The government’s plan to increase productivity, raise incomes and attract more investments
PETALING JAYA: Accelerating its new framework that focuses on ensuring public funds are channeled to bring benefits that touch more Malaysians, the Madani government emphasises one of its three primary cores of Budget 2025 is to “Raise the Ceiling” for Malaysia.
This mirrors the government’s commitment to improve the country’s competitiveness and attraction to investors, which it hopes will lead to improved income for the country and the rakyat.
Outlining its plans for raising productivity, the government highlighted valued sectors such as the electric and electronic (E&E) industry, as well as the green and semiconductor sectors.
Under the New Industrial Master Plan 2030 (NIMP) and the National Energy Transition Roadmap (NETR), these industries will receive tax incentives and other benefits to attract domestic (DDI) and foreign investments (FDI).
The government said a new investment incentive framework will be introduced soon, driving attention to activities that contribute high economic value to the country.
This includes widening export tax incentives to integrated circuit designing, and promoting special tax cuts for private educational institutions to produce courses in artificial intelligence (AI), robotic and financial technology (fintech).
Investment incentives
UOB Global Economics and Market Research senior economist Julia Goh applauds the Madani administration’s efforts, telling StarBiz that one measure that can make a difference is the government’s approach towards granting incentives for investments in target areas.
This is especially pertinent since the New Investment Incentive framework, which will be launched in the first quarter of 2025, is targeted and based on a points system to score higher incentives, she said.
“The requirements to score higher incentives include building local supply chain resilience, investments in digital technology, AI, robotics, internet of things (IoT), data science, fintech and sustainable technology,” she pointed out, adding that this is also to ensure there is positive spillover to the domestic economy to build the country’s capabilities in new growth areas.
She said key incentives that span 20 years are conditional on operations expanding by at least 30%, covering operating expenses, number of key personnel, number of knowledge workers, and environmental, social and governmental (ESG) elements.
As such, she noted that the outcome driven incentives are designed to attract new investments and reward expansionary activities that invest and grow the skilled workforce, as well as enhance sustainability efforts, which she believes is a fair and more strategic approach to achieve the goals under the Madani framework.
The government will continue to develop the country’s digital infrastructure with the execution of 5G technology through Digital Nasional Bhd and the dual wholesale network (DWN), viewing the DWN as a catalyst for increased healthy competition in the information, communication and telecommunications (ICT) sector.
Meanwhile, the Madani administration said the investments in renewable energy (RE) and green tech is crucial to improve the nation’s productivity, as it reveals its desire to channel more investments into sectors such as solar energy and carbon capture, with tax exemptions for corporations that fulfil certain environmental standards.
Nurturing a skilled workforce
In line with that vision, and to future-proof the Malaysian economy, the government is also preparing tax cuts for educational institutions that offer advanced tech courses such as AI, data science and RE, with the goal of building a highly skilled workforce.
IDEAS Malaysia economist and assistant research manager Doris Liew opined that one of the most pressing challenges Malaysia faces is a growing skills gap.
For example, she said the country currently lacks an estimated 60,000 engineers, creating a talent bottleneck that is impeding the ability of industries to meet their operational and innovation needs.
“As a result, businesses are struggling to hire workers with the right expertise, and the workforce is often underprepared for higher-value sectors,” she told StarBiz.
She observes that green tech and RE represent the pinnacle of sustainable development and offer immense potential for Malaysia to become a leader in global sustainability efforts.
“With countries worldwide striving to achieve net-zero carbon emissions and businesses under increasing pressure to meet ESG goals, demand for green technologies and renewable energy solutions is growing rapidly.
“Regulatory frameworks, such as carbon taxes and stricter emissions standards, are further driving this demand.”
With Malaysia already a key player in the global semiconductor supply chain, a central component in the global AI revolution, Liew said strengthening this position further by focusing on AI-supporting industries can create a competitive edge.
“Targeted incentives for startups and businesses in AI-related fields, coupled with efforts to improve infrastructure and ease of doing business, can enhance Malaysia's attractiveness as a destination for AI innovation and manufacturing,” the economist said.
Ensuring financial support
Cementing the path to better productivity, Budget 2025 has also allocated a significant RM3.8bil funding for the micro, small and medium enterprises (MSME), acknowledging their critical role in the country’s economic growth.
The NIMP 2030 Industrial Development Fund will support MSMEs in their transition to higher value productivity, allowing them to assimilate smoothly into the global supply chain.
Concurrently, government-linked companies (GLCs), under the first phase of the GEAR-uP programme - will see six leading government-linked investment companies (GLIC) collectively pledge to invest RM120bil in DDI over the next five years, on top of RM440bil in public market investments under their steady state investment programmes.
GEAR-uP aims to increase strategic investments into local industries, especially in the manufacturing and advanced sectors.
The government estimates that GLCs may invest up to RM25bil in 2025 itself to support industrial growth and the development of new economic clusters.
The introduction of the Global Minimum Tax for multinational corporations (MNC) also aims to ensure these entities contribute fairly to the country’s tax revenue, with the increased income channeled into investments with the objective of raising productivity, such as digital infrastructure and incentives for innovations.
