Duty waiver to foreign developers deemed negative


PETALING JAYA: Foreign developers in Johor should be taxed on the import of construction materials rather than be granted duty exemption, says an accountant.

Extensive and direct importing of construction material from foreign suppliers for property development in the southern state has stunted growth in the local economy, Moore Stephen Malaysia managing partner Bala Krishnan Ponnian (pic) told StarBiz.

He said incentives given to foreign property developers to import construction materials directly from overseas suppliers duty-free benefited only those countries, leading to a worrying investment outflow.

“Such has been granted by the state and Federal government. There is no economic spin-off to Malaysia’s economy from this,” Bala said.

“The vast number of developments happening in Malaysia should translate into a gross domestic product growth of 8% by now. But we have only been seeing a marginal growth.”

He said even if the developers purchased their overseas goods through local suppliers, at the very least it would benefit local companies.

Bala said many overseas supplies were going directly into specific projects in Iskandar Malaysia.

“This can be easily corrected with the right policy. Developers should not be exempted from import duty but be taxed instead,”

The Iskandar Malaysia development has five flagship zones and only the Flagship Zone B which comprises Bandar Nusajaya and Medini has been granted special incentives by the federal government to spur investments.

The businesses located in Flagship Zone B get incentives such as pioneer status with a 10-years tax exemption on income, free of bumiputra equity requirement, unrestricted employment of foreign knowledge workers and the freedom to source capital globally.

Iskandar Regional Development Authority (Irda), however, refuted the notion that real estate developers were importing construction materials into Iskandar Malaysia free of import duty.

“Our records show that no special exemption has been given to any real estate developer, both local and foreign, for import duties imposed on construction materials,” Irda head of strategic communications Sulaiman Yahya told StarBiz in an email.

He said only approved operators in three services sectors were given exemptions on duty. The three are tourism, healthcare and education sectors.

“Duty exemptions for equipment and machinery can come under the Flagship Incentives Iskandar Malaysia (FIM). They are for owner-operators of four-or five-star hotels, private higher education institutions or traditional complementary medicine centres,” Sulaiman said.

Official guidelines on the FIM specify that those operators, once approved, would still need to submit separate applications for import duty and sales tax exemptions for equipment or machinery, subject to guidelines set by the Malaysian Investment Development Authority.

Currently, foreign developers who are in Iskandar Malaysia stood at less than 10% against local players, according to a government official in Johor.

While he did not state the total number, he said Iskandar was experiencing an increasing number of foreign developers mainly from China, Singapore and a handful from other countries.


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