Anwar's Call For Nationwide Crackdown For Illegal Foreign-run Businesses Timely - Economist
By K. Naveen Prabu
KUALA LUMPUR, June 9 (Bernama) -- Prime Minister Datuk Seri Anwar Ibrahim's call for an immediate crackdown on illegal foreign-run businesses nationwide is timely, as such operations can harm micro, small and medium enterprises (MSMEs), according to an economist.
Prof Emeritus Dr Barjoyai Bardai of the Malaysia University of Science and Technology (MUST) said global evidence shows that unfair or illegal business practices distort market competition and undermine the level playing field crucial to MSME resilience.
"MSMEs are particularly vulnerable due to their thin margins, while informal competitors can crowd out legitimate businesses over time, disproportionately affecting micro and small enterprises, the most vulnerable segment of the economy," he told Bernama.
Barjoyai said illegal operators often avoid paying taxes, and disregard licensing requirements, labour regulations and other compliance costs, giving them a structural advantage over businesses that operate within the law.
"This gives them a structural cost advantage, allowing them to offer lower prices and expand more rapidly without being constrained by the regulatory requirements faced by legitimate businesses," he said.
Barjoyai said this when he was asked to comment on Anwar's remarks on foreigners allegedly abusing tourist and student visas to conduct business activities in the country.
He said illegal business activities also pose a major fiscal concern, as operators often fail to declare income, do not remit corporate or personal taxes and may evade the Sales and Service Tax as well as other indirect taxes.
"Tax evasion is commonly associated with informal economic activities and the under-reporting of income. The leakages extend beyond taxes, as unregistered businesses often bypass licensing fees and local council revenues, while illegal imports and contraband trade reduce customs duty collections," he said.
Barjoyai added that the government also incurs additional enforcement, investigation and prosecution costs in dealing with such activities, while compliant businesses continue to bear higher regulatory costs.
“Meanwhile, profits generated by illegal operators could be transferred abroad through informal channels and kept outside Malaysia's financial system,” he said.
He said the challenge for policymakers is to strengthen enforcement against illegal business activities without discouraging legitimate foreign investment, noting that Malaysia remains broadly open to foreign direct investment under relatively liberal policies and sector-specific participation rules.
"The Prime Minister has already outlined a multi-agency approach involving the Immigration Department to address visa misuse, the Inland Revenue Board and Royal Malaysian Customs Department for tax compliance, as well as Bank Negara Malaysia and the Malaysian Communications and Multimedia Commission for financial and e-commerce monitoring.
“These efforts could be further strengthened through an integrated digital enforcement platform linking immigration, tax, licensing and banking data, alongside the use of artificial intelligence to detect abnormal transaction patterns and other suspicious activities," he said.
Barjoyai added that the issue highlighted by Anwar extends beyond immigration enforcement, and should be viewed as a broader economic governance challenge involving the expansion of the informal economy, the competitiveness of MSMEs, fiscal leakages and the integrity of the regulatory framework.
"A calibrated response should combine firm enforcement to restore fairness, institutional reforms to close existing loopholes and investor-friendly policies to sustain growth.
“If handled effectively, such measures could strengthen Malaysia's investment climate by reinforcing confidence in the rule of law rather than weakening it," he said.
Meanwhile, Kuala Lumpur and Selangor Indian Chamber of Commerce and Industry president Nivaas Ragavan said the issue has become a growing concern among many SMEs and business owners.
“Malaysian businesses are required to comply with various regulatory requirements, including business licences, tax obligations, employment regulations and deal with other compliance costs.
“When individuals operate businesses illegally, abusing their tourist, social visit or student visas, they are effectively bypassing these requirements, creating market distortions that disadvantage legitimate operators,” he said.
According to Nivaas, feedback received by the chamber indicates that the issue warrants continued attention from enforcement agencies, particularly in cases involving alleged nominee arrangements or businesses operating without the necessary permits.
He said Malaysia must remain open and attractive to genuine foreign investors and entrepreneurs who create jobs, facilitate knowledge transfer and contribute to economic growth.
“The objective is to ensure that all businesses in Malaysia are operating legally, transparently and on a level playing field,” he said.
-- BERNAMA