“It is not an option for us to remain where we are. We must embrace the new reality, change course and design a new strategy for our industry. Or else we will perish. We are in this as a community.”

Articulated by the Chairman of Labuan Financial Services Authority (Labuan FSA) Tan Sri Muhammad Ibrahim, during his speech at the Labuan Industry Annual Dinner 2017 recently, when he urged the industry players and regulators to play a more contributing role in the economic development of Labuan island.

Although Labuan is a known destination for financial services in the region, the spillover effect on the local community can certainly be enhanced, whilst ensuring that the standards of regulatory, supervisory and transparency requirements of a leading international business and financial centre is met. In fact, this applies even more pertinently to Labuan IBFC as it is a well-regarded midshore centre with a strong proposition as a substance-enabling jurisdiction, especially for businesses in the Asia Pacific region.

A much needed diversification strategy for Labuan and the IBFC

A “continuous reinvention of financial offerings” is important for Labuan International Business and Financial Centre (Labuan IBFC) to stand resilient and to remain relevant in the market today. Hence, it is imperative for the centre to build its niche and gain international prominence. Indeed, this need for reinvention is not limited to the financial services sector but to Labuan island as a whole, in order for it to “horizontally diversify its economic base”. The aim is to have a fine-tuned economic model that gives “equal weight” towards the development of an inclusive and sustainable economic ecosystem in Labuan, this would be the back bone of Labuan’s reinvention and economic diversification.

A key-enabler to this ambition would be the availability of soft and hard infrastructure, facilitated by convenient connectivity, all these elements working hand in hand to play an important role in the reinvention of Labuan’s real economy. Therefore, the recent announcement of a feasibility study towards the development of a bridge connecting Labuan and Sabah mainland during the recent Malaysian Budget was very much welcomed by all on the island.

Competing in the “new normal” and the need for a revamped tax framework  

International regulatory developments such as the Base Erosion Profit Shifting (BEPS) will directly influence international business and financial centres such as Labuan IBFC. For this, a review on the current tax framework in Labuan IBFC will be high on the list of priorities towards the further development of the IFC and along with it the reinvigoration of the economy in Labuan itself.

This review will not only ensure that Labuan IBFC continues to subscribe to international best practices but guarantees that the centre’s tax offering remain relevant in catalysing new growth areas in the island’s real economy. And of course, the tax review will inadvertently boost the reputation and competitiveness of Labuan IBFC.

“The world that we live in, since the creation of offshore Labuan in the 1990s, has drastically changed. What was relevant then is no more relevant now. We have no choice but to change with it. It is an opportune time for us to review of the current tax framework for Labuan,” the Chairman said.

He added, “Businesses that enjoy tax incentives will be benchmarked against the performance indicators that quantify economics and financial benefits. This is not meant to be onerous.”

He went on to say “It is a necessary tool to ensure that the economy grows in an inclusive and sustainable way and the public policies implemented bear the intended benefits.”

“Specific to financial industry players, such preferential treatment must be coupled with clear business strategy that integrates the desired expected outcomes of contributing positively to the national and the local economy.” he added.

And yes, it is time for the industry to give back

The Chairman of Labuan FSA went on to say that the Labuan industry players that have benefitted through the years are also strongly encouraged to take a leadership role in assisting local businesses and the population towards achieving the aim of an inclusive growth for all. After all, true to the old adage, a rising tide raises all ships.

One of the ways is to uplift the job prospects of local talents by offering innovative technical and industrial training such as the fit-for-work online programmes in the financial services industry. Indeed, leaders of industry, could offer apprenticeships and mentor key upcoming local talents towards ensuring the needs of succession planning are met.

As Chairman Muhammad pointed out, “As we move forward, we need to be more focused on the outcomes we want for Labuan. We want a more balanced growth. A clear step forward is to formulate clear and measurable targets, and to review them consistently. We must ensure that the benefits we obtain outweigh the incentives given by the Government such as the revenues foregone from the notional tax incentives offered.”

While stressing that it is a communal duty to advance the welfare of the society, Chairman Muhammad also pointed out that a new economic model must be designed to contribute to the local community in a more beneficial manner.

“Without doubt, it is our collective duty, as an industry whether as regulators or industry players, to advance the welfare of society through a more inclusive economic development. The success or failure to achieve this will reflect on us all as a collective,” he said.

Together we will build a stronger Labuan

Rome was not built in a day. Labuan will require the right combination of strong infrastructure, good talent, focused determination and a great amount of courage to reform.

Together we need to swim, or we will sink. A stronger Labuan will benefit us all.

Read the full speech here.  

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