KUALA LUMPUR – It is crucial for Malaysia to reform its services sector for economic growth post-pandemic, said Aaditya Mattoo, the World Bank’s chief economist for East Asia and the Pacific.
He said some restrictions imposed by the authorities, particularly access to the Malaysian market, need to be reviewed, to attract more trade and investment in the services sector going forward.
“Malaysia (has) reaped the benefits of openness to trade and investment in goods, but why does it persist with restrictions in services?
“There are three pillars in reform – opening up the market by eliminating restrictions on entry and reducing discretion in licensing; moving from conventional (to modern and advanced) regulations; and, improving access to services,” he told the Economic Action Council Executive Talk Series here today.
The virtual talk, titled “Future Economic and Business Landscape”, was moderated by Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed.
Mattoo said other long-term structural challenges that must be addressed by Malaysia are its innovation deficit and fiscal limitation.
He said the country’s productivity growth is slower than that of its peers, with a large proportion of talented Malaysians working abroad.
Therefore, creating and retaining skilled human capital in the country is crucial, he said.
On fiscal constraints, he said many nations in the region have an “inner sense” to adopt a low-tax approach, and Malaysia’s direct income and commodity taxes are unusually low by global standards.
Countries cannot act in silo, he said, as it is very hard in today’s world to raise taxes, given that foreign investors are “mobile” and can “run away” to other jurisdictions.
He said greater regional tax cooperation needs to be fully explored to help increase Malaysia’s revenue, which has shown a declining trend since 2012.
“Regional cooperation will get through this better than a neighbour’s competition to try attracting investment by reducing taxes or giving tax holidays.
“Maybe you can’t do it (raise taxes) today, but you can pass that reform today and implement it five years from now.” – Bernama, March 30, 2021
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