Economy of Malaysia

The economy of Malaysia ranks as the fifth largest in Southeast Asia and the 36th largest globally in terms of GDP. Malaysia boasted a labor productivity of Int$55,360 per worker, marking it as the third highest in ASEAN. Furthermore, the 2021 Global Competitiveness Report positioned Malaysia as the 25th most competitive country economy worldwide. Malaysians enjoy a relatively affluent lifestyle compared to their Southeast Asian counterparts, owing to a fast-growing export-oriented economy, a relatively low national income tax, highly affordable local food and transport fuel, and a fully subsidized single-payer public healthcare system. Malaysia's economy is characterized by a newly industrialized market, known for its openness and state orientation. The country exhibits a highly robust and diversified economic landscape, with the export value of high-tech products reaching US$92.1 billion, the second highest in ASEAN. Additionally, Malaysia stands as the second-largest exporter of palm oil products globally, both in terms of volume and value, following Indonesia.

Top Sectors in Malaysia

Agriculture in Malaysia

Agriculture has transitioned into a minor sector of the Malaysian economy, representing 7.1% of Malaysia's GDP and engaging 11.1% of the labor force. This stands in stark contrast to the 1960s when agriculture contributed to 37% of Malaysia's GDP and employed 66.2% of the labor force. Over time, there has been a significant shift in the crops grown by the agricultural sector, moving away from food crops like paddy and coconut towards industrial crops such as palm oil and rubber. These industrial crops accounted for 83.7% of total agricultural land use, underscoring the transformation of Malaysia's agricultural landscape.

Industry in Malaysia

Science policies in Malaysia are overseen by the Ministry of Science, Technology, and Innovation. The country holds a prominent position as one of the world's largest exporters of semiconductor devices, electrical devices, and IT and communication products. Malaysia's industrial sector constitutes a significant portion of its economy, comprising 36.8% of the country's GDP and engaging 36% of the labor force. Key contributors to the industrial sector include the electronics industry, automotive industry, and construction industry.

Infrastructure and Construction in Malaysia

Malaysia boasts a significant construction industry, valued at over RM102.2 billion (US$32 billion). The largest share of this industry is contributed by the construction of non-residential buildings, accounting for 34.6%, followed by the civil engineering sub-sector at 30.6%, residential buildings at 29.7%, and special trades at 5.1%. Among the states, Selangor leads with the highest value of construction work done at 24.5%, followed by Johor at 16.5%, Kuala Lumpur at 15.8%, Sarawak at 8.6%, and Penang at 6.4%. Together, these five states contribute 71.8% of the total value of construction work in Malaysia. The growth of the construction industry has been fueled by major capital expenditure projects, notably driven by the government's Economic Transformation Programme and public-private partnership mega-projects such as Tun Razak Exchange, KVMRT, and Iskandar Malaysia

Defence in Malaysia

Malaysia's defence industry is relatively new, spurred by the establishment of the Malaysia Defence Industry Council to promote local participation in the country's defence sector. In the land sector, DefTech, a subsidiary of Malaysia's largest automotive manufacturer, DRB-HICOM, plays a prominent role. Specializing in manufacturing armoured vehicles and specialized logistics vehicles, DefTech has supplied ACV-15 infantry fighting vehicles to the Malaysian Army in the past and is currently providing the DefTech AV8 amphibious multirole armoured vehicle. On the sea front, Boustead Heavy Industries dominates the defence industry. Through technology transfer agreements with foreign companies, they construct warships for the Royal Malaysian Navy. Having previously built 4 Kedah-class offshore patrol vessels for the RMN, Boustead Heavy Industries is currently engaged in a project to construct 6 Second Generation Patrol Vessels for the RMN.

Malaysia - Key Economic Indicators

Exports and Imports

Malaysia's exports totaled $270.2 billion, with major export items including electrical and electronic products, palm oil, and natural gas. Imports amounted to $212.7 billion, consisting primarily of intermediate goods, machinery, and chemicals.

Infrastructure

Malaysia boasts a well-developed infrastructure network, with extensive road and rail systems connecting major cities and industrial zones. The country had approximately 2,380 kilometres of expressways and over 1,800 kilometres of railways.

Balance of Trade

Malaysia maintains a trade surplus, with exports exceeding imports. The trade surplus stood at $57.5 billion, indicating a strong export performance and competitive advantage in key industries.

Fiscal Policy

The Malaysian government implements fiscal policies aimed at promoting economic growth and stability. Government spending amounted to 27.5% of GDP, with key areas of expenditure including education, healthcare, and infrastructure development. The country's tax system includes a progressive income tax, value-added tax, and various other taxes on goods and services.

Monetary Policy

The Bank Negara Malaysia is responsible for implementing monetary policy to maintain price stability and support economic growth. BNM uses tools such as interest rate adjustments and open market operations to manage inflation and ensure liquidity in the financial system.

Trade Agreements

Malaysia is party to several trade agreements, including the ASEAN Free Trade Area (AFTA), which promotes regional economic integration, and bilateral agreements with countries such as the United States, China, and Japan. Additionally, Malaysia is a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which enhances trade relations with Pacific Rim countries.

Environmental Regulations

Malaysia has implemented various environmental regulations to address pollution, biodiversity conservation, and sustainable development. The Environmental Quality Act and the National Policy on the Environment are among the key regulatory frameworks aimed at protecting the country's natural resources and promoting eco-friendly practices.

Tax System in Malaysia

Capital gains tax: Individuals in Malaysia are subject to capital gains tax on profits earned from investments. The tax rate ranges up to 30%, depending on the holding period of the asset.
Corporate tax rate: Malaysia imposes a corporate tax rate of 24% on resident companies and 24% on non-resident companies, based on their chargeable income.
Sales tax: Following the introduction of the Goods and Services Tax (GST) in 2015 at a rate of 6%, Malaysia reverted to the Sales and Service Tax (SST) in 2018. The SST rates vary from 5% to 10% on goods and services.
Property tax: Property tax in Malaysia is levied on real estate properties and varies based on factors such as property value and location. Rates typically range from 4% to 16% of the annual rental value.
Payroll tax: Payroll tax, commonly used to fund social security, is deducted from wages and salaries in Malaysia. The tax rates vary based on income brackets.
Tax deductions and credits: Malaysia offers various tax deductions and credits to individuals and businesses as incentives to reduce tax liability. These incentives may include investment incentives and research and development tax incentives.
Tax compliance: Malaysia emphasizes efficient tax collection mechanisms to ensure compliance. The country's tax authorities implement systems and processes to collect taxes effectively and transparently.
Tax burden: The overall tax burden in Malaysia is determined by the aggregate amount of taxes paid by individuals and businesses. This tax revenue contributes to government funding for public services and infrastructure development.

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