Tax holiday may lift economy


MALAYSIA has been trying to become a developed nation for the past several decades. Perhaps after all this time we need a strategic shift in how we manage our economy.

The government’s public debt is reaching 70% of our GDP, and this will definitely affect our economy and the confidence of foreign investors. Malaysia needs to be more competitive in international trade to increase our exports. And the government has a big role to play in this.

In South Korea, during the 1960s, authoritarian leader Park Chung-hee was convinced by Samsung Group pioneer Lee Byung-chul to give lenient tax breaks to Korean companies. As a result more companies began investing in new business.

Perhaps Malaysia could emulate that: Instead of imposing a windfall tax on the currently ultra-profitable glove manufacturers as some have suggested, the government should instead consider conditional tax exemptions for a period of time and mandate them to utilise profits to acquire other glove producing facilities and rubber estates in foreign countries to help Malaysia corner the rubber gloves market globally.

This could reap much more in taxes and greatly enhance Malaysia’s trade balances.

Ultimately, as exports increase, our GDP will be higher, leaving more space for statutory debt limits.

South Korea’s success is attributed to clear financial goals and cooperation within the country’s industries as well as the political will to enhance the country’s competitiveness.

Malaysia faces a huge challenge in terms of political will and looking outwards. We need to put aside differences and be a unifying force focused outwards rather than inwards. We need to earn money from overseas, not internally. That example of the industry focus can be applied not just to glove manufacturing but to other major export industries such as palm oil, manufacturing and the electrical sector as well.

At the same time, education must be given utmost importance by the Malaysian government. To attract and retain talent, Malaysia should better fund public universities, especially research universities, and prioritise research and development while also enhancing the curriculum in secondary and primary schools. English should be prioritised – while retaining Malay as the national language, of course – because of the global acceptance of the language in business and research.

The late Lee Kuan Yew attributed Singapore’s success to its investment in education. In fact, the island nation spends 20% of the national budget on education alone; Malaysia spends a mere 4.5%. We have seen local public universities offering research assistants a disgraceful starting salary of just RM650, whereas in Singapore a similar position offers S$3,000 (RM9,000), a sharp 1,300% in difference. How do we expect to retain talent or to build new talent when our country’s education system is not being funded appropriately?

The government’s injection of stimulus packages as well as long term strategy should focus on this as well. Economists have long believed that investment in education, or “human capital”, is an important source of economic growth. In fact, prevailing studies show that education contributes at least 15% to 30% of a country’s GDP growth (Brookings Institution, 2006).

We hope that the new Malaysian government will readjust its strategy and assist local industries to compete with their foreign counterparts, thus increasing exports and encouraging local demand. We also hope the government will invest more in the education sector to develop our country’s human capital and, in turn, our GDP, which will be crucial in the long term for better government budgeting and better trade balances with a stronger currency.

CRITICAL MALAYSIA , Critical Malaysia is a not-for-profit think tank advocating on crucial issues surrounding Malaysia’s economy.

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