KUALA LUMPUR, July 29 (Bernama) -- Bursa Malaysia rebounded to close higher on Wednesday on selective buying of defensive stocks after a volatile trading session. IPPFA Sdn Bhd director of investment strategy and country economist Mohd Sedek Jantan said consumer products and services stocks lifted the key index higher, overcoming lingering geopolitical concerns. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) rose 3.08 points to 1,715.56 from yesterday’s close of 1,712.48. The benchmark index, which opened 1.91 points higher at 1,714.39, moved between 1,710.79 and 1,720.59 during the day’s trading. In the broader market, gainers outstripped decliners 550 to 476, while 612 counters were unchanged, 1,129 untraded, and 48 suspended. Turnover rose to 2.96 billion units valued at RM2.48 billion from 2.94 billion units valued at RM2.56 billion on Tuesday.
As Malaysia gears up for Budget 2025, all eyes are on the government's expected implementation of the Global Minimum Tax (GMT), set to take effect on January 1, 2025. This tax policy aligns with the OECD Global Anti-Base Erosion (GloBE) Model Rules under Pillar Two, aimed at curbing profit shifting by multinational enterprises (MNEs) to low-tax jurisdictions. The GMT sets a minimum tax rate of 15% for MNEs, and Malaysia plans to adopt a Domestic Top-Up Tax (DTT) to ensure compliance with these global tax rules.
Potential Impact on Malaysia’s Investment Competitiveness
While Malaysia has long been a competitive destination for investments, the introduction of GMT raises concerns about maintaining this edge. According to Soh Lian Seng, head of tax at KPMG in Malaysia, the country may lose appeal if alternative incentives or strategic tax reforms are not introduced. This sentiment echoes fears that MNEs benefiting from local incentives may relocate to countries offering more favorable tax conditions.
Countries like Singapore and Thailand have taken proactive steps to cushion the blow of GMT implementation by offering new incentives and support funds. For instance, Singapore introduced the Refundable Investment Credit (RIC) scheme, while Thailand has set up a Competitiveness Enhancement Fund (CEF) to support targeted industries.
Implications for Foreign Direct Investment (FDI)
The Socio-Economic Research Centre’s (SERC) executive director, Lee Heng Guie, highlights that without Qualified Domestic Minimum Top-up Taxes (QDMTT), the tax revenue could go to another country, reducing Malaysia's competitive edge. As neighboring countries implement tax mitigation strategies, it remains to be seen if Malaysia’s Budget 2025 will introduce similar measures to sustain its FDI inflows.
Lee also emphasizes that, beyond tax incentives, non-tax factors such as good governance, political stability, and skilled labor could enhance Malaysia’s competitiveness despite the GMT.
Support for MSMEs and Technological Advancement
There is a call for additional tax incentives to support micro, small, and medium enterprises (MSMEs) and companies in the technology and innovation sectors. While Budget 2024 provided some funding for automation and digitalization, tax experts argue that more can be done to help MSMEs, which account for 97.4% of businesses in Malaysia but contribute only 38% to GDP.
Suggestions include enhancing capital allowances for automation and increasing deductions for environmental, social, and governance (ESG)-related expenses. There is also a push to enhance incentives for research and development (R&D) expenditures, following examples from Singapore, where businesses can convert qualifying expenses into cash payouts to support innovation.
Conclusion
With the global economic landscape shifting due to the GMT, Malaysia’s Budget 2025 is expected to focus on creating an investment-friendly environment while supporting domestic businesses, especially MSMEs. Whether Malaysia will adopt similar strategies as its neighbors to maintain its competitive edge will be a key point of focus in the upcoming budget.
source: theedgemalaysia
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