KUALA LUMPUR, Oct 9 — The initiatives under Budget 2024 should focus on strengthening the competitiveness of the manufacturing industry, especially for small and medium enterprises (SMEs), in terms of mitigating the impact of global economic slowdown, inflationary cost pressures and enhancing productivity by increasing digitalisation and supporting the green growth and sustainability agenda.

Federation of Malaysian Manufacturers (FMM) president Tan Sri Soh Thian Lai said that in this regard, the manufacturing sector looks forward to continued support in the following areas for the manufacturing sector to achieve its aspiration as a major contributor to the economy.

"Focus should be on market support (initiatives) to boost regional trade and relations. If the majority of SMEs have neither ambition nor access to the global market, their potential is capped by the domestic market size,” he told Bernama.

Based on the FMM Business Conditions Survey for the second half of 2022, he said only 9.0 per cent of respondents were utilising the Regional Comprehensive Economic Partnership (RCEP) implemented in March 2022, and 3.0 per cent for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) implemented in November 2022.

Without access to the global market, Soh said there is no chance for economies of scale and no hope for labour wage acceleration and extensive research and development (R&D), commercialisation and innovation.

Incentivise domestic SMEs

In this regard, Soh said he hopes that the government will announce several market support initiatives in Budget 2024, including incentivising domestic SME firms to go global with continued support in terms of grants such as the Malaysia External Trade Development Corporation’s (MATRADE) Market Development Grant (MDG).

He said this could be done by expediting the implementation of the additional funding of RM20 million allocated to boost export growth under the MDG and the Mid-Tier Companies Development Programme (MTCDP), removing the ceiling on the MDG for companies and expanding the threshold of the MDG granted for export acceleration missions organised by trade associations.

He also hopes that the government would resume free trade agreement (FTA) negotiations with the European Union (EU) to ensure Malaysia does not lose out further, as the EU would present opportunities for greater access to the market for goods and services at more competitive prices comprising Europe’s 743 million consumers.

"The government must also expedite the implementation of the Government Procurement Act as announced in Budget 2023 to support business and economic revival as well as in building the capacity and capabilities of our local companies, especially SMEs.

"SMEs, in particular, need more assistance, and we call on the government to continue supporting SMEs by setting up an environmental, social and governance (ESG) fund with an initial allocation of RM2 billion to assist them to kickstart their ESG journey,” he said.

Soh said this includes assisting Malaysian companies in complying with the Carbon Border Adjustment Mechanism (CBAM) and EU Deforestation-Free Products Regulation (EUDR) requirements as part of their supply chain commitments.

Meanwhile, Malaysia-China Chamber of Commerce (MCCC) national council member Lee Koh Yung is hoping that Budget 2024 will make allocations for R&D and local product procurement to support technological innovation and commercialisation from SMEs.

In particular, he said the plan reflects plenty of new R&D projects and products for the next generation, such as artificial intelligence, smart sensors, clean technology, food technology and any high-impact technology to provide a stepping stone for the creation of new growth industries in the future.

"The expanded R&D budget will be used especially to support the creation of new industries to catch up with the New Industrial Master Plan 2030.

"We support the mySTI initiative; we do hope certain budget allocation should address the enhancement for prototype to pilot commercial stage, as this is very crucial to make the R&D result into a Real Commercialisation result, indirectly cultivating more fruitful R&D outcomes, enhancing R&D productivity and innovation, and unlocking R&D resources,” he said.

Tax incentives

Soh also wishes that Budget 2024 would include a double tax deduction incentive to cover ESG-related initiatives, including consultancy and certification fees and expenditures for those requiring external expertise with the ESG, CBAM and EUDR compliance programmes.

To support green manufacturing practices, green energy consumption and renewable energy (RE) initiatives, Soh urged the government to review and improve current policy and terms for imports of RE components, including incentivising RE component manufacturers to invest in Malaysia.

"Further extension of the special reinvestment allowance (should be announced) to help existing manufacturers improve competitiveness and productivity through continual upgrading, expansion and diversification during this recovery period.

"There should be double tax deductions for implementation of Lean management system, which is designed to assist companies to improve productivity, lower costs, enhance technical skills and improve the efficiency of work processes in readiness to bring industries to the next level of industrialisation,” he said.

To R&D, Soh said the government should grant an automatic double tax deduction to all companies, including mid-tier and larger companies, given their potential to spur innovation and creativity.

On the other hand, Lee opined that personal and corporate income taxes should be reduced, allowing foreign companies to enjoy the tax rates of small and medium-sized enterprises, thus increasing the disposable income of individuals and companies.

He also hoped that the government would announce incentives for companies that implement ESG initiatives, such as tax credits or exemptions, to encourage conscientious companies and develop a sound investment environment so that Malaysian companies can face international challenges.

Ensuring availability of skilled workforce

Soh said Budget 2024 should also continue supporting corporate sector collaboration with education and skills training institutions to offer work-integrated learning programmes, such as internships, apprenticeships, and training schemes, as well as curriculum development.

He said the government must also revamp the education system and promote vocational education as well as science, technology, engineering, and mathematics (STEM) education to reduce skills mismatch and encourage creativity and innovation towards creating a large pool of skilled workers.

"Foreign worker levy should be used for specific purposes to train the local labour force to close the skills gaps amongst locals.

"This would be an effective mechanism to reduce the dependence on foreign workers and at the same time increase the pool of the skilled workforce and technology adoption by industries,” he said.

Soh added that continuous support should also be given to industries participating in employer-led and demand-driven technical and vocational education and training (TVET) models.

"This includes teaching factories, co-ownership models and TVET collaboration hubs with a double deduction on the expenses incurred by the industry for allowable expenses related to such initiatives,” he said. — Bernama