This article first appeared in The Edge Malaysia Weekly on September 14, 2026 - September 20, 2026

Global taxation is no longer defined solely by corporate income tax rates and compliance obligations. Increasingly, trade tensions, tariffs, geopolitical fragmentation, environmental measures and the reconfiguration of global supply chains are influencing where businesses invest, manufacture and serve markets.

As Malaysia looks towards Budget 2027, businesses and policymakers are navigating what EY refers to as a NAVI world — one that is becoming more nonlinear, accelerated, volatile and interconnected. Traditional planning assumptions are being challenged as trade policy, tax reform, technological advancement and geopolitical developments increasingly intersect, requiring organisations to build resilience while remaining agile enough to respond to rapidly changing conditions.

The traditional drivers of competitiveness, such as low-cost manufacturing and tax incentives, are no longer sufficient on their own. Instead, companies are prioritising supply chain resilience, market access, talent availability and regulatory certainty.

Malaysia enters this period from a position of relative strength. According to the Malaysia External Trade Development Corporation (Matrade), total trade for the period January 2026 to July 2026 reached a record RM2.16 trillion, representing a 24.7% increase from the same period last year, while exports rose 29.2% to RM1.165 trillion.

In a NAVI environment, disruption rarely occurs in isolation. Trade policy, tax reform, geopolitical developments and technological change intersect, creating ripple effects across supply chains, operating models and investment decisions.

Tariffs are no longer merely a trade policy concern. They have become a strategic factor influencing corporate investment decisions, sourcing arrangements and market access.

Ongoing uncertainty surrounding tariffs has made supply chain planning significantly more challenging. Businesses must now evaluate not only production costs, but also potential exposure to future trade restrictions, conflicts, export controls, rules-of-origin requirements and other measures that may affect access to key markets.

When re-evaluating supply chains to address the above issues, multinational groups should avoid restructuring supply chains based solely on headline tariff rates. A proper assessment should consider the relevant Harmonised System (HS) classification, customs valuation, rules of origin, preferential tariff eligibility, anti-dumping measures and product-specific restrictions.

Transfer pricing is equally important. Supply chain changes frequently involve changes to intercompany prices, service charges, procurement arrangements, inventory risks, locations of key personnel and activities, and the allocation of profits among related entities. If a Malaysian company assumes additional manufacturing, logistics or market risk, its remuneration should be reviewed to determine whether it continues to reflect the functions performed, assets used and risks controlled. Conversely, temporary disruption costs should not automatically be allocated to a Malaysian limited-risk entity without analysing the contractual arrangements and the actual conduct of the parties.

Aligning tax and customs systems has become increasingly important as tax authorities and customs authorities are sharing more data and scrutinising inconsistencies.

For Malaysian businesses, particularly those involved in cross-border related-party transactions, customs declarations, transfer pricing documentation, e-invoice data and statutory tax filings should tell a consistent story which is aligned with the way in which the business is structured and operates.

Historically, customs and tax functions operated independently: Customs focused on assessing whether imports were appropriately valued and whether the correct duties and indirect taxes had been declared and paid. Transfer pricing focused on aligning intercompany prices with the arm’s length principle.

Today, authorities increasingly review these areas together. For example: Customs may challenge an import value that appears artificially low. Tax authorities may challenge a transfer pricing policy that allocates insufficient profit to Malaysia.

Enterprise resource planning (ERP) and e-invoice data provides authorities with greater visibility into transaction flows. Consequently, a position that reduces customs duties may inadvertently create a transfer pricing risk and vice versa.

While geopolitics and trade dominate headlines, another structural shift is occurring in international taxation.

The Organisation for Economic Co-operation and Development’s Global Minimum Tax framework seeks to have large multinational groups pay a minimum effective tax rate of 15% in each jurisdiction in which they operate. Malaysia has introduced rules aligned with these international developments, reflecting the growing global momentum behind tax transparency and consistency.

The significance of these measures extends beyond tax compliance. Historically, many jurisdictions relied heavily on tax incentives to attract foreign investment. Under the new global minimum tax environment, the attractiveness of traditional incentive structures may diminish for large multinational groups because tax benefits granted in one country may be offset elsewhere through top-up taxes or subject to domestic top-up tax.

Consequently, investment decisions are now being driven by factors such as infrastructure quality, talent availability, energy security, regulatory certainty and digital readiness. In many respects, the global minimum tax is shifting competition among developing countries from tax rates towards underlying economic fundamentals. Countries are also actively looking into designing alternative tax incentives which have a reduced impact from a global minimum tax standpoint.

This shift also presents an opportunity for Malaysia. As tax incentives become less of a differentiating factor for some multinational groups, Malaysia’s broader strengths, including its infrastructure, skilled workforce, established manufacturing ecosystem, access to Asean markets and network of trade agreements, may play a growing role in attracting investment.

Against this backdrop, Budget 2027 provides an opportunity to strengthen the country’s position as a regional investment and supply chain hub.

First, policymakers should continue supporting strategic growth industries, particularly semiconductors, advanced manufacturing, artificial intelligence, renewable energy, biotechnology and digital services. Future incentives should be focused on innovation, automation, research and development and high-skilled employment creation.

Second, regulatory certainty should become a key pillar of Malaysia’s competitiveness strategy. Investors place a high value on predictable tax policies, efficient regulatory approvals and transparent administrative processes. Simplifying compliance obligations and accelerating investment approvals can have a meaningful impact on investment attractiveness.

Third, greater alignment between tax, customs and digital reporting frameworks can help reduce compliance costs and improve business efficiency. As Malaysia progresses with e-invoicing and broader digitalisation initiatives, there is an opportunity to create a more integrated and business-friendly compliance environment.

Finally, continued investment in human capital, digital infrastructure and energy transition initiatives will be critical. In today’s NAVI environment, where competitive advantages can shift rapidly, talent and productivity may ultimately become Malaysia’s most important and enduring strengths.

Sockalingam Murugesan is EY Asean transfer pricing leader and partner at Ernst & Young Tax Consultants Sdn Bhd

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