Micro enterprises and Small and Medium Enterprises are vital economic contributors and have been significantly affected by the COVID-19 pandemic. While it was initially forecasted that Malaysia would regain normalcy and economic momentum in 2021, the rapid increase in cases and the ensuing lockdowns had resulted in additional hardships for MSMEs.
In presenting the Budget, the Government has acknowledged these challenges and has proposed a variety of measures and initiatives designed to holistically prepare the rakyat, the MSMEs and the country to be back on track towards achieving projected economic growth of 5.5% to 6.5% in 2022.
Some of the key recovery measures proposed for MSMEs include grants, interest-free funding, flexible financing, and guarantees through various agencies that are designed to jump-start Malaysia’s entrepreneurial ecosystem. In addition to advancing the entrepreneurial agenda, the Government has also emphasised its commitment to foster innovation in the MSME sector through technological transformation.
The Government will provide upskilling and reskilling programmes to help employees embrace technology advancement and increase digital adoption among MSMEs. To develop future business leaders, several agencies have been tasked to impart business and leadership skills and guidance through a combination of on-the-job training, mentoring, and entrepreneurship programs.
The development of local Bumiputera vendors remains an area of focus. The Vendor Development Programme (VDP) is a Bumiputera empowerment initiative that tasks “anchor companies” with developing Bumiputera vendors. To encourage the participation and support of anchor companies to develop more competitive Bumiputera vendors, it is proposed that the tax incentive for anchor companies be extended for a further 5 years. With this, the tax incentive will apply to anchor companies which sign a Memorandum of Understanding with the Ministry of Entrepreneur Development and Cooperatives (“MEDAC”) by 31 December 2025. Anchor companies will enjoy a double deduction on qualifying operating expenses of up to RM500,000 (increased from RM300,000) per year of assessment (YA), for three consecutive YAs.
As the business environment continues to be challenging, the Government has extended the stamp duty exemptions on mergers and acquisition (M&A) instruments, to encourage M&As among MSMEs. This may prove to be an opportune time for SMEs aspiring to achieve inorganic growth and to capitalise on merger or takeover opportunities presented by the pandemic.
Whilst the various funding and strategic initiatives which have been proposed are certainly attractive, to achieve a good take-up rate it is important that these initiatives and opportunities are quickly and clearly communicated to MSMEs. Ultimately, all stakeholders must work cohesively to implement these measures efficiently and effectively.
Bernard Yap, Malaysia Private Client Services Leader, Ernst & Young Tax Consultants Sdn Bhd
