By Margaret Lee, Senior Executive Director
PricewaterhouseCoopers Taxation Services Sdn Bhd
Tax incentives will help attract investment to the Northern Corridor Economic Region (NCER) and make it a success.
THE Northern Corridor Economic Region (NCER) initiative was launched on July 30. Agriculture, manufacturing and services have been identified as the key economic sectors involving some RM177bil worth of projects, of which two-thirds are to be undertaken under private finance initiatives and by the private sector.
To make NCER a success, a wholesome approach is required. There is a need for physical infrastructure such as irrigation, utilities and transportation and soft infrastructure such as human capital, funding, incentives and an improved public service delivery system. One of the enablers to achieve the Government’s objectives is tax incentives.
A one-stop agency, Northern Corridor Implementation Agency (NCIA), will be formed. It will spearhead economic and social development together with key stakeholders, while acting as a facilitator between the Government and investors in NCER, hopefully to minimise red tape. To facilitate the smooth running of the NCER, it is hoped that NCIA will be given autonomy and powers to process and approve fiscal and non-fiscal incentives expeditiously.
Agriculture
The NCER is envisaged to become a modern food zone for Malaysia. Commercial-scale farming will be the main activity promoted with the aim of increasing productivity of padi farming. One of the main challenges is the lack of modern infrastructure such as irrigation, canals and effective flood mitigation system resulting in low padi yield. Companies will be encouraged to contribute towards construction of appropriate infrastructure.
Currently, tax deductions are given to contributions made for community projects pertaining to education, health, housing infrastructure and information and communications technology, and approval from the Finance Ministry (MOF) is required, subject to conditions that include:
- The project must benefit the public in Malaysia wholly without any interest to the contributors; and
- The project is sponsored voluntarily and not conditional upon regulations imposed by the authorities.
These restrictive conditions mean that approval may not be given where the community project gives indirect benefit to the contributors. In addition, “community projects” should be widened to include corporate social responsibility programmes, for example, sponsorship of youth programmes, nation building campaigns, etc.
It is hoped that with a relaxation of conditions and widening the definition of “community projects” by MOF will encourage more significant contributions to spur the NCER’s development.
Manufacturing
The NCER is also poised to become a high-tech electronic hub with a focus on higher value-added activities like wafer fabrication and chip design. Several multinational corporations have been identified as key contributors to the development of this hub. It is hoped that among other impetus, enhanced tax incentives such as a 10- or 15-year income tax exemption or Investment Tax Allowance would be granted to these investors to attract them to our shores.
Services
Medical tourism
Penang is currently at the forefront of medical tourism. The Government hopes to draw more foreigners to Penang for various medical treatments including cosmetic and elective surgery. Langkawi will complement Penang by offering traditional therapies and spa treatments, and providing peaceful retreats for patients to recuperate after their treatments.
Currently, the medical tourism industry does not enjoy tax incentives. Thus, it is hoped that the Government will offer enhanced tax incentives such as 10- or 15-year income tax exemption or five-year Investment Tax Allowance for companies involved in medical tourism in the NCER.
The Government should also relax its requirements to entice Malaysian medical professionals practising overseas to return to Malaysia.
Relaxation of requirements to practise in Malaysia, personal tax incentives, and employment permits to be issued expeditiously to returning medical professionals and their families would be a welcomed move. Every effort should be made to eliminate bureaucratic procedures in processing and approving relevant applications if the Government is serious in promoting this incentive.
International schools
Foreigners engaged for their expertise will locate to the NCER. Their children will require schooling at international schools. Introduction of tax incentives such as income tax exemption and withholding tax exemption for payment of technical expertise and royalties would encourage the establishment of more world class international schools.
Construction and management of sewerage systems and highways and bridges
To ensure that there are proper basic public amenities, it is also hoped that pre-packaged tax incentives will be given for companies that undertake construction and management of sewerage systems and highways and bridges.
Lastly, the unwavering commitment of the Government at all levels is critical to ensure the success of an initiative of such magnitude.
This article was first published in The Star on 11 Sept 2007
