What Malaysia’s 2018 budget means for ecommerce in the country

Photo credit: abdulrazaklatif / 123RF Stock Photo.

This year has been great for Malaysian ecommerce, as the government has pledged various resources to fast-track the sector’s development. This was evident in the government’s partnership with Alibaba to set up a Digital Free Trade Zone (DFTZ), the first of its kind outside of China.

Further bolstering this, the government recently declared the digital economy as one of its eight key thrusts in the country’s growth plan for 2020. Along with this were other notable budget allocations and initiatives that are expected to benefit ecommerce in the country:

1. Rolling out the DFTZ
2. Additional incentives for venture companies
3. Stimulating innovation through a regulatory sandbox
4. Development of communications infrastructure in East Malaysia
5. Equipping the youth with basic tech capabilities

Rolling out the DFTZ

What was announced?

US$19.7 million will be allocated to construct the first phase of the DFTZ. Part of this is the construction of an ecommerce and logistics hub in KLIA Aeropolis, a 9,000-acre airport city development within the Kuala Lumpur International Airport (KLIA). This will create a regional gateway for ecommerce.

How will this benefit ecommerce?

The cooperation between the Malaysian Digital Economy Corporation (MDEC), an agency assigned to oversee the development of ecommerce in Malaysia, with Chinese ecommerce giant Alibaba to set up the DFTZ is a huge win for SMEs and ecommerce platforms.

In a post-budget comment, Datuk Yasmin Mahmood, the CEO of MDEC, mentioned that the DFTZ will “go live” today (November 3, 2017).

The budget allocation will see physical and virtual zones equipped with online and digital services to facilitate cross-border ecommerce and invigorate internet-based innovation. This includes:

• An e-fulfillment hub that will digitize trading operations such as customs clearance, foreign exchange services, financing services, and logistics solutions. This is expected to make bilateral trade more seamless.
• A satellite services hub that will facilitate end-to-end support and knowledge-learning for companies targeting consumers on the Southeast Asian level.
• An e-service platform that will digitally connect users with government and business services across the region.

Once successfully implemented, the DFTZ will benefit SMEs and is projected to attract roughly US$165 million worth of investments.

Additional incentives for venture companies

What was announced?

• Major institutional investors will provide US$240 million for investment in venture capital in selected sectors. This will be coordinated by the Securities Commission (SC).
• The expansion of income tax exemption to include the management and performance fees received by venture capital management companies.
• To facilitate venture capital companies to invest, the minimum investment in venture companies will be reduced from 70 to 50 percent.
• Companies or individuals investing in venture capital companies will be provided a tax deduction equivalent to the investment amount made in the venture companies. This will be limited to a maximum of US$4.7 million annually.
• An extension of income tax exemption incentives equivalent to the investment amount made by an angel investor in venture companies.

Stimulating innovation through a regulatory sandbox

Development of communications infrastructure in East Malaysia

Equipping the youth with basic tech capabilities