JOHOR will pose competition to Singapore when Labuan offshore companies set up marketing offices in the state, but this can only work to Malaysia's advantage if red tape were to be reduced, Ernst & Young Tax Consultants Sdn Bhd executive director Lee Choong San said.
He said the government's budget to develop and enhance the attractiveness of Port of Tanjung Pelepas, Sultan Ismail International Airport and other business entities to transform Johor into a regional hub would enable Labuan offshore companies to export products to global markets, and bypassing service hubs like Singapore and Hong Kong.
It is hard to tell at the moment how the multinationals (MNCs) will react to this but I expect to see some results soon. I think it depends on how fast MNCs restructure and bring their operations to Johor, Lee said at a press conference on Budget 2004 in Kuala Lumpur yesterday.
The government had in Budget 2004 proposed to allow Labuan offshore companies to establish marketing offices in Johor Baru to draw foreign companies and MNCs to the services sector. These companies would be given a tax rebate of the total zakat paid not exceeding RM20,000 or 3% of net profit, whichever is lower.
He said that Labuan offshore companies would still pay a lower tax rate compared to Singapore's current 22%. The island nation has proposed to further lower its corporate tax rate to 20%. Currently, Malaysia's corporate tax rate is at 28%.
He said although Malaysia had low business costs compared to other countries in the region, foreign companies and MNCs had always been sceptical of setting up business in Malaysia due to bureaucracy, rigid rules on hiring foreigners and the expatriation of funds.
National tax director Kenneth Lim, who was also present, said a low tax rate and low operating costs were not the sole determinant to attract MNCs to the country, citing that China's corporate tax rate of 35% did not hinder MNCs from setting up operations there.