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An improved taxation structure with emphasis on a more business-friendly environment by the government is vital for the country before proceeding with any bilateral free trade agreement (FTA).

Associated Chinese Chamber of Commerce and Industry of Malaysia VP for economics research Koong Lin Loong (picture) said Malaysia’s taxation structure needs to be revamped — particularly the corporate tax, which is relatively high compared to other neighbouring countries such as Cambodia, Vietnam and Indonesia.

“The government should also utilise the Goods and Services Tax collection of approximately RM43 billion to date to empower local businesses to grow and become a regional hub, in order to spur more foreign direct investments (FDIs) to enter the country,” he told The Malaysian Reserve (TMR).

Koong said there has been a lot of emphasis on operating expenditure over the previous budget cycles, with no concrete structure to aid businesses to be part of the international arena.

“Our infrastructure cost is one of the main factors to drive more FDIs into the country, as it is relatively cheap within the region. That is why it is crucial to strengthen our local businesses to be on par with the international players,” he said.

Prime Minister Datuk Seri Mohd Najib Razak announced yesterday that Malaysia is expected to consider an FTA with the US, if the Trans-Pacific Partnership Agreement fails to materialise. The FTA has been postponed since 2008.

As such, Koong said, should the internal restructuring exercises focused on corporations take place, the potential FTA agreement with the US would definitely boost Malaysia’s overall economic growth.

MIDF Amanah Investment Bank Bhd chief economist Dr Kamaruddin Mohd Nor said an FTA with the US is also expected to contribute to an improved trade performance.

“A successful FTA would provide better market access, as well as reduce tariff and non-tariff trade barriers, which would directly improve the performance of export-oriented products.

“It would also provide us with a better position ahead of our competitors in terms of exports,” he told TMR.

Kamaruddin added that the total trade performance with the US accounts for approximately 8%-9% of the total trade.

The majority of Malaysia’s exports comprise manufactured goods such as electrical and electronic (E&E), pharmaceutical, rubber and machinery products, which are also key export products to the US.

“Currently, we are very selective with our incoming FDIs, which are largely focussed on innovative technology and high services investment,” he said, adding that 65% of Malaysia’s total exports consist of FTA countries.

According to the International Trade and Industry Ministry, Malaysian exports grew 21% year-on-year to RM451.1 billion for the first half of 2017, as export products across key segments expanded at an average of 22%.

Asean has remained Malaysia’s largest export destination with RM131.9 billion worth of exports, followed by China (RM59.8 billion), the European Union (RM46.4 billion), the US (RM43.3 billion) and Japan (RM37.7 billion).

Total trade stood at RM859.2 billion, 22% higher versus the same period last year, while imports improved 23.3% to RM408.1 billion.

Import products in the E&E, chemicals and chemical, machinery, petroleum and transport equipment segments posted an average growth of 25%

Souce : The Malaysian Serve