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Malaysia is looking to position itself as a global investment hub in the Southeast Asia region given the trajectory of its recent economic programs.

Earlier this week, as part of Budget 2022, the Malaysian Government announced a RM40 billion economic stimulus package aimed at driving entrepreneurship and foreign investment. Accompanying this, the government is also expected to provide a dedicated fund of up to RM2 billion to attract strategic foreign investments from multinational companies (MNCs).

Meanwhile, the Ministry of International Trade and Industry (MITI) has also begun drafting the new National Investment Aspirations (NIA) to attract strategic investments with high-value economic impact. This is a growth framework which was approved by the Malaysian Cabinet on 21 April 2021 to serve as a basis for fundamental reforms of Malaysia’s investment environment.

MITI, together with the Malaysian Investment Development Association (MIDA) and its other agencies, will be responsible for overseeing these efforts, which will include a comprehensive review of investment-related policies and restructuring investment strategies at a national level.

Both developments are aligned to the policies and strategies outlined in the 12th Malaysia Plan and will attempt to accelerate post-Pandemic recovery. Malaysia can thus expect to see a further increase in foreign and domestic direct investments, which was recently recorded at RM107.5 billion in the first half of 2021, a jump of 69.8% compared to the same period last year.

Senior Minister Mohamed Azmin Ali attributes this trend to the country’s “capacity and capability in providing high-skilled talents and firm readiness in adopting advanced technology for value-added industries.” He also adds that with the NIA, the country will continue to strengthen its economic fundamentals through the implementation of trade and investment practices that are transparent, and business-friendly.

Malaysia has already recently received an RM 8.5 billion investment from Austria’s AT&S’ for setting up its local manufacturing facility in the country, its first in the Southeast Asian region. These new facilities are expected to create 1,500 jobs among engineers and 4,500 jobs among blue-collar workers locally.

Furthermore, developments of a strategic partnership between MIDA and the Movement of the Enterprises of France (MEDEF) is also expected to complement Malaysia’s NIA through the expanded cooperation between France and Malaysia. According to MITI, French companies are displaying growing interest in continuing partnerships in the country’s aerospace, biotechnology, advanced chemical, medical devices, halal products and the construction sectors.

Based on these new incentives, Malaysia can be expected to attract a greater volume of high-quality investments in 2022, which will not only lead to the creation of high-quality, knowledge-based jobs for young Malaysians but also enhance local industry value chains and small and medium enterprises (SMEs).

The recent endorsement of US President Joe Biden’s proposal for a global minimum corporate tax by the G7 leaders (United States, Britain, France, Germany, Canada, Italy, and Japan) signifies a major step forward for the cross-border global tax regime.

COVID-19 has highlighted the issues of inequalities and fairness all over the world; incidents such as recent news reports on US billionaires and companies paying little to no tax have continued to bring this issue forward.

The Group of Seven leaders that recently occurred in Britain has led to the endorsement of a US President Joe Biden’s proposed global minimum tax of 15% in the countries that multinational companies operate in. As it stands, this amount is lower than Singapore’s current corporate tax rate of 17%. The proposed global minimum tax would apply to global companies with at least a 10% profit margin, and 20% of any profit above that minimum would be taxed.

According to UOB senior economist Alvin Liew, “This deal has to do with updating a tax system to be relevant to a complex, global digital economy.”

The tax is partially aimed at helping governments recoup the billions of dollars they will need to help pay off debts incurred during the COVID-19 crisis and even out existing inequities in society.

Although the global minimum tax has garnered the support of the G-7, it will still have to be discussed at the G-20 meeting, which includes China and India. It will then be brought up at the planned meeting of 139 jurisdictions and member countries of the Organisation for Economic Co-operation and Development (OECD) in Paris.

Should the deal be implemented, each individual tax jurisdiction would need to think about its response, both in terms of legislation and fiscal policy; “In Singapore’s case, this may involve reworking tax and non-tax investment incentives to maintain Singapore’s competitive edge in international business,” said Mr. Sandareswara Sharma, a tax lawyer and consultant at Malkin & Maxwell.

The implementation of this global minimum tax would also cause global companies to rethink their tax strategies, as MNCs can currently legally avoid tax by setting up local branches in countries with low corporate tax rates and declaring profits there. The change would mean that they would no longer be able to only pay the local rate of tax, even if profits come from sales made elsewhere.

Forcing companies to pay tax where they are selling their products and services and preventing countries from undercutting each other in a race to the bottom of the tax ladder through the standardisation of a tax rate has not been welcomed by all.

Entities such as big tech and healthcare players, who will be most directly impacted by the changes in the global tax regime, could see about a 5% higher tax burden. Similarly, tax jurisdictions like Japan, Taiwan, and Ireland could see higher tax rates, with Ireland in particular saying that any deal on a minimum rate must meet the needs of “small and large countries, developed and developing.”

Thus, the negotiation period for the final global tax deal may not arrive until late this year, as nations will need to pass the plan through their respective legislatures. The road to the implementation of the final destination is still a long one.

The full article, as reported by The Straits Times, can be accessed here.