Malaysia scraped property gains tax from April 1, 2007

Malaysia will scrap capital gains tax on property deals from April 1, the prime minister said Thursday as he announced a slew of pro-investment programmes and incentives in a bid to boost the economy.

Prime Minister Abdullah Ahmad Badawi said he hoped the decision would "inject more excitement and dynamism in both the property and financial sectors.''

"Potential that has gone unrealized or under-optimized will be turned into new industries and businesses, new value creation and new jobs,'' he said in a speech at a conference of local and foreign fund managers, and heads of some of Malaysia's biggest companies.

The Malaysian property market is currently believed to be stagnating, and considered undervalued compared to other countries in the region, especially Singapore.

Abolishing the property gains tax would encourage investment and deals and bring more liquidity into the market.

"Going forward to further improve the national property sector, the government has decided not to impose real property gains tax throughout the country commencing 1st April, 2007,'' Abdullah said.

He also said the government will continue to reduce its stakes in government-linked companies in which it has a high ownership level in order to increase liquidity in the equity market.

"To avoid exaggerated market disruptions and to allow for strategic tie-ups, the process will be undertaken in an orderly manner,'' he said.

Abdullah announced a new package of incentives for the Iskandar Development Region, a special economic zone in the southern state of Johor, in six targeted sectors: creative industry, education, financial advisory and consulting, health care, logistics and tourism.

Those starting businesses in these six sectors will be exempt from corporate income tax for activities within the zone and outside Malaysia for 10 years, provided they commence operations before 2015.

They are also exempted from foreign investment committee rules, have the freedom to source for capital globally, and would be allowed unrestricted employment of foreigners.

In a statement, the Iskandar Regional Development Authority said Malaysians are still expected to make up the large majority of the work force.

Abdullah also announced the creation of four more economic regions besides the Iskandar Development Region.

They are the Northern Corridor Economic Region, East Coast Corridor, the Sabah Corridor and the Sarawak Corridor.

The last two are on the Borneo island in the states of Sabah and Sarawak.

"The opening up of these new economic regions, in a concerted and systematic manner, will literally change the face of the country,'' Abdullah said.

The announcements, aimed at attracting foreign investments, come at a time when the country is facing stiff competition from China and India. Still, Malaysia's economy hasn't fared too badly.

It expanded 5.7 percent in the fourth quarter or 2006 from a year earlier, bringing full-year growth to 5.9 percent.

This was slightly better than the government's earlier 5.8 percent forecast, and higher than the 5.2 percent expansion in 2005.

The expansion was attributed mainly to the sturdy growth of services and manufacturing sectors.

In its economic outlook, Malaysia's central bank on Wednesday projected that private sector investment will expand by 10.4 percent this year compared to 9.7 percent in 2006.

Public spending would expand by 11.4 percent, up from 6.5 percent last year, it said. Manufacturing output was expected to grow 6.6 percent in 2007.