The Johor-Singapore Special Economic Zone: A game changer for both countries

The successful Shenzhen-Hong Kong Special Economic Zone (“SH-SEZ”), which was established between Hong Kong and the neighbouring border city of Shenzhen on the Chinese mainland, can be taken as a prime example of the potential benefits that can be derived from such an approach. The SH-SEZ was created in 1980 with a view to intensifying economic relations between the People’s Republic of China and Hong Kong and spurring foreign investment in the region. The SH-SEZ is a highly developed economic zone that is characterised by its attractiveness for foreign investment, technology and talent. It has established itself as an important economic hub serving as a centre for high-tech industries, financial services, exports and maritime transport services.

Even though the preparatory work for the creation of the JS-SEZ has not yet been fully completed, joint statements published after the signing of the MOU already made mention of a number of incentives that are currently being developed for those wishing to do business in the zone.

Facilitating the cross-border movement of people and harmonising labour regulations: In light of the fact that more than 300,000 people cross the land border between Johor and Singapore each day, causing considerable traffic congestions and delays, it is indispensable that cross-border mobility be improved. It is evident that connectivity needs to be optimised by providing a dedicated entry lane for individuals to allow faster and more effective travel. The preliminary proposal includes the implementation of a QR code system without passport control to facilitate the cross-border movement of people between Singapore and Johor.

The proposals further include developing harmonised workforce regulations, introducing an accelerated procedure for obtaining work permits, and investing in the workforce. The last-mentioned measure aims to improve skills and eliminate skills gaps on the part of the workforce. The measures seek to create a flexible and competitive labour market that will prove beneficial to both national economies

Tax incentives: Economic zones usually offer a number of tax incentives to attract companies to invest within the designated area. These tax incentives could, for example, include exemptions or reductions in corporate and/or individual income tax for companies operating within the zone and for the people employed there. Another possibility would be to exempt companies operating in such economic zones from sales tax on imported goods. In order to facilitate compliance with tax regulations, manufacturers operating in the aforesaid zones could be exempted from VAT registration, for instance, and be allowed to benefit from other forms of tax facilitation.

Smooth movement of goods: The movement of goods between Singapore and Johor is affected by a number of obstacles such as traffic congestion and customs procedures. These challenges have a significant impact on freight handling companies. Various measures have been proposed to resolve the identified problems, including introducing simplified customs clearance procedures, developing an improved logistics infrastructure, and promoting digitalisation.

Investment incentives: The plans include the implementation of investment incentives, for example, in the form of grants, subsidies or financial assistance for capital investments, R&D activities and training programmes. These measures seek to attract foreign and domestic capital investments.

The JS-SEZ is a less costly alternative for companies faced with rising costs in Singapore. Settling in or relocating to Johor can help companies optimise their operating costs whilst maintaining strategic links to Singapore. Another advantage of the Johor region is its larger land area with enough land for the expansion and development of the necessary infrastructure for diverse industries, which counterbalances the limited amount of land available in Singapore and the resulting challenge to expansion and development.

The JS-SEZ could have a significant impact on economic growth in Malaysia and Singapore. The creation of a favourable business environment, which includes the development of infrastructure and incentives for foreign investment and skilled labour, would give the JS-SEZ the potential to become an important investment hub in the region and beyond.