COVID-19 & MCO: Tax Relief Proposals For SMEs
April 2, 2020
The Movement Control Order (“MCO”) has affected all of us, something which we all accept as necessary to curb the spread of COVID-19. The restricted movement during this period undoubtedly causes an impact on the economy.
Notably, 98.5% of the business establishments in Malaysia are small and medium enterprises (“SMEs”), where they are regarded as the backbone of the economy. SMEs contributed 38.3% to the national GDP in 2018 and 66.2% of the total employment in Malaysia. The suspension of business and industrial operations following the restriction of movement in many countries has placed the economy in a state of distress.
In addition to giving leadership during this challenging time, our Prime Minister has recently unveiled the PRIHATIN Rakyat Economic Stimulus Package (“PRIHATIN”) generously worth RM250 billion. By large, the PRIHATIN has been lauded for its rakyat centric nature, befitting its acronym. The Government’s aim is a noble one – to ease the financial burden of the rakyat and cushion the impact on the economy. On the economic front, the Government has committed RM100 billion to help various types of business, including the SMEs.
As the SMEs are seeking for more assistance from the Government, one of the approaches that the Government can consider is providing some special tax relief. This is not something unprecedented as companies with paid-up capital of RM2.5 million or less, pay lower corporate tax rate, which is beneficial for many SMEs. There is no doubt that the SMEs welcome the extension of time for tax filings and tax payments due during the MCO period.
The additional tax relief measures that the Government can consider are:
(1) A lower corporate tax rate or a tax rebate of RM250,000 in the year of assessment (“YA”) 2020 for SMEs that do not retrench its employees. The tax rebate can be modified depending on the turnover size and number of employees of the SMEs.
(2) Double deduction on all financing costs such as interest, guarantee fees, arranger fees, etc on the financing obtained by SMEs in 2020, provided the financing is used wholly as working capital for the SMEs’ businesses and there is no retrenchment of employees.
(3) Double deduction on expenses incurred to purchase equipment to facilitate the work from home concept during the MCO period. This can include the expenses to purchase laptops and subscribing to online communication applications.
(4) Double deduction on office, factory, warehouse and workers’ hostel rental expenses for at least 6 months beginning March 2020 or alternatively, a special tax rebate for landlords who waive rental during the same period.
(5) Accelerated capital allowance and industrial building allowance for SMEs that incur capital expenditure to acquire additional equipment and building in the YA 2020.
(6) Ease the conditions for SMEs to claim the allowance for increased export.
(7) Tax credit arising from overpayment of taxes in the past can be used as a tax credit for future tax obligations including for the YA 2020.
(8) Waiver or reduction in withholding tax and service tax on payments made to non-residents for online business promotion initiatives. This would help to reduce the cost of doing business as some SMEs are bearing the withholding tax and service tax on behalf of the non-residents.
(9) Waiver of sales tax for taxable products manufactured from March 2020 to year-end.
(10) A longer and flexible instalment scheme for all kinds of tax payments, including income tax and customs duties.
(11) Suspension of civil suit proceedings for non-payment of tax until 15 October 2020 to enable taxpayers to focus on rebuilding their business rather than litigating in court especially for the first 6 months.
(12) Suspension of tax audits and tax investigations for 6 months until end September 2020 to enable SMEs to focus on their businesses. However, criminal investigation for tax and customs offences can continue.
(13) Stamp duty waiver for financing documents executed between 1 March to 31 December 2020.
(14) Temporary waiver of service tax on SMEs involved in the service sector such as hospitality, food and beverage and consultancy with an annual income of RM2.5 million or less in 2020.
(15) Temporary suspension of sales tax on products manufactured in Malaysia in 2020.
Some of these tax proposals have been implemented elsewhere, which serve as an indication of their appeal. More importantly, these proposals may help SMEs to weather the present challenges and express the Government’s empathy on the challenges faced by the SMEs.