FMM: Need to enhance business environment


Emphasising a point: (from left) FMM vice-president Datuk Nathan K. Suppiah, Soh and vice-president Jacob Lee Chor Kok at the briefing.

KUALA LUMPUR: The Federation of Malaysian Manufacturers (FMM) expects better business conditions in the first half of 2024 (1H24) but rising costs, especially from taxes and falling ringgit value, remain a major concern.

FMM president Tan Sri Soh Thian Lai is urging the government to revise and look into various considerations to enhance the business environment.

Soh has called for an extension of the deadline for employers in the formal sector to bring in foreign workers, pushing it back from the current May 31 to Sept 30.

He explained that the entire process of hiring foreign workers, from sourcing to bringing them into the country, takes at least four months.

Soh emphasised this extension is necessary, especially within the electrical and electronics sector, to prevent a shortage of workforce from limiting economic growth.

“We don’t want a shortage of workforce to limit our economic growth,” he said, while stressing the importance of achieving maximum output and higher productivity.

When industry growth and policies differ, Soh said investors might lose confidence, emphasising the importance of advocating for credit, consistency and certainty.

“The key is having the right policies, the right environment and the right decisions by the government. Let’s not confuse the industry,” he added.

Additionally, Soh raised concerns on the service tax increase for logistics, which is said to be causing a cascading tax situation.

Prior to the 2% increase, he said the cost incurred for the service tax was 7%, but it has now risen to 12%.

Through a survey conducted with over 600 manufacturers, Soh said that approximately 80% of respondents expect to pass on the new tax increase to their products.

Soh suggested that instead of introducing new tax schemes such as low-value goods tax (LVGT), high-value goods tax (HVGT), capital gains tax (CGT) and an increase in service tax, the government should stick to a single tax system, proposing the reintroduction of the goods and services tax (GST).

He highlighted that the government is looking to collect about RM35bil from the sales and service tax and an additional RM10bil from other taxes, including LVGT, HVGT and CGT, totalling around RM45bil.

However, he pointed out the implementation of the GST in 2017 managed to collect about RM55bil.

“This (the GST) is simpler, fairer and transparent. It is also easier to manage. Of course, there will be an impact on the rakyat. Having a single tax for the long term is beneficial for the country to move forward economically,” he noted.

Soh also proposed the government establish a fund to offer financial assistance to small and medium enterprises (SMEs) for complying with global environmental, social and governance (ESG) standards, recommending an initial size of RM2bil.

With ESG compliance regulations being established globally and SMEs contributing between 10% and 20% to exports, totalling in billions, he said non-compliance could deprive them of export opportunities.

Furthermore, he highlighted that banks are increasingly requiring borrowers to comply with ESG standards.

Looking ahead, Soh said manufacturers expect business conditions to improve moderately in 1H24, as indicated by the FMM Business Conditions Index (FMM BCI).

“Although we faced many challenges in 2H23, there is an improved trend for our manufacturing activities,” he said, noting the improvement seen in most indicators.

While indices such as business activity, local sales, export sales, production volume, capacity utilisation and capital investment have shown improvement, he noted a decline in the number of employees index from 101 points in 1H23 to 98 points.

This decline is attributed to employers’ caution due to a rising cost environment, including human capital, utilities, tax costs, coupled with the depreciating ringgit.

Moving forward into 1H24, Soh expressed optimism among manufacturers regarding both local activities and tourism.

However, concerns about rising costs persist, as 65% of surveyed manufacturers expect higher production costs, attributed to increased input costs from the aforementioned factors.

He also highlighted the impact of the depreciating ringgit on manufacturers, given that about 55% or US$150bil of the annual import goods totalling US$250bil are intermediate goods.

Despite the moderately positive outlook for 1H24, Soh said manufacturers recognise weak demand as a challenge to business operations and growth in 2024. He attributed this concern to external geopolitical tensions posing a risk to demand.

However, citing the International Monetary Fund’s projections, Soh said the global economy is expected to grow by 3.1%, indicating a positive overall trend.

The FMM BCI, which indicates the business confidence factor among manufacturers, is released semi-annually by FMM.

For the 24th edition, the survey wrapped up 2H23 and exposed the outlook for 1H24 from 613 respondents from 16 sub-sector nationwide, with about 67% consisting of SMEs and the remainder comprising large corporations.

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FMM , taxes , ringgit , Soh Thian Lai , GST

   

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