Cover Story: Seven questions for...Datuk Seri Johari Abdul Ghani. Finance Minister II

This article first appeared in The Edge Malaysia Weekly, on December 25, 2017 - December 31, 2017.
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Q1: Complaints from Malaysians not feeling the strong growth of gross domestic product and businesses and entrepreneurs finding it harder to do business in Malaysia seem to be growing. Among issues cited by businesses are labour shortages (both physical numbers as well as suitable talent), rising labour costs, tight cash flow due to delays in Goods and Services Tax refunds, uncertainties/surprises — with government policy being announced without industry consultation. Last year, businesses were also caught wrong-footed by the ringgit’s sudden decline. Do you agree that the business environment is getting less conducive and tougher? Why?

Johari: The positive GDP growth recorded consecutively since 2010 has led to a steady increase in disposable income and stable labour market conditions, which were supported by household spending. It is my view that general living standards have improved amid the changing lifestyle of the rakyat. Further, it is worth noting that median income grew 6.6% per year from 2014 to 2016. This would lead to positive developments for businesses, especially in tapping new demand from households.

I do take note that certain pockets of the business community may be facing challenges in managing their businesses despite the positive and strong GDP growth and, admittedly, some of their concerns do warrant attention. This where the government will step in to address the structural concerns facing these businesses through a more holistic approach in order to provide long-lasting solutions. For example, with respect to labour, initiatives to upskill our workforce have been taken through better quality education and targeted training schemes such as TVET [Technical and Vocational Education and Training] and SL1M [Skim Latihan 1Malaysia]. Businesses should also take steps to ensure talent is nurtured for their changing needs. Continued reliance on cheap labour, particularly foreign workers, is not a sustainable solution.

While the government is working hard to address these concerns, we need to be mindful that the global economic landscape is increasingly changing and because we are a highly open economy, we are not insulated from these disruptions. For example, volatility in global financial markets affected the currencies of the emerging market economies, including the ringgit. The government will do its best to mitigate the effects of such volatility on the real economy, but it is also incumbent upon businesses to adopt best practices to be competitive as these changes are brought about by market forces and it is impossible for any government to fully intervene against these external elements that are beyond our control.

 

Q2: An efficient Inland Revenue Board is good in terms of tax revenue, but the right amount of pressure from the IRB is a delicate balance that some quarters reckon has not been achieved. In fact, there are those who think that a small group of sizeable taxpayers — businesses as well as individuals — are being overly taxed, so much so that future private investments, local and foreign, may be curtailed in the medium to long term. Worse still, this may accelerate the migration of businesses elsewhere. What is your view on this?

I must stress that there is no such condition as being overly taxed. In fact, what the IRB is currently doing is being firm in implementing our tax policy in order to develop a stronger tax compliance culture among businesses and individuals. If such a system is a hindrance to economic expansion, it would have been impossible for the country to record favorable GDP growth in the recent period. The key thing is to have a robust tax system for the betterment of the economy and minimise as much as possible the extent of the “black economy”. Strict compliance with the tax system will put all businesses on a level playing field and this, in the long run, will enhance the competitive edge of our economy.

There is also room and a proper framework for taxpayers to raise their grievances through various avenues of appeal. If they are not satisfied with IRB’s decision, they can appeal to the Special Commissioners of Income Tax and file a judicial appeal to the High Court and the Court of Appeal

 

Q3: What would you say is Malaysia’s competitive edge? Is the country at risk of losing its competitive edge? Why?

Compared with regional economies, Malaysia is definitely in a better position due to our strong growth, well-diversified financial system, liberal investment policies and better ecosystem for business to thrive. Given our strong fundamentals, we continue to receive sizeable foreign direct investments [FDI] and private investment continues to record positive growth. So, to say that we are at risk of losing our competitive edge is incorrect, considering where we are compared with regional economies. Going forward, if we do not fully embrace technology and innovation and continue to rely on cheap foreign labour, we may no longer be as competitive, especially in the context of rising demand for the “new economy”, underpinned by extensive digitisation and greater democratisation of economic activities. Therefore, the government will continuously provide targeted incentives for businesses to embrace Industry 4.0.

 

Q4: As a policymaker, what is being done to make the business environment more conducive and the country more competitive? What more can be done and what are the challenges? Is anything hindering progress?

The government is committed to provide a conducive environment and ecosystem for business to thrive and prosper. Initiatives include easing the cost of doing business right from the incorporation of a company to the last mile, which is when business activities are operationalised. As far as the tax system is concerned, a level playing field will be ensured, and in education, we are embarking on long-term plans to enhance the quality of education and training to equip our workforce for the growing needs of the industry. We are also focusing on enhancing connectivity via public infrastructure projects such as the Light Rail Transit line 3, the Mass Rapid Transit system, Kuala Lumpur-Singapore High-Speed Rail and East Coast Rail Link to spur economic activities. As the country embarks on becoming a high-income nation, economic policies will ensure that productivity growth will be diversified across sectors so we are not reliant solely on any particular sector in growing the economy.

 

Q5: On the issue of competitiveness: What is your message to the private sector and government-linked companies? what more should they do?

While the government will ensure the business environment remains healthy, we need the private sector to play its part. In enhancing competitiveness, companies must look beyond the cost factor and embrace the use of technology and nurture the right talent. Businesses should seek to move up the value chain, focus on high-value-added activities and embrace automation as much as possible. As this is a trading nation, companies should seek to expand their competitiveness beyond our borders and become regional or global champions. This will ultimately move us closer to become a productivity-driven economy, and our companies will reap the benefits of increasing trade and financial integration globally.

 

Q6: The integrity of institutions and corruption remain among the key concerns of citizens and businesses. Is it merely a matter of (mis)perception and mistrust, or are greater reforms necessary? What is being done on this front?

I would say the government has done a lot on this front, at least in terms of setting the right policies. These policies are now being executed in greater detail by various agencies to ensure their efficacy remains intact. I take note that the implementation is far from perfect. This is where the government will strive to improve the execution of our policies for the betterment of the nation.

 

Q7: The government has been doing TN50 consultations. What are the three most important takeaways from these consultations so far — from businesses and individuals?

The most important takeaway is that every stakeholder, including businesses and individuals, has a role to play in shaping the future of our economy. This is especially reflective of the inclusivity agenda, so as to ensure that our collective inputs and decisions will lead to an environment where the rakyat will not only benefit from the progress we make but contribute to the betterment of our nation. Based on the initial feedback from these engagements, we found that the rakyat have a strong interest in making the principle of sustainable development the key pillar to move our economy and nation to the next level. 
 

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