Malaysia's Chip Industry Faces Tax & Trade Pressures

Malaysia’s semiconductor industry, a critical global supply chain hub, is facing rising vulnerability due to international trade tensions and domestic tax reforms.

With total merchandise trade equal to 120 percent of its GDP, Malaysia is highly exposed to global disruptions—although still below Singapore (212 percent) and Hong Kong (331 percent). In 2023, Malaysia produced 35.23 billion semiconductors, exporting RM387.45 billion worth of chips, making it the sixth-largest semiconductor exporter globally. Around 10 percent of the world’s chips are packaged in Malaysia, reinforcing its status as a key player for global tech giants like Intel, Infineon, and GlobalFoundries.

Key Highlights

• Malaysia is the 6th-largest chip exporter with RM387B in 2023
• Tariffs and new SST structure are squeezing profit margins
• Government aims to raise global chip market share to 15 percent by 2030

However, external pressures—like the proposed 25 percent global tariff increase—and internal challenges—such as the expanded Sales and Service Tax (SST) implemented on July 1—are squeezing the industry. The lack of B2B exemptions under SST especially hits complex manufacturing sectors like semiconductors, compounding cost pressures.

These challenges come as Malaysia attempts to climb the semiconductor value chain, with the government pledging RM25 billion ($5.9 billion) to boost innovation and aiming to grow its global chip market share from 13 percent to 15 percent by 2030. The country is also navigating the US-China tech rivalry, with 64 percent of U.S. chip imports coming from countries like Malaysia. While relocation from China offers upside, disruption risks and costly facility moves (>$4B) raise the stakes.

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To stay competitive, industry leaders stress the need for automation, AI adoption, and tax reform, positioning Malaysia’s National Semiconductor Strategy as a key determinant of future resilience and growth.