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Jurnal Ekonomi Malaysia

59 (2) 2025 –

Does Green Investment Tax Exemption Drive Malaysia towards Green Economy?
Adakah Pengecualian Cukai Pelaburan Hijau memacu Malaysia ke arah Ekonomi Hijau?

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM, Bangi Selangor, MALAYSIA.

P125141@siswa.ukm.edu.my

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM, Bangi Selangor, MALAYSIA.

fatin@ukm.edu.my

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM, Bangi Selangor, MALAYSIA.

norghani@ukm.edu.my

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM, Bangi Selangor, MALAYSIA.

zak1972@ukm.edu.my

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM, Bangi Selangor, MALAYSIA.

eychah@ukm.edu.my

Faculty of Economics and Management
Universiti Kebangsaan Malaysia
43600 UKM, Bangi Selangor, MALAYSIA.

imna@ukm.edu.my

Abstract

This study explores whether Green Investment Tax Exemption (GITE) policy may effectively guide Malaysia towards a green economy by balancing carbon emission reductions with economic growth. Despite growing empirical studies on tax incentives, integrating GITE with macroeconomic dynamics remains limited in Malaysia. This paper addresses this gap by developing New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) model tailored to Malaysia’s green economy scenario under the GITE policy through incorporating households, low-carbon firms, banking sector, government, and central bank. The model simulates the macroeconomic and environmental impact of GITE. Simulation results demonstrate that GITE enhances green investment, reduces loan demand, increases capital accumulation, employment, and GDP, while reducing carbon emissions in the long-term. However, the rise in wages leads to a temporary decline in consumption driven by intertemporal substitution. Policy implications suggest that while GITE is effective in promoting the transition to low-carbon economy, it incurs fiscal costs and limits government revenue and spending capacity. Policymakers are thus encouraged to implement complementary policies to support GITE in order to reduce the reliance on tax incentives and foster public-private partnership. Such integrated policy approach  ensures Malaysia stays on track towards achieving   its Net-Zero 2050 commitment  and long-term sustainability objectives.

Keywords

fiscal incentive; green tax exemption rate; low carbon economy; New keynesian DSGE model
http://dx.doi.org/10.17576/JEM-2025-5902-1
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Ku Hakim, M. J., Said, F. F., Md Nor, N. G., Abd Karim, Z., Abd Rahman, A., & Mohd Amin, S. I. (2025). Does Green Investment Tax Exemption Drive Malaysia towards Green Economy?. Jurnal Ekonomi Malaysia, 59(2), –. http://dx.doi.org/10.17576/JEM-2025-5902-1

@article{hakim2025does,
  title={Does Green Investment Tax Exemption Drive Malaysia towards Green Economy?},
  author={Ku Hakim, Muhammad Jasrim and Said, Fathin Faizah and Md Nor, Nor Ghani and Abd Karim, Zulkefly and Abd Rahman, Aisyah and Mohd Amin, Syajarul Imna},
  journal={Jurnal Ekonomi Malaysia},
  volume={59},
  number={2},
  pages={—},
 

year={2025},
}

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