Malaysia's Economic Revival: A Positive Outlook
Malaysia has gone through some difficult times, grappling with an array of economic challenges going from being South-East Asia’s fastest growing economy to a struggling one. However, recent developments indicate a significant turnaround, buoyed by the government's Madani policy framework. Local firms are now optimistic about the country's future.
MGI Worldwide members Ralph Ratnaswamy, Partner at MGI MR, and Dusun Chong, Partner at Kevin How & Co. recently joined the discussion for IAB's the Malaysia Country Report. Ralph began by highlighting Malaysia's improving economic indicators.
"We are already seeing light at the end of the tunnel. The GDPR growth rate for Q1 of 2024 increased to 4.2 per cent compared to just 2.9 per cent in Q4 of 2023. The projected growth rate for Q2 of 2024 is 5.8 per cent. More recently, the Ringgit has strengthened substantially, experiencing its biggest gain against the US dollar since 2015, due to optimism surrounding Malaysia’s economy. This is a result of the reforms to attract more foreign investments, and the government’s strategies to narrow the budget deficit.”
Efforts to boost innovation and technological development are paying off, with increased investments in research and development. Companies like Microsoft and Google are expanding operations in Malaysia. Additionally, steps to enhance government transparency and reduce corruption are underway, contributing to a more favorable business environment.
Tackling tax evasion
Tax evasion remains a significant issue in Malaysia. Dusun notes the country's low tax-to-GDP ratio, which was 12.2% in 2022 compared to the Asia Pacific average of 19.3% and the OECD average of 34%.
“This discrepancy is likely due to tax evasion, avoidance, and the shadow economy. One key initiative by the Malaysian government is the gradual implementation of e-invoicing, with the first phase starting on August 1 this year. "
The Malaysian government has initiated several reforms, including transitioning to a more targeted subsidy approach for fuel and oil, which has elicited mixed reactions. Dusun believes that if successful, these reforms will significantly reduce tax leakages and eradicate the shadow economy.
Persisitent fee pressure
“Over the past decade, Malaysia has experienced a persistently low-fee environment in the accounting industry, with regulatory changes and fees failing to keep pace. As a result, the industry is often perceived as not adding significant value to businesses.”
Dusun continues to explain that although Malaysia’s economy is heavily reliant on SMEs, which contribute around 38 per cent of GDP and employ approximately 66 per cent of the workforce, many of these SMEs lack the means to employ qualified professional accountants. This has led to a rise in demand for non-qualified accountants. At the same time, clients across the board are adding to fee pressure by demanding high-quality services at lower cost.
Outsourcing
Outsourcing professional work is no longer exclusive to global accounting firms. Dusun notes that many mid-tier firms in Malaysia are receiving subcontracting work from foreign countries, particularly Singapore, and some have established dedicated outsourcing units.
In conclusion, Malaysia's efforts to reform its economic and regulatory landscape are yielding positive results, enhancing investor confidence and positioning the country as a competitive player in the global market.
To read the full article in the August edition of the IAB, members can click here (login to the MGI Worldwide member portal will be required).
For more information about our contributing member firms visit MGI MR's profile page or website and Kevin How & Co's profile page or website.
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