Malaysiakini Letter

Free Commercial Zone will boost Penang’s economy

Jason Ong  |  Published:  |  Modified:

LETTER | Although reinstating Penang’s free-port status is no longer an election promise used by BN to fish for votes, we are also at a stage where we need to examine if it is entirely necessary for Penang to possess the free-port status?

The definition of a free port is as below:

i) A port or airport where goods can be brought in from foreign countries without payment of duty if they are going to be exported again.

ii) A free port is a free trade zone encompassing an entire port area such as Hong Kong, Isla Magarita, Panama, and Singapore, where imported merchandise may be stored duty-free pending re-export or duty-paid entry into the importing country.

iii) A free port is a port area where the economy is mainly engaged in trade and is free to carry out cargo handling, handling, re-export and processing. Foreign goods in the free port can be exempted from customs duties and without inspection by customs officers. A free port is just a free trade area without government intervention, and economic freedom to develop areas.

In the Free Zones Act 1990 (Act 438) Section 4, describes a free-zone as:

“[…] goods and services of any description, except those specifically and absolutely prohibited by law, may be brought into, produced, manufactured or provided in a free zone without payment of any customs duty, excise duty, sales tax or service tax.”

Currently, Penang Port Commission is in talks with Customs and other government agencies to explore the possibility of gazetting North Butterworth Container Terminal (NBCT) as a Free Commercial Zone (FCZ). If this happens, it will put Penang in the ranks along with Labuan, Langkawi, Tioman and Port Klang.

An FCZ is 90 percent similar to a free port. In addition to five other free zones in Penang, this additional FCZ can attract importers, exporters and transships and increase international trade in the region. When NBCT receives its new status and certain goods become tax-free, we can expect more ships and direct flights to and from Penang.

The details of the free zone such as whether there will be retail, production, assembly or manufacturing depends on the outcome of discussions between the operator of the free zone and the authorities.

Section 6(1) of the Free Zone Act 1990 states that the minister may, by order published in the Gazette, exclude any goods or services from the provisions of Section 4. This means that Penang need not adopt the model of other free zones “verbatim ac literatim” where cars, motorbikes, alcohol and tobacco are exempted from tax.

Further to that, Section 6A of the Free Zone Act 1990 provides that:

“The minister may, at his absolute discretion, authorize any retail trade to be conducted in a free zone and the Minister may in relation to such authorization impose such conditions as he may deem fit.”

Here is an opportunity for Penang to shine again and prosper in terms of increased productivity and economic growth. The Penang airport and Penang shipping berths will continually be fully utilised and fully productive.

Currently, both the Penang port and airport are operating at its almost maximum capacity and we need to urgently upgrade its infrastructure to cope with future volumes. A huge amount of land is also required to expand the NBCT.

Most ports in the world would already have a free zone but Penang is still lacking one. Therefore, a free zone is a much-needed feature to the Penang Port, where goods that into and from the free zone are exempted from tax and have minimum documentation. The objective of the FCZ would be to increase out market share in the region.

Currently, we are largely dependent on local businesses in northern Peninsular Malaysia and some from south of Thailand. Our annual organic growth is at 3 percent but with the FCZ, we are able to encourage volume from Myanmar, Pakistan and India, where they discharge their containers at our port and wait for the next ship out to, for instance, China.

According to industry sources, without the free zone, goods that arrive in Malaysia will need to go through customs’ check and this process will take between two and four weeks – the long wait for customs clearance is not attractive enough for businesses.

Critics against reinstating Penang’s free port status have raised concerns about smuggling duty-free goods across the borders. With the free zone, this would not pose any problems as we are now equipped with advanced technology at the customs checkpoints.

Penang has a competitive edge over many other ports in the region as George Town is already established as a favourite tourist destination. Certainly, an additional free-zone status to our existing five free-zones will elevate Penang to yet another apex, and another boost to our economy.

George Town was founded by Sir Francis Light as an entrepot in 1786 until its status was revoked in 1969.


The writer is state assemblyperson for Kebun Bunga.

The views expressed here are those of the author/contributor and do not necessarily represent the views of Malaysiakini.

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