Malaysia plans tax breaks for oil, new investments

KUALA LUMPUR, Malaysia (AP) — Malaysia's leader Tuesday unveiled plans for tax incentives to bolster its oil and gas industry as well as new multibillion-dollar projects to build energy plants, a massive energy hub and hotels with the aim of becoming a developed nation by 2020.

Prime Minister Najib Razak said the government will waive up to 100 percent of taxes on investment in capital intensive petroleum projects to lure investors, especially in deepwater and infrastructure activities.

Tax rates will be cut from 38 to 25 percent for development of marginal oil fields, while export duties on oil produced from these fields will be waived. The country has earlier warned it could become a net oil importer in the next few years if production is not enhanced.

"By lowering risks and increasing the rewards for investment, this initiative will potentially lead to additional petroleum-generated revenue of more than 50 billion ringgit ($16 billion) for Malaysia over the next 20 years," said Najib, who is also finance minister.

Officials from national oil firm Petronas, which pushed for the tax breaks, said the incentives are part of a new Petroleum Income Tax Act that has been endorsed by Cabinet, but it is unclear when it will be submitted for Parliament approval.

Najib said state-owned energy firm Tenaga Nasional will invest 4 billion ringgit ($1.3 billion) in 2011 to build two new hydropower plants and a large coal plant in peninsula Malaysia to cater to rising domestic demand.

Private firm Tanjong Agas Supply Base and Marine Services will pour in 3 billion ringgit ($968 million) over the next two years to develop a regional oil and gas hub in central Pahang state, that will create 30,000 new jobs and contribute 30 billion ringgit ($9.7 billion) to gross national income over a decade, he said.

Three new hotels costing nearly 1 billion ringgit ($322 million) will be built by private investors, he said.

The projects are part of Najib's ambitious economic blueprint to secure $444 billion of investments over the next decade. It aims to raise gross national income from $188 billion in 2009 to close to $523 billion by 2020, and per capita income from $6,700 to at least $15,000 — meeting the World Bank's benchmark for a high-income nation.

Some analysts warned the plan may be unrealistic as foreign direct investment has slumped in recent years, plunging 81 percent to $1.4 billion in 2009 as it lost out to more competitive rivals. Najib dismissed the concerns.

"These constitute major developments in attracting investment and transforming our economy by 2020," he said. "The bright future for the country that we have promised is far from a pipe dream ... we are showing that this government is firing on all cylinders and that a bright future lies ahead for Malaysia."

Analysts said it indicated continued progress and a sign that Najib may, as widely speculated, call a snap general election next year to take advantage of an economy on the upswing as well as an opposition in disarray. The economy is expected to grow by more than 6 percent this year after contracting 1.7 percent in 2009.

The ruling coalition lost more than a third of seats in Parliament to a resurgent opposition in 2008 polls. Since taking power in April 2009, Najib has made numerous political and economic reforms to win back ethnic minorities who voted for the opposition amid complains of corruption and racial discrimination.

"Expect more infrastructure and economic development news in the coming months in line with potential early elections," said Chris Eng, analyst with OSK Securities.