SMALL businesses with little reserves have been especially hard hit in the past year and a half as many were forced to stop their operations during periods of lockdown. Notably, the movement restrictions have created a severe liquidity crunch as well as supply chain issues for SMEs.
As more sectors are allowed to operate under the National Recovery Plan (NRP), industry observers note that there needs to be continued support for businesses during the recovery phase to ensure that they are able to get back firmly on their feet amidst a different landscape.
In this respect, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz has said that Budget 2022 – to be tabled on Oct 29 – would focus on several sectors which are badly affected by the Covid-19 pandemic, including tourism, retail and SME.
This may bring some assurance for companies that are still struggling to cope or that are still in need of assistance.
Earlier this week, the Small and Medium Enterprises Association (Samenta) Malaysia said Budget 2022 must focus on SMEs’ survival and businesses and not just consumption.
“The road to recovery is as much about stimulating demand from businesses as it is from consumers. Just as consumer confidence is important, investors’ confidence (including domestic investors) is equally important,” says Samenta central chairman Datuk William Ng.
In order to support the recovery of SMEs and to regain lost ground, the association proposes several initiatives for Budget 2022 including reducing the corporate tax rate for SMEs for the first RM500,000 taxable income for 2021 and 2022 to 15%. This, says Ng, would encourage re-investments and promote entrepreneurship to quickly fill the void left by collapsed SMEs.
He also suggests that the Human Resources Development Fund (HRDF) levy be waived until June 2022 and for the levy to be reduced to 0.5% until June 2023.
Note that as at end 2019, HRDF has RM1.35bil in retained levy.
Another initiative is to set aside 30% of government procurement for SMEs under an open tender and direct e-procurement portal.
Ng also opines that there is a need to extend the RM600 wage subsidy until June 2022 for all sectors that were deemed non-essential or that were not allowed to operate until Phases 3 and 4 of the NRP.
“Also, extend the hiring incentive of 50% wage subsidy for six months to SMEs with less than 100 employees until June 2022 to support SMEs that have laid-off their employees or who have frozen their hiring due to the pandemic.”
In a recent survey by RAM Holdings Bhd, close to 70% of firms said they will need more direct financial support from the government this year and next. Wage subsidies, grants, loan moratorium and other subsidies were among the assistance on their wish list.
Ng also highlighted the need to stop all mass tax audit operations for suspected tax evasion pre-2019 until 2023. This is to allow SMEs a reprieve to turn around in 2022 and 2023.
“If the Inland Revenue Board (IRB) wishes to crack down on tax evasion, this can be done when the economy has sufficiently recovered,” he says.
According to an industry observer, these tax investigations were causing additional disturbances for businesses already suffering from disruptions in their operations.
“The IRB should go after the tax evaders. But for the general tax investigation, it is causing disruptions to businesses as they have to prove this and that item on the accounts.
“Businesses are already trying very hard to survive. We don’t want disruptions so that they can concentrate on running the business. Also, when there are investigations, they may end up paying extraordinary expenses or taxes. But what they really need now is extraordinary income.
“If they have been paying well all this while, then leave them be until maybe, 2022. If businesses can survive, they’ll be able to pay taxes.
“This is not the time for the IRB to go after the small guys for something like this. But, by all means, go after the evaders,” says the industry observer.
Moving forward, there is still much to do in ensuring SMEs continue to digitalise and reskill and upskill to stay competitive in the long run. These will need to be addressed by policymakers and the industry at large as market needs continue to evolve.
But in the nearer term, Samenta proposes the establishment of a focused public-private taskforce led by the Malaysia Digital Economy Corp or Finance Ministry to address the ecosystem needed to accelerate digitalisation as well as the formation of industry-led academies, co-financed by the industry and the government, to re-train graduates with the skills needed in a post-pandemic world.