KL manufacturers seek tax cut, incentives

KL manufacturers seek tax cut, incentives

Eileen Ng, Agence France-Presse, Kuala Lumpur

Malaysian manufacturers called on Monday for a corporate tax cut and the easing of a rule requiring 30 percent equity in Malay hands as part of proposed measures to boost competitiveness and woo foreign investors.

The Federation of Malaysian Manufacturers (FMM), in a memorandum to the trade ministry, noted a flight of investors to lower-cost countries and said "remaining obstacles to investment" must be addressed urgently.

Total foreign investment approved fell sharply from 18.70 billion ringgit (US$4.92 billion) in 2001 to 11.20 billion in 2002, before recovering to 15.60 billion last year, it said.

Manufacturing growth was anaemic at 1.5 percent a year from 2001-2003, way below the 8.3 percent target for the period 2001- 2005, prompting a cut in the target to 7.8 percent for the remaining two years, it said.

The FMM proposed a longstanding rule for 30 percent equity to be held by ethnic Malays and other indigenous groups collectively known as "bumiputeras" be loosened and viewed in the "overall macro perspective" instead of at the company level.

"The 30 percent bumiputera equity condition should only be imposed on companies when they go for public listing. This would provide easy entry and exit for investors," it said.

The equity rule is part of the New Economic Policy, an affirmative action program drawn up following bloody racial riots in 1969 to help bumiputeras catch up with the wealthier Chinese minority by giving them preferences in business and education.

The FMM also sought a phased reduction in the corporate tax rate from the current 28 percent to 22 percent over five years, with an initial cut of two percent followed by one percent in subsequent years.

It noted that the claimed effective tax rate of eight percent for the manufacturing sector was not across the board and only applicable to companies that qualified for all available incentives.

"Gradual removal of various fiscal incentives in favour of a low and more automatic corporate rate would yield better results in the long run," it said.

In Asia, Malaysia's corporate tax is higher than Hong Kong's 16 percent, Singapore's 22 percent, South Korea's 24 percent and Taiwan's 25 percent. But it is lower than 30 percent in China, Thailand, Indonesia and Brunei, and 32 percent in the Philippines.

Economic rival Singapore has committed to lower tax further to 20 percent by 2005, widening the gap with Malaysia, which also faces stiff competition for investment from low-cost producers like Thailand and China.

The memorandum was submitted during FMM's annual dialogue Monday with the trade ministry on trade and investment issues, officials said.

The FMM called for the threshold limit of 2.5 million ringgit, above which investors must seek approval from the Malaysian Industrial Development Authority, to be increased to 10 million.

It proposed triple deduction on expenses relating to export expansion, research and development, and business expansion so that Malaysia could build its ability to customize production according to market demands and competitive advantage in higher- tech sectors.

As Malaysian exporters were subjected to additional testing in importing countries, it called for international certification and mutual recognition agreements with these market to cut costs and reduce technical barriers.

For utilities, the FMM said there must be standard and transparent tariff rates especially for natural gas users.