KUALA LUMPUR: Malaysia is the fourth largest economy in Southeast Asia known for its high labor productivity and diversified economy. Over the years, the country has transformed itself from being a primary commodities exporter into a leading exporter of electrical appliances, electronic parts, and components and natural gas. Moving up the industrial value chain, it has also established itself as an attractive regional hub for services, information and technology, and the logistics sector.
The service sector assumes the largest share of gross domestic product (GDP) accounting for more than 54 percent of GDP and serves as the engine of growth to propel and sustain the country’s economy. Manufacturing, on the other hand, contributes about 23 percent to the GDP. Some of the other major economic activities in Malaysia include the mining and agriculture sectors. Malaysian government took several policy initiatives in 2017. In March 2017, for instance, it launched the world’s first Digital Free Trade Zone (DFTZ) outside of China that aims to capitalize on the confluence and exponential growth of the internet economy and cross-border e-commerce activities. The DFTZ is expected to double the growth rate of small and medium enterprises’ goods exports to reach US$38 billion and facilitate US$65 billion of goods movement via the DFTZ (exports, imports, transshipments) by 2025. More than 2,000 small and medium enterprises stand to get easier access to the global market, especially the Chinese market, through the DFTZ. The DFTZ is also expected to generate 60,000 new jobs in the country by 2025. In its 2018 budget, the government announced wide-ranging incentives to support businesses, including capital allowance for ICT equipment and software, GST relief on services provided by the local authorities, and extended application period for principal hub tax incentive among others. The principal hub tax incentive aims to increase Malaysia’s competitiveness as the global operations hub for multinational companies by offering tax exemptions to companies that set up their global operation centers in Malaysia. The budget also announced personal income tax cuts as well as several cash handouts that would allow more money in the hands of consumers and help Malaysia develop into a high-income economy.
