Malaysia - country profile

Malaysia - country profile

Since the 1970s, this middle-income country has transformed itself from a producer of raw materials into an emerging multi-sector economy. Malaysia aims to achieve high-income status by 2020 and to move farther up the value-added production chain by attracting investments in Islamic finance, high technology industries, biotechnology and services. A mountain range runs the length of the peninsula, and most of the country is covered by forests that provide ebony, sandalwood, teak and other wood.

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Twin tower in Kuala Lumpur, Malaysia

Real gross domestic product (GDP) is expected to increase by 5.1 percent in 2014, with an average annual growth rate of 5.5 percent from 2015–2018, up from 4.3 percent a year between 2009–2013.

Key Considerations for Malaysia

Fiscal and monetary policy

The government’s main objective is to raise income levels and transform Malaysia into a high-income country by 2020. One of the two plans to meet this goal is the Government Transformation Programme, which outlines seven initiatives, including moves to tackle corruption, improve education and upgrade rural infrastructure. The other plan is the Economic Transformation Programme that identifies 12 sectors believed to have the greatest potential to boost economic growth. The Tenth Malaysia Plan, a public-spending agenda for 2011–2015, focuses on structural economic change and will support the implementation of the two aforementioned programs. The administration is also expected to place a higher priority on fiscal consolidation.

Competition policy

A new law prohibits two areas of anti- competitive behavior: anticompetitive agreements between enterprises that operate in the same sector (through price fixing, limiting production or bid rigging); and abuse of a dominant position by an enterprise in any market for goods or services. This law empowers the newly established Malaysia Competition Commission to conduct market reviews and investigations and enforce its duties. The law also prohibits the purchase, sale or barter of any ‘controlled’ article without written permission from the Ministry of Domestic Trade, Co-operatives and Consumerism. During 2014–2015, the government should start to reduce its intervention in economic activity. Various government schemes aim to shift reliance on public investment and promote more private sector financing, with stakes in some state-owned enterprises be sold off. In the period 2016–2018, southeast Asian economic integration is expected to increase, which should limit the protection offered to local industries and businesses operated by bumiputera (ethnic Malays and other indigenous peoples). The government’s divestment program is likely to continue.

FDI policy

The government forecasts FDI in 2013 at a similar level to 2011. To encourage higher inward investment, in 2012 the authorities opened up and lifted equity restrictions in 15 services subsectors, and are also trying to encourage financing from emerging economies, mainly India, China and the Middle East. Malaysia generally welcomes foreign investment projects involving transfers of technology, creation of skilled jobs and contribution of capital. There has been considerable progress in liberalizing capital markets, and the country is rapidly establishing itself as a global center for Islamic finance. During 2014–2015, liberalization and deregulation should be used more aggressively to attract investment. The need to compete with China is likely to guide investment incentives, with Malaysia emphasizing its advantages in labor skills, natural resources and infrastructure. Malaysia should expand foreign investment incentives in 2016–2018, to establish itself as a regional services center for high value-added manufacturing and services.

Foreign trade and exchange controls

Malaysia has relaxed or abolished several foreign exchange policies in line with its various capital markets and financial sector development plans. Resident corporations are allowed to: make and receive payments in foreign currency to and from residents; borrow any amount of foreign currency from licensed onshore banks and non-residents; invest any amount in foreign currency assets onshore and offshore; and retain export proceeds offshore. Travelers may import or export up to MYR1,000 (US$300) per person and any amount of foreign exchange. Export duties are generally imposed on Malaysia’s main commodities, such as crude petroleum, palm oil and agricultural and fisheries products. There are restrictions on three categories of exports. In the period 2014–2015, regional trade links are due to intensify as Malaysia maintains an increasingly open trading system. It will also continue with an exchange rate regime characterized by a managed float against a trade-weighted basket of currencies. From 2016–2018, regional economic integration, free trade agreements and the internationalization of the Malaysian banking system should prompt Bank Negara Malaysia (the central bank) to allow offshore trading of the ringgit.

Financing policy

Reforms aimed at restructuring and strengthening the financial services sector are expected to continue in 2016–2018. In the same period, Malaysia should play a leading role in the development of Islamic banking and finance, by expanding the scope of services offered. The liberalization of financial markets is set to continue, with a broadening access to corporate finance.


The current rate of corporation tax is 25 percent. Small and medium-sized enterprises with a paid-up capital of up to MYR2.5 million (US$750,000) are subject to corporate income tax of 20 percent on taxable income up to MYR500,000 (US$150,000), with the excess taxed at 25 percent. Malaysia operates a progressive income tax system: the first MYR2,500 (US$750) of earnings is untaxed, and income above this level is subject to tax rates ranging from 1 percent to 25 percent, with the top rate applying to earnings in excess of MYR750,000 (US$230,000). Following an earlier postponement, the long-awaited single consumption tax (goods and services tax (GST)) is to replace the sales and service taxes in 2015, to broaden the tax base. To narrow the fiscal deficit to 3 percent of GDP by 2015, measures to rationalize subsidies will be initiated, although the target will almost certainly be missed due to political resistance. During 2016–2018, the government should maintain subsidies on essential goods.

About KPMG in Malaysia

In Malaysia, KPMG has approximately 1,900 professionals and 10 offices.

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