What Sabah Needs Now Is A Simple Economic Solution

Part 1 of 3 by Tzu Wong

After the dust has settled following the Sabah state election, a pressing issue came up for the new state government to address. No, it is not about COVID-19 although this is an equally, if not more, of an urgent matter to handle. This is about the stagnant state economy, the elephant in the room that has to be addressed, going forward in the next five to 10 years.

As a Sabahan myself, I feel compliant to do my duty as a citizen by offering my little insights into the economic situation in my home state. Having been in the consulting business and actually venturing into a few businesses in Sabah myself, I have noticed that there are ways in the economic and policy areas that could be improved to add value to the Sabah state economy. Hopefully, this will not only help the state government to generate more cash flow, but will also put more liquidity into the market and create more employment for the people.

Land below the wind, the storm beneath the calm sea. Sabah needs to work on some serious economic resuscitation to weather the storm. – Photo credit: Writer’s File pic.

Before we get into the details, here are the problems and obstacles in Sabah that many have already been highlighted by previous administrations and some I have observed from my own experiences. Actually, these issues are quite obvious even if you have not heard of them before, but you won’t be able to miss them if you are observant enough, and obviously it won’t take a Nobel prize economist to figure them out.

The issues that are hindering the Sabah economy can be summarized into the following five points, which are:

  • Limited revenue source
  • Poor infrastructure
  • Inadequate policies
  • Shortage of anchor industry or industry locomotive to support the local economy, and
  • Insufficient investment in potential commodities

One important note before we go any further, we need to take into account that in 2020, we have entered into a whole new different world. The world that we have grown accustomed to is changing rapidly due to the trade war between the number One and number Two economies in the world. And subsequently, the worsening world economic situations due to the trade war have been further compounded by the COVID-19 pandemic in 2020 that makes the pending economic calibrations so much more difficult to adjust that one can’t just focus solely on economic growth, but must also consider sustainability and self-sufficiency in the micro and macroeconomy in the state

Revenue

No money no talk, that’s the famous adage everyone understands. We need money for almost everything in the running of government, so restructuring or recalibrating the revenue model is important for the sustainable economic development of Sabah.

Sabah needs to implement and make use of our sales tax policy more broadly as a tool to allow us to generate more revenue for the state government and indirectly to promote more investments in the state.

We can do this with the following sectors:
A. Sales tax on oil and gas: If Sarawak can do this, so can we. This will be by far the biggest tax revenue for Sabah, and if we can get this tax implemented at 5% (the same as Sarawak) on all oil and gas production from Sabah territories, we could solve many of our budgetary issues.

B. Sales tax on palm oil; although Sabah has the highest tax structure on the oil palm industry, we also have the lowest local participation in this industry amongst the states in the country in terms of acreage held by locals. We can use this tax as a tool to force implement the social-economic agenda and break the monopoly of oil palm on our premium arable land. Sabah is by far the largest oil palm producing state in the country and the overwhelming majority of our premium arable land have all been taken up for oil palm crops. Putting all our eggs in one premium basket will bring two side effects to the state; less diversity for the agriculture industry and more vulnerability for the economy in the event of a price drop on palm oil. The recent slumps in palm oil prices in 2018 and 2019 are testimony to these side effects. The suggestion is to raise this tax to 10% from 7.5% for big estate and exemption can only be given if these estates allocate portions of their land (percentage to be decided by the Cabinet) for the social-economic project to farm other crops and to work alongside with local communities near their estates. This will increase agricultural diversity and also provide the rural communities near these big estates an opportunity to make extra income.

C. Sales tax on other commodities: round logs, silica sand, whole seafood, etc should be levied a 5% sales tax on export to discourage the export of these raw materials. This is to encourage more FDI so that there can be more investments in value-added manufacturing in Sabah and in turn more job opportunities for the locals.

After the money issue is settled, we can now start developing and the first thing to do in construction is building the foundations. Without a solid foundation, whatever building that we have in mind is nothing more than a sandcastle that won’t survive the test of time, man-made crises, and/or natural disasters. So, let’s see how we can build the foundation to move forward in the resuscitation of the Sabah Economy. – New Malaysia Herald

Part II tomorrow.

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