Latest news with #RealPropertyGains

New Straits Times

Impact of US tariffs on Malaysia: What steps should be taken?

KUALA LUMPUR: United States (US) President Donald Trump has announced that a 25 per cent import tariff will be imposed on products from Malaysia starting Aug 1. The move, officially communicated via a letter to Prime Minister Datuk Seri Anwar Ibrahim, is said to be part of a broader strategy to rebalance US trade. While the tariff may be legally justified under international trade rules, it is a blow to Malaysia's economy, especially key export sectors such as electrical and electronics (E&E), manufacturing, palm oil, textiles, and rubber products including gloves. Malaysian Tax Accountants Association deputy president Dr Mohd Fairuz A Razak said the 25 per cent US tariff is a clear sign that global trade is becoming increasingly unstable. He said Malaysia cannot afford to stick with a slow-moving system that relies too heavily on outdated policies. "Such tariffs are a test of Malaysia's economic structural resilience. The country cannot simply rely on diplomacy or rhetoric — it must move quickly with comprehensive adjustments in fiscal, tax, and investment policies," he said. Here are some of the major impacts Malaysia faces from the 25 per cent US tariff: Decline in exports Malaysian products will become more expensive in the US market. This could drive American buyers to seek alternatives from countries like Vietnam, which are not subject to tariffs. Lower corporate earnings Manufacturers will face margin pressures as profits decline, production slows, and new investments are postponed. Reduced tax revenue The government is expected to collect less tax revenue due to lower corporate income tax arising from reduced profits. Sales and Service Tax (SST) collections may also fall as domestic production decreases. Meanwhile, Real Property Gains Tax may rise if factories or industrial assets are sold due to closures or downsizing. Threat to foreign investment Foreign investors, especially from the US, may consider relocating to neighbouring countries with more business-friendly and cost-effective policies. Malaysia now falls into the category of "at-risk countries" in terms of labour cost, tax policies, and international trade relationships. This calls for urgent policy reforms to keep Malaysia relevant and competitive in the region. In response, Mohd Fairuz said the government must act swiftly and comprehensively. Among the strategic measures that should be considered are: Immediate bilateral negotiations The Investment, Trade and Industry Ministry and the Foreign Ministry should initiate specific talks with the US to secure exemptions for certain sectors or to gradually reduce tariff rates. The Malaysia-US strategic relationship should not be defined solely by trade imbalances. Malaysia should offer strategic investment cooperation with the US. Targeted SST restructuring The government should reconsider SST implementation on export-related inputs. Tax exemptions on these inputs could help ease cost pressures on manufacturers. Another approach would be to exempt SST on export inputs to prevent double taxation on exporting companies. Special industrial electricity rates Introducing subsidised electricity rates for strategic industries like E&E and automotive can help offset the external tariff burden and maintain competitiveness. The government should also encourage automation and energy efficiency investments. Tax-free and SST-free economic zones Create special export production zones exempt from SST and granted fiscal flexibility, such as in Batu Kawan, Iskandar Malaysia, and Kulim Hi-Tech Park. This could also attract reinvestments from US companies. Additionally, tax incentives could be offered to companies that maintain export operations in Malaysia. Enhanced investment and digitalisation incentives The government can introduce digital tax rebates, automation investment allowances, and Green Investment Tax Incentives to attract foreign investors to stay or expand in Malaysia. Small and medium enterprises should be encouraged to adopt technology to reduce costs and stay competitive.