Niaga SPOTLIGHT: Belanjawan 2027 | From incentives to impact

Name: Niaga SPOTLIGHT: Belanjawan 2027 | From incentives to impact
Uploaded: 2026-10-09T00:30:00+00:00
Duration: 25 min 48 s
Channel: AWANI

00:08Hello, I'm Tamina Khosji and this is Nyaga Spotlight. Today our Spotlight is on the lead

00:12up to Budget 2027 and focusing on incentives to impact. Budget 2027 will be adjudged not only by

00:19how much support it will be offering our businesses, but also by what exactly that

00:22support is capable of delivering. So will tax incentives unlock investment that would not

00:28happen otherwise? Or does digital funding improve productivity or is it simply paying for more

00:34software? And very importantly, of course, are Malaysian firms, suppliers and workers capturing

00:41enough of that value? Welcoming to the studios for this very timely pre-budget tabling discussion,

00:47Gan Pezi, who is International Tax and MNA Head at PricewaterhouseCoopers PwC Malaysia,

00:53together with Dr. Chris Daniel Wong, Emeritus Chair at the Malaysia Digital Chamber of Commerce,

01:00MDCC. A very good morning to the both of you. Thank you so much for making time.

01:04Hi, morning.

01:05Fantastic. So Pezi, perhaps if we could get started off by looking at how Malaysia can better judge

01:11whether incentives are actually working. So the government also is saying that Budget 2027 will

01:17be looking at especially strengthening investment incentives. And this will also depend on many

01:23other results, including there's productivity, skilled employment, there's local suppliers and also

01:29technology transfer all in the mix. So some initial thoughts around this, Pezi.

01:35Yeah, sure. Hi. Good morning, everyone. So I think the government has actually now introduced a different

01:41incentive framework, the new incentive investment framework, which is very impact-based in itself.

01:46So I think it actually addresses exactly the question here is how do we know if the incentive has worked

01:51for Malaysia and also how has incentive worked for the company, right? So I think compared to the

01:57previous incentive regime, which is more based on conditions and maybe based on location, this is

02:03more about the impact that the incentive has as well as what is the impact to the country in order

02:11for the

02:11company to be granted the incentive. For example, you know, does it create more jobs? And that is then being

02:17assessed by the number of employees. If there is actually meant to have a technological transfer,

02:23then what sort of a transfer has happened and what is the benefit from that? So that is from an

02:27impact

02:28perspective to the value chain in the economy. To the company itself, how do we know if the incentive has

02:35worked?

02:35So clearly it is whether we see more participants in that field, especially in the sector that the

02:40government wants to encourage, which is moving on to higher value services, for example. And we see more

02:47companies designing things in Malaysia as opposed to just to be using things that is being designed

02:53elsewhere, for example. So I think that would be how the new era of incentive will be, where I think

02:59most

02:59countries are also moving towards, which is to be more focused on the impact and on the outcome.

03:04And speaking of new era, I have to ask you then, Paisi, so also in a really fluctuating, broader global

03:11economic supply chains and a lot of different various issues, cascading impacts of climate, etc.

03:18occurring. So global demand as well as fluctuating exchange rates are going to really come into strong

03:24focus over the next couple of years and possibly pretty much on a permanent level. So within that,

03:30how can the government and administrations in Malaysia also keep looking at the framework being

03:35flexible enough as well?

03:37Yeah, so I think the key word here is flexibility, I think as well. And that really translates to fluidity

03:42and adaptability. How well we, because I think the only thing constant is change. So it would have to be

03:49something that allows for it to be reassessed and to examine whether it has already achieved the

03:55objective. And also if, for example, if there is certain events that occur, which require funding,

04:03for example, then would it be more in terms, not necessarily a fiscal incentive, but more for

04:09flows management, that sort of incentive, because incentive is not necessarily just fiscal in itself,

04:15like a tax break. It could be in terms of a grant or it could be in terms of more

04:20flexibility.

04:22Like MDAC has a range of incentive under the Bill of Guarantees, which is not limited just to tax,

04:27but it's all part of the same, you know, to basically is to accelerate the economy and also to be

04:33flexible enough to cater to anything that may be thrown our way that we may not have been prepared for.

04:38I mean, in this new era, that is going to be an expected part of doing business anywhere in the

04:43world,

04:43not just in Malaysia. Absolutely. And moving from there, of course, into all things digital.

04:48Dr. Chris, let's look at how usually government digitalization programs, they have traditionally

04:53been assessed by looking at basically how many business have gotten their funding,

04:58attended the training provided, or even acquired some new technology. But such figures do not

05:03necessarily inform us exactly of whether the technology has proved useful or is improving productivity.

05:10In the opinion of MDCC, looking at Budget 2027, what should the targets that we are looking to be fulfilled

05:20so that we can also take into context that digital adoption is fantastic for Malaysian businesses,

05:26but impact is the next one, right?

05:28I believe that digital support should be measured by business improvement.

05:34I think just now we mentioned about impact. Impact will actually have an actual value creation after that.

05:42So the number of grants approved, training sessions conducted, software licenses purchased by the SME or micro SME,

05:51those are important. Those are the first steps. But then moving on, what are the improvements?

05:57So we have never really measured that. And I think if you're talking about impact and then we're talking

06:02about the actual value being created, right, then only we can access whether have we or the businesses

06:08reduce operating costs? Have the employee productivity improved? Now, in the developed world, we access employee

06:19productivity by per person, but we have not done it here, right? So digital is supposed to assist businesses to

06:26improve

06:26and also to assist and to measure the productivity of per employee, per human capital, right? So that all this

06:35thing will shorten the processing time, reduce errors and also help the businesses to enter market.

06:42So I believe that when we talk about funding grants to actually transform the process, it's not only about software,

06:51it's not only about just training, but it's also what I mentioned just now, the measurable part. So we have

06:58gone beyond

06:59the COVID years where we encourage digitalization in 2020, 2021, 2022, 2023.

07:05That was just pure survival.

07:07That was just pure survival. We were in very manual mode of doing business. And then we move on into

07:14digitalization. And now, what I always say now is that we move on into advanced digitalization.

07:20Right. Advanced digitalization.

07:22So as we move on to advanced digitalization, we need to incorporate what I mentioned just now earlier.

07:28Absolutely. And when it comes to incorporation as well, let's now move into looking at the wider ecosystem

07:35and whether tax deductions are able to reach businesses that would actually benefit the most

07:40from them. So it pays smaller businesses, limited cash, little current taxable profit. Those are their

07:46usual parameters and constraints, right? But current tax measures may not really be able to influence what

07:52they will actually be doing investment decision wise. However, when can a tax deduction actually

07:59prove to be the right tool? And when would a grant or affordable financing or perhaps shared technical

08:05support actually be the better targeted allocation?

08:10So I think for a lot of the smaller businesses, I think it also depends on which part of

08:17which part of the evolution they're at. Because of course, as they grow, at some point, what you actually

08:23need is maybe more financial support. But at some point, when you're looking maybe to internationalize

08:29or maybe to expand, and in that sense, you expect the profitability to also increase. And we want to

08:35be incurring more expenses, to be doing more like feasibility studies, incurring more R&D costs, for example,

08:41because you've actually moved up that chain. Then in those situations, then a deduction may be a better

08:48option for them. Because from a tax perspective, you can get a deduction for things which may

08:53typically not be tax deductible, which are capital in nature. Most generally, you get a tax deduction

08:58when things are revenue in nature. But capital in nature, meaning we are trying to create something

09:03new. And it may not necessarily qualify for deduction. In those situations, a deduction would

09:08definitely be helpful, because there's a direct hit against the bottom line. It brings down your taxable

09:13profit. It is a way to support them in their aim to get bigger, faster, better. For depending on

09:22where they are, like, for example, you were saying shared services, or maybe a different sort of support,

09:28then it looks at which part of that growth that they are at. If they were to venture into something

09:35new, into new areas. I mean, Malaysia, although we definitely want to move out to the value chain for

09:41services. I mean, a big part that I think the government is also pushing for is for smart

09:44agriculture, smart agro, smart fishing. Absolutely. Food security is such a huge

09:48big part of the picture. Such a big part of the picture. And we definitely do have the resources.

09:52But how to make that better, different, modern, more automated, you know, more advanced digitally.

09:59That may not initially be a profitable. There may be a steep J curve. So in those situations,

10:04that it may not be deduction based. It is more maybe grants or, you know, some sort of support

10:11in terms of training, for example. So then, so to me, it actually looks at what sector they are in,

10:17and also which part of the, I guess, which part of the development stage they are at. And that would

10:24be how I would want to assess that, which is why the framework, again, it is impact is very general,

10:30but is to say, to lead you to the impact that you want, what is the correct incentive for that

10:35company at that point in time. So the incentive should be prescriptive in a way, but not just

10:41limited to just one. So for example, you can see that a lot of our incentive is either an exemption,

10:46or it's an investment tax allowance, which is to give you additional tax depreciation because you

10:51incur a lot of KPEX. But you may not be profitable yet at that point in time. So income tax

10:56exemption may

10:56not be so helpful. So those are the kind of things that I think we have been doing, and we

11:01need to

11:01do more of that and be more nimble to change, you know, to adapt to technology as well as to

11:08all these

11:08changes that we were talking about in a few minutes earlier. Yeah, correct. That optionality is really

11:13essential because it not only helps the smaller businesses follow a sustainable growth path, but

11:19also it helps them with cash flow. Grants, for example, can also inadvertently create a cash flow

11:25gap at the same time. So businesses are juggling plenty of factors and at the same time optionality

11:32helps to keep them afloat. Paisi, as well as Dr. Chris, thank you so much for the interesting

11:37discussion so far. We do take a quick break. We'll be back right after with the rest of this

11:41pre-budget 2027 discussion. Don't go anywhere.

12:05Hello and welcome back to Niagara Spotlight. Still with me, Tamina Kausji. And this pre-budget

12:09Blanjawan 2027 discussion focuses on from incentives to impact Rive in the studios together

12:15with PwC Malaysia and Malaysia Digital Chamber of Commerce MDCC. Dr. Chris, now moving straight into

12:22one deep bugbear when it comes to allocations, especially for anything in the digital ecosystems,

12:29and looking at whether businesses and the encouragement to adopt AI, which of course is a great productivity

12:36enhancer. But could it be happening before businesses, especially the smaller ones,

12:41are quite ready to acquire the technology, but then the utility of that when it comes to their

12:48day-to-day and even their workflow formats? Some initial thoughts from what MDCC has been observing

12:54over this past year at least.

12:55I do believe, yes, businesses at all kinds of levels need to adopt AI. But AI will just not solve

13:06weak

13:06processes or business process. AI is just a tool actually that we use to make us to perform better

13:15in our work. So the real key challenge here is disconnected systems, fragmented systems, not only in SMEs,

13:26small businesses, but also in businesses that are large enough, have satellite offices around.

13:34Their data is disconnected, poor reporting, and then one outlet or one office will have a different

13:42system as compared to the rest. It still happened until today.

13:45Uniformity is lacking.

13:46Yeah, there's no uniformity as you mentioned. So if you look at the Budget 2027, it should support

13:53businesses that is in different stages. And I think SME Court has done well in the past and present.

13:59They have the scoring system for the SMEs. So based on those tiers that the SME is in,

14:07then only we know what kind of support that we should roll out to these businesses. Then only then we

14:15can identify the workflow that they need to be. So it's no longer just training. It's no longer just

14:21funding, but it's to identify the gap. We have no national study that actually have done a study that

14:29to show the gap of where all these businesses are in. Now MDAC have tried to do in the past

14:34digital

14:35readiness. They have that scoring charts and quite a number of thousands of businesses have

14:40participated. But I think we need more than that. Not to say that's not good. That's good.

14:45But we need more than that. So the objective is not just to encourage businesses to buy into AI

14:52software or AI tools, but it's to help them to adopt the right technology at the right time. And when

14:59the

14:59time has passed, they have to adopt newer technology. They need to migrate to different software. They

15:06have to. Sometimes you have legacy issue as well. Sure. Right. Owners doesn't want to migrate because

15:12they tell you know, you want, you want to compile the data and move to another server. It takes that

15:18first step. So it happens. It happens. But that is what transformation is all about. It's a continuous

15:26process that doesn't stop. And it seems we Malaysian businesses are not quite resilient to that yet.

15:34We are very resilient when it comes to calamity. We are very resilient when it comes to traffic jams.

15:39Right. But when it comes to IT adoptions and renewal, we are not quite there yet. So we need to

15:45change the

15:46mentality. We need to look into the gap. We need to publish a national statistics on these things so that

15:52we

15:53know where we need to move on. That sequencing is really important so that the business can in stages,

15:58as you say, go from getting the simple digital use and having advanced automation. Thank you for that, Chris.

16:05Pacey, so let's look at tax now and how it may become maybe an obstacle to a commercially otherwise useful

16:13and

16:14sound deal. So manufacturers, for example, may be acquiring other businesses to obtain technology

16:19stack and to an export market or perhaps even preserve a viable supplier who is facing generational

16:26change. But however, since March 2024 onwards, disposals of unlisted shares by companies and certain other

16:33entities have come under the capital gains tax framework. Tell us more around this. Yeah. So I think

16:39with the introduction of CGT, I think it means that restructuring within a group. I mean,

16:46there's a few ways that we can restructure a group in Malaysia. One is that you transfer the business

16:49or you move the business around or you can transfer the shares. But of course, now with CGT,

16:54it means that once you move that box, there's actually going to be a CGT event. It needs to see

16:58whether there's actually any CGT paid. But that is definitely an issue that I think companies are

17:03looking at and considering even to do group restructuring for efficiency purposes, right?

17:09There is actually an exemption order for restructuring, but there are certain limitations

17:13to that. There are certain conditions to be met. So it would be good if I think that can be

17:18looked at

17:18how that can be meant to facilitate more of this sort of efficiency purposes. What exactly is required

17:25to show to be able to enjoy that exemption? Because that is definitely one of the questions that we

17:32get a lot from a lot of companies who are looking to do that. In addition to CGT, which is,

17:38I would say,

17:39something new, there is also now with stricter implementation, stricter enforcement, I would say,

17:45of our STEM duty. Because once we move anything around and there's any instruments for that,

17:49then there is also STEM duty to be considered. These are all transaction taxes, I would say.

17:56Whether it's capital gains tax or STEM duty or real property gains tax, if you're going to be moving

18:00real property around. So is there a way to help facilitate companies looking to restructure,

18:09to optimize the efficiency within the group that perhaps it can be looked at in terms of the

18:15incentive framework and the exemption framework to make that more achievable and easier for

18:21more companies to be able to utilize it? They are, but I think there is always some

18:28lack of clarity about how certain it would be to be able to get the exemption. So I think that

18:33is

18:33something that we do see a lot. Hopefully that can be addressed. I think that's definitely on the wish

18:38list of many Malaysian companies as well. All this sort of transaction taxes that may potentially be

18:45a cost in order for them to try and optimize efficiency within the group. Exactly. It's all

18:50about making Budget 27 a lot more deal and investor framework friendly as well, so that everyone can

18:57thrive despite certain constrained global markets as well. So Chris, moving into looking at digitalization

19:04and certain risks that are involved with potentially smaller suppliers being left out of major supply

19:12chains. Now, larger companies, they increasingly require a lot more vetting when it comes to live

19:19information on stock delivery, as well as product origin and quality standards, regardless of which industry

19:24we're looking at. So these requirements, they certainly improve efficiency, but also the systems,

19:31as well as the framework and the technical know-how required to provide this for smaller firms,

19:37is actually, can be rather overwhelming. So in your viewpoint from MDCC, what responsibility can larger

19:45buyers take for helping the smaller suppliers, but still essential, make this necessary transition?

19:52If you look at the current supply chain, there are quite a substantial number of smaller businesses that have been

20:03excluded

20:05from the tender process or from the procurement process. And it goes back to what I mentioned just

20:12earlier, the disconnected of data. Big companies, or I would say the people that offer the tender,

20:21has their own digital data platform, where the smaller businesses or the mid businesses does not have access to it.

20:30Just give for example, government has its own tender portal system. So everyone subscribes to it,

20:38you access to it, and then you'll be able to get the latest tender, and then you fill in the

20:43tender,

20:44put in the appendices, and then you upload it, and then that's it, you bid for the tender.

20:48Some big companies, government-linked company or MNC, has that as well. But most of the MNC company doesn't

20:57have that. So it runs on silo. So when it runs on silo, this kind of businesses struggle to get

21:04real-time

21:05information. So what we could do is to think out of the box where large buyers, large companies,

21:13should actually take up a social responsibility. The ESG is the S component. The social responsibility

21:21to businesses where they provide common technical standards, onboarding onto the system, support of the

21:28system, and have a longer-term purchasing commitment. So that when businesses access to their portals,

21:36on the same landing page, there's a possibility of seamless information that both parties can share

21:43together. One-stop shop, you know. Yeah, one-stop shop. So we always blame the government for not having a

21:49one-stop shop. But we are never taught that the private sector needs to do the same.

21:55Mm-hmm. Exactly. Streamline their processes visibly.

21:58So you have to go on tandem because, and as we can see, government has cut on on spending.

22:04So, but, but GLC has increased their spending. So it complements government spending as well,

22:10and, and the large companies. So, so, so they have to, they have to, you know, onboard people onto

22:16their platform so that, and I, I don't say that they don't do it, but not all, not, not majority

22:21of

22:21them actually. It's only a small, uh, that brings everybody who has been left out back into the world.

22:27That's correct. Yeah. So, so the objective is not simply to digitalize SME, but also to digitalize

22:33the process between the big companies together with the mid and smaller companies. Yeah. So that's why I

22:41say advanced digitalization. There's a lot of process thought that we need to put into it to make it happen.

22:45And also ensuring that the coverage is more equitable as well, not leaving out businesses

22:50in East Malaysia or on the, um, different corridors around Malaysia as well. Uh, now Pacey,

22:57speaking of tax rates then, as companies are assessing investment locations, what factors are

23:02also becoming increasingly important alongside tax considerations? So I think, um, for, well,

23:09I think if you look at both international investors as well as our local investors, aside from a tax rate,

23:14the thing they look at first off is also workforce, uh, employability of the people. Um, I think that's

23:20quite an important, and that's why Malaysia has been an attractive, um, place for investment because

23:26I think of the, um, the standard of education here that, uh, in terms of the language skills. Um,

23:43that is something that is definitely key. Uh, every time we speak to investors that in addition to

23:48deciding on a place, they want to know, um, what is, uh, what kind of people that we can employ

23:52with

23:52the kind of skill sets that we need. So I think that's one. I think the other thing also, um,

23:57is, um,

23:57good logistics, um, access, um, uh, obviously when you look at, uh, those, um, developed, uh, industrial

24:03areas is usually has all the utilities already, um, with, uh, good access to, um, roads, um, and

24:09depending on the nature of the business, if it's export oriented, how close it is or how easy it is

24:14to get to a place where your goods can move. Um, I think those are the kind of things that

24:18people

24:18look at when deciding on location, which is also part of, um, the whole exercise and policy that drives, um,

24:25corridors to make sure that they are connected. I think the word is also connectivity. If you're

24:30not that close, how do you make it closer? Um, how do you ensure your logistics are smoother?

24:35Correct. That's right. It does not mean that you need to be right at the port, but how do you

24:38get

24:38there in the shortest time possible? Because there could be other things that, um, that it's always

24:43a balance, right? The closer you are, perhaps then there's less space. Um, it's the kind of business

24:47that you're in, you require large space, you may need a little bit further, but as long as it's

24:50accessible and reachable within the time that is required, it still remains an attractive, um,

24:56area for investment. And I think that's how, um, to facilitate, um, investments in specific areas

25:02that may not have been, um, been so attractive in the past. I think that is how we would need

25:08to make

25:08that work in that sense. Thanks very much. Paisy, as well as Dr. Chris, thank you for the fantastic

25:13discussion and all the insights regarding investments to impacts pre-budget 2027. Well,

25:18the real measure measure of budget 2027 will not be how many incentives that are announced,

25:23but whether businesses can use them and how exactly whether Malaysians see the return through

25:28stronger firms, better jobs, and even more value created at home. That's all we have time for

25:33today. I'm Tamina Kausji. Thank you for watching Niaga Spotlight. We'll see you again next week.

Niaga SPOTLIGHT: Belanjawan 2027 | From incentives to impact

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