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Global investment decline may worsen due to tariffs, warns UN trade agency

Free Malaysia Today

13 hours ago

Business
Free Malaysia Today

Global investment decline may worsen due to tariffs, warns UN trade agency

UNCTAD secretary-general Rebeca Grynspan said investment that has a real impact on jobs and infrastructure is going down. (EPA Images pic) GENEVA : Global foreign direct investment (FDI) fell for the second consecutive year in 2024, with fears this year could be even worse as trade tensions rock investor confidence, the UN agency for trade and development said in a report published today. FDI transactions, which do not include several European conduit economies, declined by 11%, indicating a significant reduction in actual productive investment activity, according to the UN Conference on Trade and Development (UNCTAD). Geopolitical tensions and trade fragmentation contributed to lower investment last year as they created uncertainty, which UNCTAD secretary-general Rebeca Grynspan described as a 'poison' for investor confidence. 'We are even more worried about the picture in 2025…we already feel that investment is halted…tariffs are affecting growth,' Grynspan told Reuters, with short-term risk management being prioritised over long-term investment. UNCTAD said its outlook for international investment in 2025 was negative due to trade tensions. Early data for the first quarter of 2025 shows record low deal and project activity. When several European conduit economies – which act as intermediary hubs where investments temporarily pass through before reaching their final destinations – are included, the data showed that FDI increased by 4% to US$1.5 trillion. However, UNCTAD noted that this figure masks the reality that much of this investment is merely passing through these jurisdictions and was not productive. 'We see a very worrying tendency…Investment that has a real impact on jobs and infrastructure is going down,' she said. Developed economies suffered a sharp drop in investment, with a 58% decrease in Europe. North America, however, observed a 23% increase in FDI, led by the US, while countries in Southeast Asia reached the second-highest level of FDI on record with a 10% rise, representing US$225 billion. Though capital inflows in developing countries were broadly stable, UNCTAD observed that capital was not being injected into crucial job-creating sectors such as infrastructure, energy and technology.

Malaysia's goods and service tax hike: ‘Necessary' but at what cost to businesses and consumers?

CNA

16 hours ago

Business
CNA

Malaysia's goods and service tax hike: ‘Necessary' but at what cost to businesses and consumers?

KUALA LUMPUR: Malaysian businesses and consumers already grappling with rising costs and the impact of United States tariffs could face added strain from the country's planned Sales and Service Tax (SST) hike next month, warned industry experts. While Prime Minister Anwar Ibrahim has defended the move as one targeting high-income earners, analysts and business groups said there could be spillover effects on the broader population and economy. 'Even though the sales tax increases are targeted towards non-essential and luxury goods, it may still impact the lower income through the effect of these taxes on the retail sectors,' economist Cassey Lee told CNA. 'The additional tax revenues collected through the higher sales taxes are also likely to be lower given the dampening effect of economic uncertainties on consumption of non-essential and luxury goods,' added Lee, who is a Senior Fellow and Coordinator for the Regional Economic Studies Programme at ISEAS-Yusof Ishak Institute in Singapore. A sales tax rate of 5 per cent or 10 per cent will be imposed on non-essential and luxury goods such as king crab, salmon, imported fruits, racing bicycles and antique artworks from next month, announced the Finance Ministry on Jun 9. The sales tax rate will remain unchanged for essential goods. Meanwhile, a service tax of 6 per cent or 8 per cent will be expanded to include property rentals or leasing, construction, financial services, private healthcare, education and beauty services. Acknowledging the growing public concern, Anwar's political secretary Muhammad Kamil Abdul Munim said that the expansion of the SST will proceed on Jul 1 as planned, but the government is open to revisiting the policy if necessary. The Finance Ministry on Wednesday (Jun 18) projected an additional RM5 billion (US$1.2 billion) in SST revenue from the expansion in 2025 and RM10 billion by 2026. On Sunday, Anwar said that the revenue generated from the tax collection would be used to increase the salaries of civil servants, social aid such as the 'Sumbangan Tunai Rahmah' and to develop infrastructure, local media reported. But the Federation of Malaysian Business Associations (FMBA) said that these gains 'must be weighed against the potential contraction in business activity and consumer spending', urging the government to reconsider and suspend the implementation. CUTBACKS AND HIGHER COSTS FOR CONSUMERS? Industry groups said they recognised the government's fiscal objectives but have voiced concerns over the 'far-reaching and potentially adverse impacts' the tax expansion may impose on small and medium enterprises (SMEs), the wider business ecosystem and Malaysian consumers. 'This move sends the wrong signal to domestic and foreign investors, raising doubts about policy consistency and the government's commitment to fostering a business-friendly environment,' said FMBA in a joint statement with five other major business associations. These are: SME Association of Malaysia, Malaysia Retail Chain Association, Malaysia Retailers Association, Bumiputra Retailers Organization Malaysia and Malaysia Shopping Malls Association. The six groups urged the government to defer the expansion, citing the potential impact on Malaysia's economy. 'Implementing such a broad-based tax hike amid a fragile recovery will exacerbate inflation, cripple SMEs, discourage investment and erode consumer confidence,' the statement dated Jun 15 read. In a separate statement on Tuesday, Abdul Malik Abdullah, chairman of the FMBA, said that SMEs, many of which operate on thin margins and limited cash flow, would face rising input costs due to the 'cascading nature' of the SST. 'Of greater concern is the fact that these economic sectors are involved in producing goods and services for end consumers, and may have to pass down some of the increased costs through market pricing,' a spokesperson from the Malaysian Institute of Economic Research also told CNA. Some business owners are already bracing for the impact. The owner of Salmonly Cafe in Kuala Lumpur, Nor Marsilla Ismail, told CNA that she is considering a menu revamp as she is adjusting prices and recalculating her costs and margins. 'Our bestseller item is the salmon rice bowl so we have to adapt to survive,' she said, noting that salmon prices have not yet increased, but could soon. Salmon is among the 'discretionary goods' that will be subjected to a 5 per cent sales tax rate starting next month. The revised tax framework is also expected to hit the manufacturing sector, particularly with the inclusion of capital goods such as machinery, which FMBA's Abdul Malik said could hinder business expansion and stifle innovation. Echoing these concerns, the Federation of Malaysian Manufacturing had previously highlighted that taxing machinery and equipment - typically considered capital expenditure - would drive up investment costs. Both the Federation of Malaysian Manufacturing and the Federation of Malaysian Business Associations have called for a broader exemption list to protect industry competitiveness. 'This includes items critical to upgrading production lines, automating processes and scaling operations,' said the Federation of Malaysian Manufacturing's president Soh Thian Lai, as quoted by The Edge on Jun 12. 'The imposition of sales tax on capital goods is expected to increase investment costs, potentially delaying business expansion and dampening overall investment appetite across key manufacturing and commercial sectors.' He added that many manufacturers newly affected by the revised SST, especially those previously exempt, would require more time to prepare and comply. In addition, under the expanded scope of service tax, leasing and rental services are now subject to an 8 per cent tax, with exemptions for residential rentals and SMEs with annual rental revenue below RM500,000. Tax partner Jalbir Singh Riar from Ernst & Young Tax Consultants Sdn Bhd (EY) said that the targeted exemptions reflect a 'progressive approach' by the government in balancing the need for increased revenue with socio-economic considerations. Still, industry observers caution that the broader scope of service tax to include rentals could lead to higher operational costs, which will be transferred to consumers through higher prices, potentially weakening consumer demand and discretionary spending. Teh Young Khean, senior executive director at real estate consultancy Knight Frank Malaysia, added that the 8 per cent tax could affect existing tenancy agreements that typically have fixed terms, prompting companies to reassess their real estate strategies. This may result in businesses postponing expansion or relocation plans, or in some cases, downsizing their commercial footprint, he added. 'We anticipate a potential temporary slowdown in leasing activity as most businesses would be affected by the increase in the cost of doing business,' Teh told CNA. STILL 'NECESSARY' TO ENSURE LONG-TERM FISCAL RESILIENCE: EXPERTS Despite the challenges faced by businesses and consumers, economic experts said that the expanded SST is 'necessary' to boost tax revenue collection and enhance Malaysia's fiscal sustainability. The Malaysian Institute of Economic Research noted that Malaysia's tax to gross domestic product (GDP) ratio of below 13 per cent is much lower than the Asia Pacific average of 19.3 per cent in 2022. 'Therefore, we acknowledge that the expansion is necessary as part of overall tax reform considering depleting petroleum revenue and expected reduction in personal income taxes due to an ageing society,' a spokesperson from the institute. Data from the Organisation for Economic Cooperation and Development (OECD) also found that the ratio is much lower than the OECD average of 34 per cent. Malaysia's 2025 fiscal outlook report in August last year estimated that Malaysia's petroleum-related revenue is projected to decline to 18.3 per cent of the total federal revenue in 2025, continuing a downward trend that began in 2009, Free Malaysia Today reported. 'The move aligns with the broader fiscal consolidation agenda, aiming to broaden the tax base, boost revenue collection, and progressively reduce the federal government's budget deficit from 4.1 per cent of GDP in 2024 to 3.8 per cent in 2025,' Singh, the tax partner from EY, told CNA. The Malaysian Institute of Economic Research acknowledged that the base expansion of the SST is being introduced 'during very challenging economic circumstances amid the reciprocal tariffs imposed by the US' on the global front. In the joint statement by the six business associations, the groups highlighted the growing trade uncertainty with the tariffs that could further undermine Malaysia's export competitiveness, especially for SMEs integrated into global value chains. The Malaysian Institute of Economic Research said the government thus has a 'very delicate balancing act' in achieving revenue needs amidst external challenges and concurrently elevating inflation pressure in the economy. 'While the SST expansion is strategically sound, a phased implementation approach would provide businesses with more time to adjust and ensure smoother compliance,' said Singh of EY. Lee from ISEAS said that the government should consider fine-tuning its tax reforms to minimise the potential impact of tax increases on domestic consumption and the retail sector given the external uncertainties which will impact exports and foreign direct investments. Experts also told CNA that the government's move to provide some limited exemptions are 'steps in the right direction' which needs to be further strengthened with additional support measures to help alleviate inflationary pressures on businesses and the people. The six business associations meanwhile have called for a more consultative approach that prioritises business stability, national competitiveness and long-term growth. 'It is imperative that any tax policy or adjustment be approached with empathy and practicality, with the aim of ensuring that it does not become an added burden on already struggling enterprises,' the statement read, as quoted by the New Straits Times. The group of business associations has slammed the SST framework for lacking transparency and efficiency as compared to the previous Goods and Services Tax (GST), which avoided cascading taxation across supply chains. Cascading tax is a type of tax that's imposed at each stage of a product's journey along the supply chain. According to the groups, the SST model is unsustainable for SMEs operating on thin margins, discouraging investment, expansion and job creation, as reported by the New Straits Times. Anwar has defended the government's position, saying that it is not ready to reintroduce the GST as it is a broad-based tax that would affect all segments of society, especially the poor. 'GST taxes everybody. While it is efficient and straightforward, just 6 per cent across the board, I must ask, if everyone has to pay 6 per cent, why should the poor and the unemployed be taxed as well?' he said on Jun 15, as quoted by local media. WILL THE EXPANDED SST AFFECT ANWAR'S POLITICAL SUPPORT? The proposed tax expansion was announced by Anwar, who is also the finance minister, during the tabling of Budget 2025 in October last year. Although implementation was initially scheduled for May 1, full details of the revised scope were only confirmed on Jun 9. Some observers told CNA that the move could have political repercussions, especially among the urban middle class. 'If domestic consumption is severely impacted, this will reverberate to the lower-income population through unemployment,' Lee from ISEAS told CNA. However economic expert Ida Md Yasin from Putra Business School in Malaysia said that the SST expansion is 'only one of several factors' that will shape public support for Anwar. The finance ministry has announced that penalties against companies for non-compliance with the tax's legal requirements will not be imposed until Dec 31. Anwar's political secretary Muhammad Kamil has also reiterated the government's flexibility in responding to public concerns. 'This is not divine law, it's human legislation. So, there's no issue if adjustments or improvements are needed. What's important is that the majority of the people are not burdened by this expansion,' he said, as quoted by Malay Mail.

Public first: Google contributed AED 21.8bln to the UAE economy in 2024

Zawya

a day ago

Business
Zawya

Public first: Google contributed AED 21.8bln to the UAE economy in 2024

Google's Search and Ads alone helped provide AED 20.2 billion in economic activity for businesses in the UAE. DUBAI, UAE – Google announced today the launch of the Google's Economic Impact Report, a report conducted by Public First research agency, that looks at how Google products (Search, Play, Maps, YouTube and Google Ads) have helped people, local businesses, content creators and developers in the UAE throughout 2024. Around the world, Google releases Impact Reports which are based on consumer and business polling, economic modeling, case studies and third party data. The report highlights how Google's AI-powered tools and platforms are profoundly enhancing daily life and productivity for individuals and enterprises across the UAE, driving macroeconomic growth. In fact, Public First estimates that Google contributed an estimated AED 21.8 billion to the UAE economy in 2024. "We're incredibly proud to be a partner in the UAE's boundless ambitions," says Anthony Nakache, Managing Director for Google in the Middle East & North Africa. "The report reflects our investment in accelerating the country's ambitious journey towards a diversified, AI-powered economy. Through strategic investments, local partnerships, and our AI-powered tools, we're bringing substantial economic value and empowering individuals, businesses, and communities in the UAE.' Google is equipping people in the UAE with digital and AI capabilities needed for tomorrow's economy. The report highlights that since 2018, over 430,000 individuals in the UAE were trained in essential digital and AI skills through Google's key skilling initiative "Maharat Min Google" initiative. This effort includes empowering a diverse and vibrant ecosystem of developers. In 2024, the Android and Google Play app ecosystem supported the creation of 30,000 jobs in the UAE, according to the report. The Google Impact Report in the UAE explores the impact of Google's products in 2024 across three areas: People, Businesses and Communities. Below are the additional findings: Making everyday life easier for people in the UAE AED 683 a month on average in consumer benefits is created by Google's services for the average person in the UAE. 63% of adults in the UAE said they have used Gemini, Google's AI Assistant. 90% of users agreed that Gemini helped them to be more productive. 71% of users agreed that Gemini is easier to use in Arabic than other AI chatbots. 50% of adults in the UAE agree that Google Search is essential to their daily lives. 89% of adults in the UAE reported that Google Maps and/or Waze were very useful when they were avoiding getting lost. 90% of adults in the UAE agreed that the ability to make contactless payments on mobile devices through the likes of GPay or GWallet makes their life easier. Fueling the Growth of Businesses in the UAE 91% of businesses in the UAE report using at least one AI tool in their workflows. 73% of 18-24 year olds said they use Google Search at least weekly to shop or browse products online. 80% of adults in the UAE use Google Maps and/or Waze at least once a month to find a local business. 86% said they checked Google reviews before visiting a venue or business at least once a month. 94% of adults in the UAE use Google Search at least once a month to compare the prices of products and services. 97% of public sector workers in the UAE said that Google AI-enabled tools help them to be more productive at work. Empowering Communities in the UAE This section of the report combines Public First research and Google internal data and estimates Google's contribution to creators, developers and publishers. AED 455 million of revenue generated by the Android App Economy for UAE-based developers in 2024. 600+ YouTube channels in the UAE have over 1 million subscribers, an increase of 15% year on year. 20,000+ journalists and journalism students trained by the Google News Initiative in the MENA region, including in the UAE. About the research Google commissioned independent consultancy Public First to explore how Google's innovations and products are helping communities, workers and businesses in the UAE, as well as the future potential of AI across the nation. Public First conducted a survey of 1,110 online adults based in the UAE and a survey of 389 business leaders based in the UAE. These surveys were conducted in English and Arabic in March 2025. All results are weighted using Iterative Proportional Fitting, or 'Raking'. The online adult results are weighted by age, gender, education level, and region to nationally representative proportions. The full report can be found here: For more information about the report methodologies, please contact:

BBC News

4 days ago

Business
BBC News

World Business Report Israel-Iran conflict economic impact

Many of the people of Tehran have been heading out of the city, while social media videos show the lines of cars stretching into the distance, as many thousands of citizens speak of massive disruption and a fear of Israeli airstrikes. Ed Butler hears about people in Iran and looks at the economic impact of the conflict inflicted on the country's economy. Also in the show we hear from Thailand as the latest deadline for US President Donald Trump's increased tariffs on US imports looms. And why the Canary Islands and other parts of Spain are protesting against tourism.

Smaller amusement parks hope for a strong summer under the shadow of tariffs

Washington Post