New Investment Incentive Framework: A Leap Towards High-Income Economy

By Zufazlin Baharuddin & Engku Shariful Azni Engku Ab Latif

KUALA LUMPUR, Dec 20 (Bernama) -- The New Investment Incentive Framework, announced in Budget 2025, marks Malaysia’s bold move to position itself as a high-income nation by prioritising high-value sectors, mainly in digitalisation and artificial intelligence (AI) within the digital economy.

INCEIF University economic analyst Prof Baharom Abdul Hamid said the new framework, slated to be implemented in the third quarter of next year (3Q 2025), is expected to create not only high-value products and services but at the same time provide high-value and high-paying employment opportunities.

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“In the 1970s and 80s, we were offering cheap labour, cheap resources, tax exemption and so on, and what we got was investment in low-value industries, manufacturing and so on. So this time around, what the government aspires is foreign direct investment (FDI) in terms of technologically advanced areas, FDIs that can create high-value jobs and the platform for us to move towards a high-income country,” he told Bernama in an interview recently.

In October at the tabling of Budget 2025, Prime Minister Datuk Seri Anwar Ibrahim announced the New Investment Incentive Framework, which includes a strategic investment fund worth RM1 billion aimed at enhancing the capacity of local talent and encouraging high-value activities to be carried out in the country.

Baharom reckons the ASEAN 2025 Chairmanship and partnership with BRICS countries will accelerate the new investment incentive framework. It is also timely to capitalise on Malaysia's dual leadership roles and open significant new avenues for digital and economic cooperation.

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“Malaysia assuming the ASEAN Chairmanship places us in a stronger position, leveraging the right trading bloc to foster collaboration among ASEAN countries. This unity allows us to strengthen and uplift one another for mutual prosperity. For instance, Brazil, one of the anchor countries, brings expertise in digitalisation and artificial intelligence. Similarly, Russia is well known for its power in technology and digitalisation while China is a global leader in research and development,” he added.

Industry players leveraging AI

From an industry perspective, the new investment incentive framework would benefit companies that focus on AI and robotics, such as FSBM Holdings Bhd, which is an advanced technology solutions provider.

FSBM focuses on developing its information technology (IT) services segment, where it designs and develops customized IT solutions such as smart manufacturing, cybersecurity, intelligent application and digital solutions.

Managing director Pang Kiew Kun said the company would leverage the incentives, especially tax reduction, to focus on research and development (R&D) of its solutions.

"We are currently in R&D to develop a blockbuster product called Smart Supply Chain Management, which aims to serve all kinds of manufacturing. Since the new investment incentive framework introduced tax deduction for AI R&D and talent upskilling, we would leverage on that as it is in line with our company goal to elevate ourselves towards a more advanced technological solution provider," he added.

While Pang praised the new incentive framework as an ambitious initiative, he said the company struggled with a shortage of skilled talent in the AI and robotics sectors. Therefore, he hopes the new framework will not only attract more FDI but also serve as a substantial government effort to invest in developing local talent and fostering the adoption of technology.

Future-ready AI talent

In line with the government's goal to accelerate AI, Universiti Teknologi Malaysia (UTM) has been given the mandate to establish the first AI learning centre, namely the AI ​​Faculty with an initial allocation of RM20 million to strengthen exploration of the field. In October 2024, the university launched a Bachelor in Artificial Intelligence programme with 101 local students becoming the pioneering cohort.

According to its dean Prof Mohd Nazri Mahrin, collaboration between academia and industry is important to ensure graduates are equipped with the skills needed for high-value sectors under the new investment incentive framework. This enables students to tackle real-world AI challenges, ensuring they are well-equipped to meet the demands of high-value sectors upon graduation.

“We are preparing the students with a more advanced machine called the Graphical Processing Unit to expose them to the latest technology used by industry players to explore later on. The problem statement, the case study and real data from the industry will help students be exposed to the real problem and it will help to close the gap between academia and industry to get the maximum benefit from AI technology,” he said.

Mohd Nazri said it will take some time to see the outcome of preparing for future-ready AI talent in UTM, given the course just started in October and it will take three years for students to complete their study.

In the meantime, an expansion allocation of RM50 million from RM20 million under Budget 2025 for AI-related education has demonstrated a national commitment to an AI-driven future and job market.

Outlook

According to Investment, Trade, and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz, the ministry plans to announce the new investment incentive framework as early as the first quarter of next year to ensure investors are informed of the new set of incentives as soon as possible.

Therefore, Baharom expects that the results and impact of the new framework will appear in the first quarter of 2026.

“The implementation is targeted towards the third quarter of next year so that we can plan everything and we can fully utilise the chairmanship of ASEAN as well as fully utilise BRICS. We have to properly align everything and there are certain things that we have to do such as some agreements with our partner trading countries to ensure that we would not be having the backlash or whatsoever from the new US government,” he said.

He added that the new incentive framework will support this shift, providing crucial incentives to attract investments while securing the prosperity of Malaysia's economic plans.

-- BERNAMA