- 3 minutes ago
Amid global headwinds and shifting supply chains, how can Budget 2027 position Malaysia for its next growth cycle?
Will we see more competitive tax reforms, new investment incentives, and policies that strengthen business resilience and investor confidence?
Will we see more competitive tax reforms, new investment incentives, and policies that strengthen business resilience and investor confidence?
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00:14Good morning and welcome to Nia Gawani with me Nabila Kalida.
00:17As Malaysia enters the implementation phase of the 13th Malaysia Plan,
00:21policymakers are facing an increasingly complex challenge,
00:25driving economic growth, maintaining fiscal discipline
00:27and ensuring that Malaysia remains an attractive destination for investment
00:31amid a rapidly evolving global landscape.
00:34And against the backdrop of global trade tensions,
00:36supply chain realignment and shifting tax frameworks,
00:39all eyes will be on budget 2027
00:41and the signals it sends to businesses, investors and taxpayers.
00:45So joining us today in the studio is Farah Rosi,
00:47Malaysia Tax Managing Partner at INS & Young EY Tax Consultants at Sunia Merhal.
00:52Good morning Farah, thank you for joining us this morning.
00:54How are you?
00:54I'm good. Good morning Nabila, thank you.
00:56Good morning. Amazing. Thank you for taking the time to speak with us.
00:59So to start, as we see that Malaysia now pursues the ambitions of RMK 13
01:03or 13 Malaysia Plan while continuing its fiscal cost and relation agenda,
01:08how can Budget 2027 strike the right balance between broadening tax base
01:13and at the same time preserving Malaysia's attractiveness
01:17as an investment destination,
01:18especially when we see that the regional company economies
01:22are also offering aggressive methods as well?
01:25Yeah. So thank you for that question, Nabila.
01:29And yeah, we are actually approaching Budget 2027
01:32and when you talk about fiscal policy and reforms or tax reforms,
01:38it's important to have a tax system that is fair, broad,
01:43simple and transparent for everyone,
01:46not just for the local Malaysians,
01:47but also as you have rightly said for investors as well.
01:51And if you look at the past couple of years,
01:56we are seeing various new tax measures that has been introduced.
02:00But at the end of the day,
02:01it is important to ensure that there is business confidence
02:03and amidst the geopolitical tension that is happening around the world,
02:08it is important to ensure that we remain competitive as a country.
02:11But, you know, one thing I have to say,
02:14Nabila, is that there has been a high reliance on tax
02:18as a portion or a fraction or a percentage of the government's revenue.
02:23And you're seeing then that tax as a fraction or the total revenue
02:27has gone up to close to 79% of the total government's revenue
02:32and that comprise of direct and indirect tax.
02:35Direct tax being corporate income tax
02:37and indirect taxes means the usual, the customs, duty, sales tax,
02:42sales and service tax because we don't have GST anymore.
02:45So 79% coming from taxes out of the total government's revenue,
02:50that's a whopping amount.
02:53And if you look at the trend, the last three years,
02:55and I've been following the trend,
02:57maybe more than five years ago, that was about 60-odd percent.
03:00And now, you know, every year, there's a few percentage of increase
03:05of the percentage of tax revenue as opposed to total government's revenue.
03:10So therefore, in my view, it is important to ensure then that
03:14businesses continue to be sustainable, continue to grow, economy prosper,
03:18because without profits, there will be no tax.
03:21So, and that's important.
03:22And on the other point in terms of making Malaysia competitive,
03:26it is important to ensure that everyone, all the countries around the world
03:31is actually looking at attracting investors.
03:34We want the right kind of investment that is also aligned to the country's ambition
03:38and the national agenda.
03:40You look at the new industrial master plan, the NIMP,
03:43or the energy transition roadmap,
03:47and the 13 Malaysian plan.
03:49All those are key economic plan
03:52that is actually driving the country's ambition towards a certain goal.
03:58So, investments that is needed, or FDIs,
04:02foreign direct investment that is needed for the country,
04:04is important to help to propel the country's agenda along,
04:10and it should be along and aligned to the NIMP,
04:14the NETR, the New Energy Transition Roadmap,
04:17or even the 13th Malaysia Plan, Nabila.
04:21And it's actually to foster all the agendas under the Madani Government.
04:27So, with the 15% global minimum tax reshaping investment decisions worldwide,
04:32not just Malaysia,
04:33has the traditional incentive-driven model become less effective,
04:36in your opinion, Puan Farah?
04:38And what new value propositions should Malaysia focus
04:40on this upcoming budget, 2027 tabling,
04:44to actually remain competitive in attracting high-quality investments?
04:48Yeah, Nabila, global minimum tax, or Pillar 2,
04:53to a tax person like me can be a very technical topic,
04:56because the requirements and the technical literature
05:00around GMT, or global minimum tax,
05:03can be very taxing, even for a tax person.
05:07But if you look at the concept of global minimum tax,
05:11it means then that everyone will pay a minimum tax,
05:16and that minimum tax was set at 15%.
05:19And therefore, that means in that a country that provides zero tax,
05:26or very much preferential rate of tax,
05:30our statutory rate is 24%,
05:31So, if Malaysia is actually offering a 0% tax,
05:35because we would like to attract that investment into the country,
05:38we want to incentivize the investor into the country,
05:41so we offer a 0%,
05:44GMT will counter that, will contra that,
05:47because global minimum tax is now saying,
05:49no more zero,
05:50you have to actually impose a minimum tax,
05:53which is 15%.
05:54So, you are absolutely right, Nabila.
05:57That means then that the incentive landscape has shifted.
06:02Tax planning is not as robust as before.
06:05We are not going to advise businesses to plan their structure
06:09so that they end up with zero tax,
06:11but rather, there is a 15% minimum tax.
06:15So, because of that, the incentive landscape,
06:17how countries are actually defining or devising their incentives,
06:22are now, has now changed.
06:25We look at economic substance,
06:27and we look at measurable national,
06:30or national benefits or outcome.
06:32So, that's why we are actually looking at Malaysia,
06:36recently has introduced the new investment incentive framework,
06:40which actually looks at outcome-based incentives.
06:44So, if an investor comes in,
06:47the investor is expected or is required
06:50to show the benefits that that investment is bringing to the country.
06:56So, you can be bringing in a lot of capital, for example,
06:59or investing in highly capital intensive assets.
07:03That is okay,
07:04but how does that translate to the economic benefit
07:08that the country can achieve or can obtain?
07:11and elaborating a little bit on that competitiveness that we're looking at,
07:16and the pillar two, global minimum tax,
07:20is shifting or changing that
07:21because now we have a 15% minimum tax that's been imposed.
07:26Businesses, I mean, the government is actually looking at
07:29the incentive framework,
07:31which is a measurable outcome-based incentive,
07:34and there are six pillars.
07:36It's already been announced recently,
07:371st March, 2026,
07:39whereby it has been launched for the manufacturing sector,
07:44and it will be rolled out in a phased approach
07:47where the government will then introduce
07:49this incentive framework of further guidelines and guidance
07:52to the businesses on services sector
07:55on a phased rollout.
07:58And there are six pillars,
07:59I hope I can name all of them.
08:00One is talent.
08:03So we look at upskilling, reskilling,
08:05having talent that could meet to the industrious requirement.
08:10The second one is to ensure then that there is economic complexity,
08:17but therefore, you're actually encouraging new sorts of business.
08:21There's also the development of supply chain
08:26and domestic supply chain.
08:27That's the third one.
08:28There is also inclusivity to ensure then that the investors comes in
08:34and provide inclusive support to the entire value chain.
08:41And there is also the,
08:43if I'm not mistaken,
08:44the last one is actually on sustainability
08:47because sustainability or ESG is a big topic.
08:50So the investments that comes in
08:52needs to have sustainability, initiatives, efforts, projects
08:56that fits into the country's agenda.
08:58So incentive landscape is now being shaped
09:02to be measurable,
09:04to achieve the national outcome
09:06or the economic outcome
09:07that Malaysia needs as a country, Nabila.
09:10It's actually relieving to see all these positive initiatives,
09:14but there's also one concern
09:15because Malaysia has long offered tax incentives
09:17to actually encourage investment,
09:19yet productivity growth remains a concern right now.
09:21So should budget 2027 that's coming
09:25move towards a model where incentives are tied
09:27to more directly to outcomes
09:30such as productivity gains,
09:32high income job creation,
09:33also innovation rather than just a capital expenditure loan?
09:38Nabila, you're always asking
09:39very good thought-provoking questions, Nabila.
09:44Incentives that is tied to outcome,
09:45as I've mentioned, is very key.
09:47It's very important
09:48because you will be able to actually measure.
09:51It's not just about giving,
09:53but when you give what you get as a country,
09:55because otherwise everyone is actually shopping for incentives.
09:58Investors are also shopping for incentives.
10:00I'll be honest.
10:00If I'm an investor
10:02and Malaysia is offering me 10% tax rate
10:06and Singapore is giving me 5%
10:08and all things being equal,
10:11I might go to Singapore, right?
10:13Or I might go to Thailand, for example,
10:15because they are providing other support.
10:17But as I've mentioned,
10:18incentives needs to be measurable.
10:22If you're giving,
10:23what would be the outcome
10:24that we can expect as a country?
10:26And I've mentioned,
10:28it should be tied to the country's agenda,
10:30to the economic master plan
10:32that we have actually developed.
10:33And it should remain current.
10:36CapEx or capital expenditure
10:38still remains relevant
10:39because I'm a strong believer
10:42of a multiply effect.
10:44Because if investors comes in,
10:46they consume or they buy machineries
10:49or they spend on capital assets,
10:53they will be buying from local suppliers.
10:56They will be buying from domestic producers.
10:58But well, as a country,
11:00maybe we can give some conditions,
11:01for example,
11:02that they must actually acquire
11:04from domestic suppliers
11:06if it is available,
11:08if it's relevant.
11:10And that will allow
11:12the domestic businesses
11:13to also be able to prosper and propel
11:17because they will be able to actually provide
11:19the necessary sales
11:22to these investments.
11:25But one point I'd like to stress also
11:27is in that the incentives
11:29should also consider productivity,
11:32innovation,
11:34I mentioned talent development just now,
11:36R&B, upskilling, reskilling,
11:39as well as technology adoption.
11:41We can't run away.
11:43AI, for example,
11:45the use of AI,
11:46I feel my personal view,
11:48AI is a little bit of an overused word now.
11:51We really need to understand
11:52how AI could benefit the industry.
11:56It's not just a matter of replacing humans.
12:00Someone very learned
12:01actually give coin this word for me
12:03and it's called human premium.
12:05Human beings,
12:06you and I,
12:07we still have premiums.
12:08AI can't replace you and I
12:10because we have other value adds
12:12and we have different kind of intelligence,
12:15maybe for lack of a better word,
12:17real intelligence as compared to artificial intelligence.
12:20So,
12:21the other aspects of investments
12:24that provides productivity,
12:28innovation,
12:29use of technology,
12:30development of,
12:32right use of AI
12:34as well as domestic supply chain
12:36and vendor development
12:38that is also important,
12:39Nabila.
12:40And also,
12:41as per what Donald Trump just said,
12:43lately,
12:44AI to SI,
12:45Supreme Intelligence,
12:46instead of artificial intelligence.
12:48So,
12:48that's how important AI is actually.
12:50So,
12:50we have about three minutes left.
12:52If you can actually share,
12:54if you got the chance
12:55to actually
12:56sort of advise the government
12:57to directly
12:58on budget 2027,
12:59what would be the toughest
13:00trade-off between
13:01strengthening public finances
13:03and actually
13:04supporting private sector growth
13:05at the same time?
13:06And how should policy makers
13:07navigate that dilemma
13:08without undermining
13:10the confidence among investors
13:12and also businesses?
13:14Nabila,
13:15you're asking me
13:16if I were to advise the government.
13:18Okay.
13:19I'm just a rakyat.
13:21One of them.
13:23Maybe my advantage is my tax,
13:25a little bit of tax knowledge.
13:27But,
13:27Nabila,
13:28that's a very good question.
13:29Again,
13:30if I were to advise
13:31the government,
13:33the key is not choosing
13:35between growth
13:36and fiscal management.
13:39The decision
13:40that we do
13:41as a government,
13:43as a country,
13:45needs to have
13:46these three aspects.
13:48One is
13:49to preserve confidence
13:50amongst the people
13:51as well as
13:53the investors,
13:53as well as
13:54the businesses
13:54because we cannot
13:56undermine confidence.
13:57Because if you're confident,
13:59you would do
14:00all the positive things.
14:02You would invest,
14:02you would grow,
14:04you would develop talents
14:06and you're happy.
14:09Because you're confident.
14:11Number two,
14:12we should protect the people.
14:14So,
14:14my advice is that
14:15we should protect people
14:17and it's everyone.
14:19It's not just
14:20the B40s,
14:21the M40s,
14:22whatever you call it.
14:23The T20s
14:24also needs to be protected
14:25because they are the one
14:26who provide employment
14:28to everyone.
14:29The largest organisations,
14:31for example,
14:32they are the one
14:32who are actually
14:35the biggest consumers
14:36and they are
14:38also the engine,
14:39just like SMEs,
14:40the bigger organisations,
14:41the T20s,
14:42are also the engine
14:43of the economy.
14:44So,
14:45there's a saying,
14:45you should not kill
14:46the goose that lays
14:47the golden egg.
14:49And,
14:49they have mentioned
14:50this to you before,
14:51Nabila,
14:51that capital is fluid.
14:54If you don't invest here,
14:56an investor doesn't invest
14:57in Malaysia,
14:58they can always uproot
14:59and invest somewhere else
15:01if they feel that
15:02the environment
15:03is not conducive
15:05to their business.
15:06And the third thing
15:06is then that
15:07we should strengthen
15:09tomorrow's economy.
15:10And that is what
15:11the government is already doing
15:12in terms of the
15:13industrial master plan,
15:15in terms of the
15:15energy transition roadmap
15:16and all that.
15:19and the other bit
15:20is the implementation
15:23of,
15:24I can't help
15:25in my questions
15:27on advice to government
15:28is in that
15:29in the last five years
15:30when I did my analysis,
15:31there has been
15:32eight key tax reforms
15:33that the government
15:34has introduced.
15:35And that has given
15:37a little bit of a shock,
15:39acceptance,
15:39shock acceptance
15:40to the industry.
15:42The eight tax reforms,
15:42if I may name it,
15:43Nabila,
15:44is the invoicing,
15:45the foreign source
15:45income extension,
15:46capital gains tax,
15:47stamp duty,
15:48self-assessment system,
15:50the tax corporate governance,
15:51pillar two,
15:52global minimum tax
15:53that you have mentioned,
15:54dividend tax,
15:54as well as tax corporate governance.
15:56So, eight.
15:57So, how is implementation
15:59of these eight reforms?
16:01Has it given the outcome
16:03that we want as a country?
16:05And again,
16:06we talk about measured outcome.
16:09If the intention
16:09is to collect additional taxes,
16:11have we been able
16:12to achieve that
16:13and has compliance
16:14be made more simple,
16:16easy,
16:17and more transparent
16:18for the people out there
16:20to be able
16:21to actually execute
16:23and implement
16:24and enabling them
16:25to have the right
16:26business decisions.
16:27So, those are the
16:28eight important key points,
16:30but most importantly,
16:31we want to make sure
16:32that no one left behind.
16:34So, that was
16:34Puan Farah Rosi,
16:35the Malaysia Tax Management
16:37Managing Partner
16:38at Ernst & Young Tax Consultant,
16:40Sunia Burhad.
16:40the ones that sharing
16:44our insights earlier
16:45on tax moving towards
16:47budget 2027.
16:48So, as Malaysia charts
16:49into next phase
16:50of economic development,
16:51we want to see that
16:52under 13th Malaysia Plan,
16:54the challenge will not
16:55simply be about
16:55the balancing the books
16:57by ensuring that
16:58fiscal reforms,
16:59tax policies,
17:00and investment strategies
17:01work together
17:02to support sustainable,
17:03competitive,
17:04and inclusive growth.
17:04So, thank you again,
17:06Puan Farah,
17:06for your insights and time earlier
17:07and hope to see you next time.