MY Morning Wrap | Latest Tax Reforms in Malaysia to Boost Innovation, Local Industries and Advanced Technology: BMI

Corporate Malaysia experienced a mixed bag of results in the first quarter of 2024 (1Q24), prompting investors to sell off local shares and causing the FBM KLCI to drop below 1,600 points. As the final wave of corporate earnings reports came in and investors engaged in profit-taking, the benchmark index of Bursa Malaysia fell by 1.4% to 1,596.68 points in the last week of May. This downturn in the indice may be attributed to the fact that the first-quarter earnings season fell short of investors' high earnings expectations. Particularly, foreign investors turned net sellers for six consecutive days leading up to May 31, reflecting the subdued market sentiment. According to Kevin Khaw Khai Sheng, a research analyst at iFAST Capital, the FBM KLCI's aggregate earnings were 7.5% lower than the analysts' forecast compiled by Bloomberg.

Affin Hwang Investment Bank Research (Affin Hwang) is optimistic about the upcoming implementation of third-party access (TPA) in Malaysia's electricity supply industry. However, Affin Hwang believes that the success of TPA hinges on factors such as wheeling charges and battery energy storage requirements. The Malaysian government plans to introduce TPA in September, enabling independent power producers (IPPs) to directly sell electricity to consumers, bypassing the need to purchase from Tenaga Nasional Bhd (TNB), the primary electricity utility in the country. However, IPPs will still need to rely on TNB's transmission lines. Affin Hwang emphasizes that the TPA will provide a new avenue for growth for IPPs and solar companies in Malaysia. It also notes that the TPA offers flexibility for these companies to seek higher returns and increase their generation capacity.

The tax reforms introduced in Malaysia's Budget 2024, aimed at stimulating domestic startups, clean energy investment, and modernizing tax administration, are expected to benefit innovative startup businesses, the green technology sector, and service-oriented companies. According to BMI, a Fitch solutions company, the budget's extensive tax reforms are designed to boost local industries and direct investment towards critical sectors such as advanced manufacturing. The initiatives include the reinvestment allowance (RA), tax incentives for electric vehicles (EVs), and the global services hub tax incentive.