialise the idea.
"Also, allowing our micro, small and medium enterprises (MSMEs) to be integrated into the global supply chain would accelerate the development of the MSME sector. If foreign companies do this, they could receive some tax incentives," he added.
On the implementation of GMT next year, Mohd Afzanizam said that adhering to this measure would put Malaysia on par with the participating countries.
"I suppose it is the right measure as a country should compete beyond tax to attract foreign investors. That way, it will promote ease of doing business and the government would strive to reduce bureaucracy to attract investment.
"Some studies say tax is not the only consideration when foreign investors are scouting for a place to invest. So, I suppose it’s a good move," he added. - Bernama
