In the midst of recovery, many sectors that were battered by the COVID-19 lockdowns, are looking to the government for further aid to strengthen and iron out obstacles in their path – more specifically for some help to be included in the pre-budget 2023 wishlists.
Small and medium-sized enterprises (SMEs), which had been the backbone of the economy but suffered greatly in the last two years, are looking for a stronger future in the new, digitalised economy.
The high incidence of death and loss of jobs during the earlier phase of the pandemic had also highlighted the importance of financial protection and planning. The current economic recovery had been boosted by, among other things, pent-up demand and a severely impacted base in the last two years of COVID-19 lockdowns.
Industries are now finding ways to sustain that recovery, with a much-needed assistance from the government.
Pre-Budget 2023 Wishlist: The SME Sector
In gauging the sentiment of SMEs, a survey was carried out by the Small & Medium Enterprises Association Malaysia (SAMENTA) with Affin Bank. Of the 613 SMEs responses received from the SAMENTA-AFFIN Survey on Business Conditions and Economic Outlook for SMEs 2022-2023, it showed that about 63% have cash reserves of less than four months, and 26% reported a revenue decline of 11%-30%.
The survey which was published in July 2022 noted that about 50% had expected a turnaround to pre-COVID 19 performance from 2023 onwards, around 4% have recovered and achieved pre-COVID 19 results and 2% do not expect to recover.
Almost 50% have moved part of their processes online, while 21% are performing better, while around 10% are fully digitalised.
The re-introduction of the Goods and Services Tax (GST) was favoured by 47% of respondents, while 25% are uncertain. Of those favouring the GST, 85% supported the initial rate of 4% and below, to be implemented beyond the second half of 2023.
In their digital transformation, SMEs subscribing to Software as a Service, which is a service infrastructure platform, are unhappy that they have to bear the costs instead of the foreign providers.
In this regard, they also want the digital tax to be suspended until a solution is found, said SME Association of Malaysia president, H.S. Ding.
To expedite the process of digitalisation, the Industry4WRD Intervention Fund should be extended to 2023. The current allocation of RM45 million is insufficient, as there are more than 500,000 SME manufacturing companies and related services sectors looking for a simpler and shorter approval process, informed Ding.
To promote and nurture the 5,000 start-ups and five Malaysian unicorns under the Malaysian Digital Blueprint, a RM10 million funding should be allocated for 2023, said Ding.
A ten-year tax exemption is sought for local manufacturers with a majority share of 70% and planning business expansion. A waiver or discount of 50% is also sought for business permits, licenses and assessments in 2023, as the COVID-19 lockdowns had caused Malaysian businesses to face losses and disruptions.
To assist SMEs and companies with reduced profits, corporate tax should be lowered. Higher tariffs for electricity lead to higher costs of doing business, SMEs are seeking to maintain the status quo in electricity surcharge or reduction in electricity and fuel tariffs in 2023.
The tenor for the SME Recapitalisation Fund of five years, or a repayment of 20% per year, should be lengthened to 10-15 years, as most SMEs do not have the cash flow to support that repayment period.
SAMENTA also proposes double capital allowance for companies that invest in research & development of orchards, as well as food or fruit related downstream activities.
For SMEs involved in domestic tourism, the tourism tax exemption should be extended to 2023. Under sustainable development, the Low Carbon Transition Facility for capital expenditure or working capital is proposed to be increased to a maximum of RM20 million from RM10 million.
The Business Recapitalisation Facility should also be increased to RM2 billion from RM1 billion, to cater for the 1.3 million SMEs in Malaysia. There should be more automation loans, and 120% loans are sought for SMEs to update the standard of factories to Industry 4.0.
For SMEs with profits of up to RM1 million, corporate tax should be lowered to 15%, suggested SAMENTA honorary secretary general, Yeoh Seng Hooi.
Other budget recommendations by SAMENTA to help the SMEs to thrive include grants and workshops on ESG compliance, and double deduction on remuneration for the hiring of skilled workers and professionals (to enable SMEs to pay higher salary to attract talents), reintroduction of pre-shipment funding as per the Export Credit Refinancing and reduction in statutory fees by 50% for the first half of 2023, as post-recovery incentive to alleviate SME cost of doing business.
Pre-Budget 2023 Wishlist: Property Sector
Various measures have been taken to increase home ownership among Malaysians, but more needs to be done to address the problems of the housing and construction industries.
“We must ensure a smooth recovery from the pandemic lockdowns, and that all cylinders of the economy are firing. “It is tempting for stakeholders such as state and local authorities, as well as utility companies, to impose additional requirements on these industries. “But these temptations must be resisted,’’ said Real Estate and Housing Developers Association (REHDA) president Datuk N.K. Tong.
To mitigate the rising prices of building materials, REHDA proposes a waiver or reduction of duties on certain construction materials until prices
normalise or become more manageable. Lifting of taxes and levies imposed on import materials as well as review and/or reduction of unnecessary charges will also help the industries.
To assist first-time homebuyers on properties priced up to RM500,000, REHDA proposes among others, a tax deduction on interest incurred during construction, personal tax relief (of RM20,000) and a one-off grant (of RM30,000) as well as a rent-to-own scheme to be considered.
The cooling measure since 2010, under Loan-to-Value, which compares the amount of the mortgage to the appraised value of the property, should be removed. REHDA also urged the government to review or relax the new and stricter conditions for participants of Malaysia My Second Home.
“A strong secondary market is crucial, as there will be more interest to invest in the primary market when buyers see property prices or rentals going up,” said Malaysian Institute of Real Estate Agents (MIEA) president, Chan Ai Cheng.
Stamp duty exemption for buyers in the secondary market and Real Property Gains Tax (RPGT) relief for sellers are proposed. Under a Home Ownership Campaign for Secondary Properties, MIEA proposes that buyers service the interest portion of the loan instalment for a certain period, instead of principal plus interest.
Pre-Budget 2023 Wishlist: Hotel, Tourism And Retail Sectors
As long as international leisure tourism is still restricted, the hotel industry will suffer a direct loss in revenue. Based on the Tourism Malaysia annual report 2019, receipts for accommodation from international arrivals had hit RM20 billion but currently, many are still on the road to recovery.
With the re-opening of interstate travel and domestic tourism, the Malaysian Association of Hotels (MAH) is asking for a lower wage subsidy, than previously requested, of 30% for employees with wages up to RM4,000, and 15% for those with wages up to RM8,000.
A minimum wage mechanism across the board does not encourage productivity or efficiency, instead, MAH proposes for an industry-based wage mechanism that is based on productivity, skills and tasks performed.
For reliable supply and demand of tourism-related data, a live on-demand, centralised tourism platform should be set up, to plan for the sustainable growth of the hotel and tourism industry.
In terms of tourism industry support as well as integrity and delivery of tourism data, the data should be released in a timely manner, in consultation with the industry.
In view of the massive upgrading and reinvestment required, the investment and reinvestment tax incentives for tourism and hotels should be extended for all categories up to 2025.
After suffering losses for two years, MAH is also seeking tourism recovery funding via soft loans that are interest-free or with low interest
for reinvestment, upgrading, repair and maintenance of hotel properties as well as for operating expenses.
To drive domestic tourism, individual tax relief for travel and hotel expenditure within the country is proposed at RM5,000 per year. Exemption of the sales and service tax for hotels are to be extended till December 2022. The counter-productive tourism tax should be abolished to encourage high yield and long stay international arrivals.
To help address Malaysia’s weakness in international business events, a special budget should be allocated to the Malaysia Convention & Exhibition Bureau and Tourism Malaysia to pitch for international events. As the tourism industry invests heavily into international promotions, a special marketing grant for domestic and international marketing activities is proposed for business-to-business and business-to-consumer trade shows.
With the tourism industry just recovering from the lockdowns, there are very few group tours that hire 40-seater buses, many of which have not even had their road tax renewed. A conversion incentive should be given for normal tour buses to be converted into recreation or luxury vehicles,
said Malaysian Inbound Tourists Association (MITA) president, Uzaidi Udanis.
A tourism bank can be set up to help expand the industry which does not just involve the provision of hotels and chalets for tourists, as there is also potential in medical, agriculture, youth and education tourism.
Retail Group Malaysia (RGM) hopes there will not be another movement restriction at the end of 2022, or early 2023.
“Malaysian retailers do not have the resources to deal with this crisis again,’’ said RGM managing director, Tan Hai Hsin.
The government has to resolve the problem of rising prices and its impact especially on the B40 and M40, and not allow these price shocks to linger until 2023.
Shortage of staff along the entire retail chain, and especially in Johor which faces competition from Singapore employers, also needs to be addressed soon, as this problem will slow down the economic recovery.
Against the threat of a looming recession, the government needs to take swift action to cushion the negative impact of a possible reduction in take-home pay and consumer spending.
Malaysia needs to attract more foreign tourists for the next one year, as foreign tourist arrivals of more than two million as of June, 2022 (with a target of 4.5 million by year-end, set by the Ministry of Tourism, Arts & Culture), is way below that of 26.1 million in 2019.
Pre-Budget 2023 Wishlist: Insurance And Financial Planning Sectors
The COVID-19 pandemic is a wake-up call, reminding us of how uncertain life can be. To encourage take-up of life insurance, the personal tax relief for life insurance premium should be increased from RM3,000 to RM5,000, said Life Insurance Association of Malaysia (LIAM) president, Loh Guat Lan.
Currently, there is a RM3,000 tax relief on insurance premium paid for medical and education insurance policies combined.
The tax relief for education, medical and health insurance (MHI) as well as MHI plans with co-share benefits should be raised from RM3,000 to RM6,000.
In Budget 2021, the tax relief limit on medical expenses for self, spouse and children for serious diseases, was increased from RM6,000 to RM8,000. This tax relief should be extended to include medical insurance premiums for self, spouse and children, said Loh.
LIAM informed that in 2021, RM11.9 billion in benefit payouts were made in the life insurance industry while RM4.6 billion were paid out for medical insurance.
The RM50 Perlindungan Tenang Voucher program for the B40 Bantuan Prihatin Rakyat group, which received encouraging responses but will end in December 2022, should continue for at least another year.
Many in this category do not have any form of insurance or takaful coverage. Having a second premium that is subsidised will be necessary in the midst of an uncertain recovery from COVID-19.
Data shows that less than half of employees, especially B40 workers, are being covered by some form of group insurance which is a cheaper form of insurance. LIAM therefore seeks a waiver of the 6% service tax for group insurance schemes.
The COVID-19 pandemic had caused many people to lose their jobs and also eroded their savings. Thus, to help Malaysians better manage their personal finances, Financial Planning Association of Malaysia (FPAM) proposed that a new tax relief of RM3,000 be given to Malaysians who engage licensed financial planners, said FPAM vice president, Rafiq Hidayat.
As many Malaysians no longer have enough savings when they reach retirement age, tax relief on the private retirement scheme should be increased from RM3,000 to RM10,000 to attract more people to put aside their money for retirement.
With medical insurance premiums rising regularly due to the high inflation of medical expenses, FPAM also agrees with LIAM that this tax relief should be raised from RM3,000 to RM5,000.
Now that we’ve seen the Pre-Budget 2023 wishlist by the industries, let’s hope that their voices are heard.