KUALA LUMPUR: Foreign investors have to deliver greater benefits to local businesses through stronger supply-chain links, as the government seeks to tie investment incentives more closely to economic outcomes, said Entrepreneur and Cooperatives Development Minister Steven Sim Chee Keong.
He said the government wanted to ensure that large investments generated wider economic benefits for Malaysians, particularly small and medium enterprises (SMEs), through greater participation in supply chains and opportunities to become vendors to larger companies and multinational corporations.
“We want to make sure that all these big FDIs coming in will benefit Malaysians, will benefit locals, small businesses and companies,” he said at the Grant Thornton Tax Seminar on Budget 2027 here yesterday.
Sim said the government had begun moving towards this approach through the New Incentive Framework (NIF), under which investors would receive incentives based on their ability to meet key performance indicators (KPIs), rather than obtaining the full tax incentive upfront.
He contrasted this with the previous approach, which he said as allowing investors in sectors on a positive list to qualify for a 100% tax break.
“In the past, we used to have a positive list of investors. Foreign investors came in. As long as you met one of these positive-list sectors, you got a 100% tax break.
“But today, under the NIF, we say: we don’t give you 100% first. We give you a certain amount. Then you meet certain KPIs,” he added.
Among the outcomes cited by Sim were the creation of high-paying jobs for Malaysians and the development of local vendors, domestic supply chains and SMEs.
He said investors that met the relevant KPIs could qualify for progressively greater tax incentives, making the benefits available to them more closely linked to their contribution to the domestic economy.
“Then you will eventually get bigger and bigger tax cuts,” he added.
Sim said the government wanted to embed expectations around local business participation more firmly in its systems, guidelines and regulations to ensure that investment incentives generated wider economic benefits.
“We want to make sure that foreign direct investments benefit Malaysians, particularly local businesses, SMEs and companies, by developing local vendors and strengthening domestic supply chains.”
“We want to build all these objectives into our systems, guidelines and regulations to ensure that the benefits of these investments reach local businesses,“ he added.
Strengthening local supply chains forms part of a broader effort by the ministry to address structural challenges facing SMEs, including productivity, bureaucracy, financing and access to markets.
Sim outlined the ministry’s ABCD strategy, which focuses on accelerating productivity, reducing bureaucracy, improving capital accessibility and driving market access.
“Whatever you do in my ministry today … whether you spend money, do a programme, organise a talk, hold a dialogue, or design one poster, ask yourself whether it fulfils A, B, C or D. If it fulfils one of them, go all out. If it doesn’t, postpone it,” he said.
Under the NIF, investment proposals are assessed using the National Investment Aspirations (NIA) Scorecard, which measures their expected contributions to six areas: increasing economic complexity, creating high-value jobs, strengthening domestic supply-chain linkages, developing industrial clusters, improving inclusivity and enhancing sustainability practices. Projects are assessed according to their commitments and contributions to these national priorities.
The framework provides two mutually exclusive tax-incentive options: a Special Tax Rate, which offers a preferential corporate income tax rate for a specified period, and an Investment Tax Allowance, which is based on qualifying capital expenditure. The incentive granted depends on the applicable criteria and assessment of the investment proposal.
