Some thoughts on protection and fiscal incentives to encourage industry and industrial employment in Peninsular Malaysia

Abstract

In relation to most other less developed countries (LDCs), the pursuit of industrialization began late in Peninsular Malaysia for various reasons (including that of late political independence). Through the 1960's however, it gathered momentum, as the increasing rise of protection and fiscal incentives revealed. Since 1969-70, government intervention to encourage industries has increased greatly in order to create more urban employment. While the earlier emphasis on increasing investment and output as criteria for the granting of protection or fiscal incentives remains, the employment objective has become increasingly important. However, under the present 'made-to-measure' protection and fiscal incentives system, old criteria and provisions are often not relinquished even as new ones are added. As a result, the present structure of protection and fiscal incentives has become increasingly complicated and incorporates conflicting objectives which blunt the employment objective. The purpose of this paper is to assess the present protection and fiscal incentives system, to consider whether and how it can be altered to best achieve the employment objective (while still retaining the output objective) and to take account of the closely related one of improving income distribution.