The Honorable Prime Minister of Malaysia revealed an RM35 billion short-term Economic Recovery Plan a few days ago, and it appears to be well-planned and extensive in the view of both employees and businesses.
However, a few propositions of incentives are over the top and lack clarity which can be pursued by the wrong set of businesses according to tax consultants. Furthermore, the domestic investments are not backed up by a stimulus package that has suffered largely in the past few years.
The “mini-budget” included one highlight initiative to introduce tax incentives for attracting foreign direct investment (FDI) in order to bring life to the falling economy in COVID-19 pandemic.
“As a number of multinational companies have already modified their manufacturing domains in the view of an ongoing trade war between the US and China as well as COVID-19 stricken countries including Vietnam and Thailand have already proposed ways to attract FDI, Malaysia is also paving its way to bring FDI,” says EY Asean and Malaysia tax managing partner Amarjeet Singh.
According to him, the incentives put forward by Malaysia are charitable but the qualifying criteria can be a little stringent. However, in the wake of the current situation, Putrajaya is directed towards capital investments and generation of new jobs.
The companies in the manufacturing domain that wish to relocate to Malaysia shall be able to enjoy a 0% tax rate for 10-15 years depending on their capital investments. Furthermore, the existing companies can enjoy a 100% Investment Tax Allowance for five years in Malaysia that wish to relocate their overseas business back to the nation.
“The incentives are offering a sweeping range with 0% tax rate for 10 years. The threshold is also quite plausible for capital investments between RM300 million and RM500 million with 15 years for investments above RM500 million.
“In order to kickstart the economy, they need to shift in 12 months and fully establish or invest in three years,” says PwC Malaysia tax leader Jagdev Singh.
However, the Tricor Malaysia chairman Dr Veerindeejeet Singh is of the opinion that the incentives are over the top and giving away too much.
He also stressed that Putrajaya has not sufficiently spelt out its businesses or investments types to welcome others.
“The proposition lacks clarity as the manufacturing business type is not mentioned. This is harmful as the old ways of manufacturing low-value products can come back that rely more on foreign labour.
” Maybe they will enlist the sectors in upcoming days and, hopefully, it is driven by technology-intensive sectors,” he says
Additionally, Veerinderjeet appreciates the Investment Tax Allowance as it propels businesses to relocate back to Malaysia. The only concern is that the specified sectors should be mentioned.
The incentives are undoubtedly charitable and propel foreign investments to relocate to Malaysia, Jagdev thinks that the recovery package brings no good for domestic investments.
“Domestic investments are not in a good position from the past three to four years. A lot of the estimates are designed keeping small and medium enterprises (SME’s) in mind but what about the bigger ones? How are we going to impel them to invest more in Malaysia? ” he asks.
Moreover, by offering tax incentives to FDI, their point is to strengthen SMEs. For SMEs set up between July 1, 2020, and Dec 31, 2021, an additional tax rebate up to RM20,000 as well as three years of assessment is proposed by the government.
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Amarjeet backs this move of government as it increases the chances of new businesses which further creates better job opportunities.
Additionally, the government is also set to exempt SME’s from paying stamp duty for any instrument carried out in mergers and acquisitions(M&A) between July 1, 2020, and June 30, 2021.
However, the consultants believe that exemptions should not only be restricted to SMEs and cover all businesses equally.
“As we can see that the focus is laid more on SMEs but the current chaos is also affecting larger companies to restructure, be more proactive, valuable and competitive. Looking at the scenario, the stamp duty exemption should extend to all businesses without any restrictions” says Deloitte Malaysia country tax leader Sim Kwang Gek.
“Apart from the stamp duty exemption, a Real Property Gains Tax exemption should also be included as RPGT cost in M&A activities or restructuring projects,” She says.
The recovery plan has also initiated measures to motivate customers to invest specifically on real estate, which is suffering worst in the pandemic and so is the economy.
These measures of promoting the property market are sure going to bring a smile on the faces of property developers and potential homebuyers.
This also involves stamping duty exemption on the instrument used for transfer and loan agreement for purchasing residential property ranging between RM300,000 and RM2.5 million, subject to developers’ offering the minimum discount of 10%.
“We need to understand that the pandemic is affecting everyone on different levels. Some will be devastated, some will suffer up to a certain degree, and the others won’t be affected. I feel that this exemption is focused more on the lucky ones that are not affected by the pandemic. It’s an effort to impel them in spending which will eventually kick the economy.” adds EY’s Amarjeet.
The RPTG exemption will also allow the disposal of residential homes from June 1, 2020, to Dec 31, 2020. Currently, it is restricted to three units of residential homes per person.
The measure surely offers tax savings for every taxpayer. However, its impact on enhancing the property sector is still blurry according to Kim as it doesn’t clear about downward prices in the secondary property market.
To sum it all, the consultants vouch to the fact that a lot of good and specific measures were put forward to confront the falling economy in terms of grants and findings.
Nevertheless, it still brings to one point as to how clearly and fairly these grants and funding are distributed to businesses in need.
- Government is looking forward to uniting e-commerce platforms and co-fund digital discount vouchers to facilitate online spending on products from local retailers.
- SME Digitalisation Matching Grant totals up to RM100 million to partner with telcos.
- SME Technology Transformation Fund totalling RM500 million loan, the application opens July 2020
- A Smart Automation Grant of RM100 million fixed at up to RM1 million per company.
- An extra RM2 billion funding introduced by the banking sector for SMEs at 3.5% up to loan size of RM500,000 per SME.
- RM1 billion Penjana Tourism Financing (PTF) facility to support transformation initiatives by SMEs in the tourism division
- New funding programme for SMEs and micro-enterprises at 3.5%
- RM50 million devoted to women entrepreneurs
- Perbadanan Usahawan Nasional Bhd (PUNB) to deliver RM200 million financial aid to bumiputera-owned shariah-compliant businesses
- RM300 million working capital loans to ailing bumiputera entrepreneurs through Majlis Amanah Rakyat (Mara)
- Maximum loan amount of RM1 million with 3.5% annual interest rate from Mara
- SME Bank to give financing backing to contractors and vendors granted small government projects under Pakej Rangsangan Ekonomi (PRE) 2020 and Prihatin
- Extended period and scope of expenses permitted as a tax deduction or capital allowance for Covid-19 prevention
- 50% remission of penalty for late payment of sales tax and service tax due and payable from July 1, 2020, to Sept 30, 2020
- Extension of a special tax deduction for renovation and refurbishment of business premises to Dec 31, 2021
- Extension of Accelerated Capital Allowance on eligible capital expenses comprising ICT equipment to Dec 31, 2021
- Extension of special deduction equivalent to 30% reduction in rent for SMEs to Sept 30, 2020
- Income tax rebate up to RM20,000 per year for three years of assessment for new SMEs established between July 1, 2020, and Dec 31, 2021
- Stamp duty exemption for SMEs on any instruments executed for M&A, for the period between July 1, 2020, and June 30, 2021
Stimulating the economy
- Investment fund establishment to match institutional private capital investment with selected venture capital and early-stage tech fund managers
- RM50 worth of e-wallet credits and additional RM50 provided through coupons, cashback and discount to Malaysians earning less than RM100,000 annually
- Stamp duty exemption on instruments of transfer and loan agreement for the purchase of residential homes between RM300,000 and RM2.5 million. Exemption on the instrument of transfer is barred to the first RM1 million of the home property price while full stamp duty exemption is provided on loan agreement effective for sale & purchase agreements marked in the span between June 1, 2020 and May 31, 2021.
- RPGT exemption for discarding of residential homes between June 1, 2020, and Dec 31, 2021, impeded to the disposal of three units per individual
- Uplifting of the current 70% margin financing limit for property valued at RM600,000 and above during Home Ownership Campaign period
- Full sales tax exemption on locally assembled passenger cars and 50% on imports
- Tax incentives for a company relocating to Malaysia
- 0% tax rate for 10 years for new investment in the manufacturing sector with a capital investment of RM300 million to RM500 million
- 0% tax rate for 15 years for new investment in the manufacturing sector with capital investment above RM500 million
- 100% Investment Tax Allowance for five years for an existing company in Malaysia relocating overseas facilities to the country with capital investment above RM300 million
- Special Reinvestment Allowance for manufacturing and specific agriculture activities, from YA 2020 to YA 2021
- Hotels to June 3, 2021
- Extension of period for income tax relief of RM1,000 for tourism expenses to Dec 31, 2021
- Extension of period for adjournment of tax instalment payment for the tourism industry to Dec 31, 2020
- A Micro-credit financing under Agrobank for ecopreneurs of RM350 million at 3.5%
- 100% export duty exemption for oils such as crude palm oil, crude palm kernel oil and refined bleached deodorised palm kernel oil from July 1, 2020, to Dec 31, 2020
- Additionally, a Sukuk Prihatin issue by MoF in the third quarter of 2020