Malaysia: “Most attractive manufacturing market” status retained
Malaysia retains the top position as the most attractive manufacturing market of choice for future relocations according to the new Cushman & Wakefield “Manufacturing Risk Index 2017” report. The “Manufacturing Risk Index” is an annual survey of the manufacturing sector, which considers investment policies, costs, and risks including political, economic, technological, and environmental risks for their assessment. Malaysia’s ranking is attributed to its infrastructure quality, trade, and logistics performance.
The report also highlights Asia Pacific’s varying degrees of innovation such as automation and smart manufacturing which offers diversity for manufacturers. Almost half of the top 15 positions in the index are occupied by Asia Pacific countries. ASEAN countries such as Singapore, Thailand, Philippines, and Indonesia are ranked 12th, 14th, 19th, and 20th respectively. Based on the overall assessment, cost remains the most significant criteria for relocation currently, with further changes anticipated as the manufacturing industry moves to Industry 4.0, which incorporates automation and data exchange in manufacturing technologies.
By Alexander Chipman Koty
The Philippines garnered substantial international attention in 2016, owing largely to President Rodrigo Duterte’s unexpected rise to power, his litany of controversial remarks, and contentious war on drugs campaign. Lost in the Philippines’ political drama, however, was the country’s strong economic performance. The Philippines posted a robust 6.8 percent GDP growth rate in 2016, outperforming popular investment spots such as China (6.7 percent) and Vietnam (6.2 percent). This follows years of sturdy growth under the previous Aquino administration, where growth averaged 6.2 percent per year.
FDI into the Philippines also increased in 2016, reaching US$6.2 billion in net inflows through the first 10 months of the year – a 22.2 percent increase over the US$5.1 billion accumulated over the same period the previous year. In 2015, total FDI amounted to US$5.7 billion. Intercompany borrowings accounted for almost two thirds of net FDI inflows (US$3.9 billion) in 2016, up 34.9 percent from US$2.9 billion in 2015. Despite improved FDI, the Philippines continues to lag behind fellow ASEAN countries such as Indonesia, Malaysia, and Thailand in this regard.
Philippines: Central bank tightens rules on money lending
In a move to fight money laundering, the Philippines’ central bank Bangko Sentral ng Pilipinas (BSP) tightened rules on money service businesses (MSBs). MSBs include remittance and transfer companies (RTCs), money changers, and foreign exchange dealers. As per the new rules, large payouts of more than US$10,036 (PHP 500,000) or its foreign currency equivalent in any single transaction with customers will only be allowed via check or direct credit to deposit accounts. Money changers and foreign exchange dealers will be allowed to sell foreign currency in an amount not exceeding US$10,000 and not exceeding US$50,000 per month per customer. Exemption will only be given once an application is made to the BSP depending on the nature of the business.
RTCs and MSBs will also need to notify the BSP when they commence operations as well as for new accreditation of remittance of sub-agents. The new rules will limit MSBs’ ability to transact in cash while also placing a cap on the amount of foreign currency that can be sold to money changers. The development comes after anti-money laundering investigators said that around US$81 million stolen from a Bangladesh central bank was transferred by a Philippines remittance company.
MSCI South East Asia Index Offerings renamed MSCI ASEAN Indexes
MSCI, a US-based provider of equity, fixed income, and hedge fund stock market indexes has renamed its MSCI South East Asia Indexes to MSCI ASEAN Indexes. In addition, MSCI also added new indexes to represent the developed, emerging, and frontier markets in the ASEAN region. While MSCI ASEAN represents all the markets, MSCI EM ASEAN focuses on emerging markets, and MSCI EFM ASEAN represents emerging and frontier markets. The MSCI AC ASEAN index covers large and mid-cap equities across Singapore and four emerging markets, namely, Indonesia, Malaysia, Philippines, and Thailand.
MSCI was granted the right to use the ASEAN designation for their index offering from the ASEAN Secretariat. The members of the ASEAN exchanges include seven exchanges across Singapore, Indonesia, Malaysia, Philippines, Thailand, and Vietnam. The rebranding of the indexes reflects the development of ASEAN members as a region of sustained growth and economic development. The change will offer global investors a deeper understanding of the various investment opportunities in the region and allows the member countries to promote their capital markets.
Indonesia faces shortage of engineers
Indonesia’s annual shortage of around 30,000 engineers is becoming a key obstacle to its infrastructure development plans. Currently, Indonesia has 57 million skilled workers but it would need 113 million by 2030 to meet the country’s requirements. Around 20 percent of Indonesia’s six million university and postgraduate students pursue Islamic studies, with most students ending up with unrelated jobs.
According to a 2015 national labor force survey, less than ten percent of Indonesia’s 250 million citizens have a university-level education. Of those, only eight percent choose an engineering study and more than half of these graduates work in different fields, such as banking. The government believes that the country needs a more skilled workforce if they are to keep up with other ASEAN countries and meet the Master Plan for Acceleration and Expansion of Indonesia’s Economic Development’s (MP3EI 2025) ambitious targets, which will be difficult to achieve with substantial infrastructure gaps.
Achieving Indonesia’s infrastructure development goals, which range from sea projects, airports, highways, and power plants, necessitates a technical workforce. The government is taking steps to establish more industry-oriented engineering colleges, technical institutes, and state-funded scholarships. The last few years have seen improvements, with 57 percent of Indonesians completing education after primary school in 2015, compared to 40 percent in 2002. Furthermore, the share of college-age Indonesians attending universities has risen from 20 percent to 25 percent over the last decade. However, economists believe that Indonesia still needs to do more to meet its infrastructure development goals by 2025.
Philippines: Policy on labor contractualization approved
The Philippines government approved a new Department of Labor and Employment (DOLE) regulation, Order No. 168 on contractualization, after it was submitted on December 29, 2016. The new law amends the provisions of the labor code and legalizes subcontracting or outsourcing labor through third party agencies. This will allow principal employers to hire contractual labor, but only through service providers. These providers will be responsible for regularizing workers rather than the employer. Higher financial requirements will be imposed on service providers to eliminate unreliable subcontractors and ensure payments for laborers. The government believes that the change will address issues of labor abuse.
Several labor groups have opposed the directives, believing the change will only further legitimize contractualization in a different form and not eliminate it. The groups are lobbying for direct hiring and to prohibit third party hiring by banning fixed-term employment. They have asked President Rodrigo Duterte not to implement the directive and to issue an order banning all forms of fixed employment contracts, thereby fulfilling his campaign promise of eliminating contractualization. In the first five months of Duterte’s term, the government regularized 25,000 contractual workers, which is less than 10 percent of the total workforce.
Indonesia: Foreign ownership in digital payment companies reduced
Indonesia’s central bank, Bank Indonesia, has reduced foreign ownership in local companies that offer electronic payment services. As per Regulation No. 18/40/PBI/2016, effective on November 9, foreign ownership in such companies has been reduced to a 20 percent stake on the Operation of Payment Transaction Processing. This applies to companies that operate as card providers or offer switching, clearing, or settlement services for electronic payments.
The regulation does not retroactively apply to existing companies. Rather, companies in the digital payments sector, existing companies that expand into the sector, and existing companies in the sector that change ownership will have to abide by the new rules. Apart from this, other rules apply, such as e-wallet service providers that have 300,000 users will need to obtain a Service Provider license from Bank Indonesia.
Cambodia: New Tax Regulations for Multi-activity Businesses
The Ministry of Economy and Finance (MEF) in October introduced notification Prakas 1127 detailing updated requirements for companies carrying multiple business activities including one or more Qualified Investment Projects (QIP). A QIPs is an investment project that has been issued a Final Registration Certificate (FRC). In order to qualify as a QIP, the investor has to register the project with the Council for the Development of Cambodia (CDC) or Provincial Municipals Investment Sub-Committee (PMIS) to receive the FRC. Businesses that will be affected include those that have more than one QIP, those that carry out more than one business activity subject to different rates of tax on profit and companies that are involved in QIP and non-QIP business activities.
This notification also applies to businesses carrying out the aforementioned activities that were incorporated before October 11. Such businesses will have to register their business activities separately with the General Department of Taxation (GDT) within 15 days of starting the activity and get a separate Value Added Tax (VAT) and Tax Identification Number (TIN). These business will also have to submit monthly and annual tax returns for the registered business activity.
By Dezan Shira & Associates
Editor: Harry Handley
With the Christmas season and year-end fast approaching, annual issues surrounding 13th month pay and Christmas bonuses in the Philippines raise their head once again. One key topic that often prompts questions is the distinction between 13th month pay and Christmas bonuses, also known as a year-end bonuses, and the tax rules surrounding them. Though the two systems of bonus payments are distinct, they can interact to create diverse tax outcomes. Effectively optimizing bonus structures not only reduces employers’ overall tax burden, but also fosters an environment in which employees are rewarded for their labor and given incentives for strong productivity.
Malaysia: Hiring in manufacturing sector improves
Malaysia’s manufacturing sector continued to register growth despite a 47.2 Purchasing Managers’ Index (PMI) reading in November, which is a little lower than September’s reading of 48.6. A score of 50 indicates improvement in the sector. The Department of Statistics (DoS) in mid-November issued an Industrial Production Index (IPI) showing industrial growth of 3.2 percent year-on-year, mainly from manufacturing and electrical sectors. Sub-sectors such as petroleum, chemical, rubber, plastic products, electrical and electronic products, non-metallic mineral products, and basic metal and fabricated metal products drove growth.
Manufacturing sales also improved to US$13 billion, a 1.1 percent year-on-year expansion. The Monster Employment Index (MEI), which records online hiring, stated that manufacturing was the top growth industry, with online recruitment in that sector expanding by 1 percent year-on-year in August. Local recruits also expect hiring to pick up in the short to medium term, with manufacturing a key sector to benefit the most. In addition to manufacturing, robust growth is also expected in IT and retail industries.