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Manufacturing

Manufacturing is the second largest business sector in Malaysia, contributing 22.7% to the Gross Domestic Product (GDP), just behind the services sector.

Source: Euromonitor International from national statistics

 

Most factories are located in industrial zones which are spread out over the country, but these factories are especially abundant in states like Penang, Johor and Selangor. There is a large range of goods predominantly exported by these factories, from Electrical and Electronics (E&E), to rubber gloves and chemical products. Rubber products are among Malaysia’s top 10 exports. The world’s largest manufacturer of gloves in terms of revenue is Top Glove, followed by Hartalega Holdings, Kossan Rubber Industries and Supermax Corp, all of which are Malaysian companies. 

 

The government is also actively encouraging industry players to move towards Industry 4.0 (IR4.0) with the incorporation of automation and data exchange in manufacturing processes. Malaysia is in a favourable position and is among the top five (5) countries that are most ready to adopt Industry 4.0 solutions.

Source: Towards Data Science: 4.0 Industry Technologies & Supply Chain

Even though China is a manufacturing powerhouse, Malaysia is able to compete well against China in the international market. This is especially so in areas where Malaysia is a niche player, for example in gloves, semiconductors and food manufacturing. 

 

There are some challenges facing the industry in Malaysia, which is likely due to lack of technical expertise and reliance on foreign labour. Thus, it is not easy for manufacturing companies to migrate to high value manufacturing (HVM). In order to maximize their potential in Malaysia, it is essential for businesses to employ higher skilled labour to broaden manufacturing beyond production.

Complexities of the industry from accountancy and tax angles

Manufacturing has a long lead time from procurement of raw materials to completion of production and finally, to sale of products to customers and obtaining of payment. A typical period is 6 months to a year. To overcome this, banking facilities are of great importance. As a result, banking and finance is a major related issue for the manufacturing industry. From the accounting and audit aspects, the whole chain of assets from Property, Plant & Equipment to inventory, and finally to accounts receivable need to be stated accurately in order to have an accurate set of financial statements. Along the way, there may be valuation, impairment and revenue recognition issues. Bankers are especially careful when lending to this sector due to the issues above and will mostly trust financial statements audited by established audit firms such as ALGC Malaysia.

 

 

Taxation is a large area where deep expertise is required because the manufacturing sector enjoys many tax incentives and tax compliance can be complex. Popular tax incentives include the reinvestment allowances and tax incentives under IR 4.0. Companies that are eligible can enjoy Pioneer Status or Investment Tax Allowance, but prior approval has to be obtained from the MIDA. Generous export incentives are also available to those who export overseas.

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