Concerning the COVID-19 pandemic, over RM300 billion stimulus packages have been announced by the Malaysian Government to date. This is what other governments around the world are also doing to assist their economies and help people to steer through these tough times. We are expecting to see a continuity of such stimulus measures in Budget-2021. It would assist governments to boost their struggling economies by achieving short as well as long-term goals.
No doubt, it would be the toughest Budget ever, as it must offer maximum relief to the vulnerable sects of society. The most prominent challenge that we are going to face is the estimated budget deficit (5.8% to 6%). Besides, exceeding the debts level over the 60% statutory limit won’t be easy to handle.
Therefore, we should not rule out the expected measures to generate more revenue by increasing tax collection. This may involve introducing some changes to prevailing tax provisions. Such amendments would serve in a way to tighten the gaps and broaden the tax net.
Besides, Malaysia must take careful measures to retain its “Investor’s Paradise” status. ASEAN is all set to achieve the title of the fourth-biggest economy of the world by 2030 and Malaysia must secure its share. Therefore, we are also expecting some measures including fiscal and non-fiscal incentives. It would help to attract Foreign Direct Investments (FDIs).
With the pandemic’s worse impact on the Malaysian labour market, our government must compensate individual taxpayers with temporary tax breaks. It must include those people how have either lost their job or suffered from salary reductions. The government must think about offering tax rebates, especially to individual taxpayers. Furthermore, the Government must take measures to reduce the number of income tax bands as well as broaden them.
Small and Medium-sized Enterprises (SMEs) are still serving as a backbone for our economy. To minimize the impact of COVID-19, SMEs have deliberately changed their conduct, business operations, and strategies. Moreover, such entities are now searching for unexplored opportunities and resources to give a new life to their business.
Hence, Budget 2021 is going to be beneficial for the SME sector in a variety of ways. Some of them are listed below:
- Offer tax deduction regarding the expenses incurred by SMEs while restructuring and rescheduling their prevailing financing arrangements
- Ensure double deduction when businesses spend more on training their employees to improve their skills
- Offer Investment Tax Allowance to those SMEs who have spent targeted capital on making improvisation and improvements to their operations
- Encourage Development Financial Institutions to allocate funds to SMEs, allowing them to build online trading infrastructure and invest in technology
- Exemption from Real Property Gains Tax (RPGT); This relates to those SMEs who have disposed of their real properties while facing the COVID-19 pandemic period
Sales and Service Tax (SST)
In the recent couple of years, SST rules have been updated through a wide range of tax-related legislations. However, these developments failed to yield positive outcomes due to the COVID-19 outbreak. Hence, the Government is now planning to stimulate the economy by broadening its revenue base. Indeed, the current regime of SST owns a limited scope, which prevents it from helping the government to increase its revenue.
The Government is still considering re-introducing “The Goods and Services Tax”. However, concerned authorities must take into account the appropriate timing and unfavorable consequences while implementing this tax.
Besides increasing the SST scope, it is equally important to introduce a credit system or input tax mechanism. This might prove to be beneficial in the following manners:
- Would help to minimize the tax cascading effect
- Lower the administrative burden by offering numerous SST facilities to businesses
- Work as an incentive for the businesses to register for SST
Want to know more about SST? Check out this guide that includes all you need to know about SST Malaysia.
Talking about Malaysia’s retail sector, it has shown the most devastating decline in sales during the first half of 2020. Furthermore, sales are predicted to show a 20% contraction for the upcoming years. Although we have seen a moderate recovery during the second half, the data of full-year sales for 2020 won’t be that satisfactory.
To assist the retail sector while sustaining the current grim situation, the Government is offering financial stimulus measures like Prihatin B40 and M40 cash aid. Yet it isn’t certain when the industry would completely recover from the negative impacts of Covid-19 Pandemic.
For retailers, the biggest challenge right now is to manage the cash flow. This situation proves to be a worse nightmare, especially when coupled with low demand and increasing expenses. The Government is trying to facilitate the retail sector in terms of offering fiscal incentives, electricity bill discounts, loan moratoriums for SMEs, and wage subsidy programs.
In addition, the Government is also facilitating the growth of e-commerce. The “Shop Malaysia Online” is one of the programs that are backed by the Malaysian Government. These steps help businesses to get the much-needed financial support. It is hereby expected to see a continuity of such initiatives in Budget-2021.
Real Estate Sector
Since the number of unsold properties is piling up, the real estate sector is continuously showing a sluggish trend. Two major factors including unaffordability and lower demand have played a key role in damaging the growth of the real estate sector throughout Malaysia.
In these circumstances, the Government is trying to increase the real estate demand by offering more affordable homes. Some other measures include Youth Housing Scheme, Home Ownership Campaign, and some other less stringent house financing schemes.
Furthermore, there are indications that the Government is prepared to stimulate this sector through a short-term Economic Recovery Plan. This plan was introduced on 5 June 2020, which accompanies some other tax reliefs like exemption of Real Property Gains Tax (“RPGT”) and stamp duty. This is going to encourage the transaction associated with real estate properties.
Even with all such measures, we are not expecting a noticeable surge in demand, as investors/buyers are skeptical during an unpredictable financial situation. Although interest rates are low, a wide range of B40 and M40 groups are finding it difficult to own a house in cities.
With a view to target these specific groups, the Government is planning to take the following measures.
- Encourage the private sector to participate in increasing property demand. For this purpose, investors are going to enjoy double tax deduction linked with housing loan interest
- The stamp duty exemption is expected to be continued in the upcoming budget-2021. This incentive will be available for those who are buying a house via “The Home Ownership Campaign”
- Encourage the younger generation to own a house by re-introducing the relief on housing loan interest (for 3 consecutive years)
Oil and Gas Sector
Just like any other industry, the oil and gas sector is also facing the challenges of uncertainty. Before the pandemic, this industry was trying to adjust the demand and supply gap to prevent the prices from falling. However, the pandemic lowered the demand to its minimum level. This resulted in a sheer drop in oil and gas prices.
At present, the industry has just started to recover and we are receiving tentative signs in terms of the overall growth of this industry. The Budget-2021 is expected to offer much better opportunities to this sector, which may provide essential support in the areas mentioned below.
Need for Digitalization
During the EY Digital Transformation and Workforce Survey (June 2020), almost 90% of the executives associated with oil and gas sector stressed the need for digitalization. Through a strong digital interface, the companies can lower their expenses, improve compliance, maintain a record, and minimize operational losses.
Working on the planned projects and Increasing liquidity
Both Capex spend and industry liquidity have seen a highly noticeable decline. Early this year, the Norwegian Government tried to tackle this issue by proposing unique tax measures for the oil and gas sector. The rating agencies and industry players are positively viewing these measures. Most probably, a wide range of countries would consider these measures in the recent future.
Two of the most significant proposals include:
- Tax depreciation (100%) for the fiscal year 2020 and 2021
- Offering cash payments that equal tax value of incurred losses during 2020 and 2021
Acquisitions and Mergers
During challenging economic conditions, small and medium-sized businesses try to survive through mergers. With the assets available on the market, international buyers may show interest in dealing with local players. Acquisitions and mergers help businesses to boost their growth. For this purpose, tax breaks can play a key role. These measures include “Real Property Gains Tax” and stamp duty exemptions.
Some Words about Tax Administration
Budget 2021 is going to strengthen the current tax framework, which promises improved tax administration and much simpler procedures. These measures by tax administration might prove to be helpful in many ways.
For instance, these measures are going to introduce transparency and clarity. Both these factors are essential for businesses to carve their plan, and manage operations. As a result, we can expect fast recovery and growth in the post-pandemic situation.
Similarly, fair and impartial administration of the tax system also promotes ease of doing business. Hence, businesses and industries can ensure better compliance. Besides, proper tax legislation and the nature of policy always assist tax authorities to perform their duties. At the same time, these factors also encourage taxpayers to be a productive part of the revenue generating mechanism.
Moreover, tax authorities must update their information at a fast pace. This is possible only when the tax administration can access the latest technology and digital support. As a result, businesses and individual taxpayers won’t hesitate to enter the tax circle.
To conclude, Tax authorities must play their role to support businesses and individual taxpayers in this challenging situation. On the other hand, Malaysian tax authorities should focus on clutching the instances of frauds and major tax evasions.