SMEs in Malaysia are in need of more support to automate their businesses
Tan Sri Soh Thian Lai
Federation of Malaysian Manufacturers
As manufacturing activities must continue to be the catalyst of growth, main contributor to exports as well as main source of demand for output from the other economic sectors, FMM requests for support in the following areas:
• The FMM Industrial Linkage Programme (ILP), as it will assist our small and medium enterprises (SMEs) to grow their capacities to be part of global supply chains as well as expand their market reach via funding and assistance.
• Market Development Grants for market expansion, including incentives to address the high sea freight rates via double tax deductions on logistical expenses.
• Expedition in the enforcement of the singular Government Procurement (GP) legislation to allow manufacturers, especially SMEs, to sell to the local GP market and build up their capacities and capabilities.
• Trade expansion through free trade agreements by expediting the ratification of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) at the earliest and resume the FTA negotiations with the European Union to ensure that we do not lose out further to Vietnam, which has already implemented the CPTPP and ratified EU-Vietnam FTA in June 2020.
Productivity support can take the form of:
• Further extension of the Special Reinvestment Allowance (RA) to help existing manufacturers improve competitiveness and productivity through continual upgrading, expansion and diversification during this recovery period.
• Competitive tax regime by gradually reducing the corporate tax rate to 20%. Consideration to lowering the corporate tax rate for SMEs to between 13% and 15% for the next two years given the continued challenging business environment. Alternatively, a flat corporate tax rate for SMEs at 17% for all SMEs that meet the national SME definition; reduced corporate tax rate by between 1% and 5% for companies that are able to localise their content from 30% onwards; gradually bringing down personal tax rates to increase disposable income and encourage greater consumption; and restructuring personal income tax bands so that taxpayers would not hit higher tax rates too quickly.
• Support for automation and digitalisation by channelling the remaining 40% of the foreign worker levy towards automation and Industry 4.0 technology implementation to support high technology and high value-added manufacturing activities. The government can kick-start this National Automation Fund by putting in a seed fund of RM500 million, which will then be further topped up with the foreign worker levy contributions.
• Introduction of a new tax incentive for the establishment of manufacturing artificial intelligence (AI) and robotics systems by providing an Accelerated Capital Allowance for AI and Robotic Systems up to a qualifying expenditure of RM5 million for SMEs that implement manufacturing AI and robotic systems starting Jan 1, 2023.
• Support for digital economy and e-commerce applications, online marketing tools such as analytics and order tracking systems, shipping service integration and enterprise resource planning system, which support e-commerce activity by allowing tax exemption of up to RM100,000 per company.
New growth areas, green growth and sustainability
• Establishment of an integrated food security hub in Pahang as there is a great potential to establish an integrated food security hub for food production to ensure the sustainability of food supply for the nation. This will also create new economic opportunities on brownfield sites in the eastern region of Peninsular Malaysia, specifically Pahang, covering an area of up to 10,000 acres, focusing on a centralised/integrated food hub. It will also groom micro, small and medium enterprises (MSMEs) and youth entrepreneurs to be prime movers of the post-Covid-19 pandemic economic recovery.
• A one-stop agency where the private sector, especially small and medium industries (SMIs) can seek advice before embarking on internal or external sustainability-related projects. Practical guidelines should also be established to guide SMIs in their sustainability journey.
• For SMEs that have invested or will do so in sustainable operations and approaches, incentives in the form of lower than normal interest rates on financing to be made available for qualifying companies. FMM proposes that the government sets up a RM500 million environmental, social and governance (ESG) fund to assist SMEs in kick-starting their ESG initiatives.
• Double tax deduction incentive for ESG-related expenditure such as consultancy fees.
Datuk Seri Wong Siew Hai
Malaysia Semiconductor Industry Association
The most pertinent challenges faced by the electrical and electronics (E&E) industry are a shortage of talents, a lack of infrastructure, as well as Malaysian companies needing more support in moving up the value chain, and being globally competitive.
Plug talent gap
Not only are engineers needed to support the growth plans of companies expanding in tandem with foreign direct investments and domestic direct investments, but Malaysia is losing 15% to 20% of its talents to Singapore, the US, China, the UK, Taiwan and other nations.
First, to plug the talent gap, we recommend tapping other countries' talent pools by approving foreign students studying science and engineering in Malaysia to work here for two years. If companies find the candidates suitable, an employment pass can then be applied for them.
In addition, hiring fresh engineering graduates from overseas will allow companies to grow and take on new projects. Rather than deny Malaysians jobs, this strategy will create more high-value occupancies. The approach can then be applied to other fields facing talent shortages such as accounting, IT and supply chain.
Another short-term measure is to incentivise engineers to work in design and development. This can be achieved by way of a 50% reduction in their prevailing personal tax. On top of that, additional tax relief (RM12,000 for holders of master's degrees and doctorates; RM8,000 in additional tax relief for the tertiary level) should be granted to parents of children pursuing an education in science and engineering.
Second, infrastructure like airport expansion to support increasing freight and logistical needs as well as road systems to alleviate traffic jams are needed to curb the loss of productive work. This is greatly needed in Penang, which is rife with foreign direct investments (FDIs) and expansion. The country also needs enhancement of its high-speed internet to support mobile work and working from home.
Support for Malaysian company growth
An increase of reinvestment allowance from 60% to 80% is needed to enable Malaysian companies (namely, high technology, high value and high export businesses) to increase capacity, modernise, diversify and invest in new technologies. There should be more funding allocated to the Domestic Investment Strategic Fund (DISF) and Smart Automation Grant (SAG) to spur companies investing in automation to be globally competitive. The Automation Capital Allowance should be increased from RM2 million to RM10 million, with the period of claim extended from 2023 to 2026.
Ding Hong Sing
SME Association of Malaysia
As the current BRF (Business Recapitalisation Facility) of RM1 billion is insufficient to cater to the 1.3 million SMEs in the nation, we hope for its increase to RM2 billion.
SMEs in Malaysia are in need of more loans to automate their businesses. Loans of up to 100% for eight years, at 0% interest, and with stamp duty and lawyer fee waived, should be easily obtained for this purpose. In addition, SMEs would appreciate 120% loans to convert standard factories to that of Industry 4.0 as well as the provision of special loans at 2% interest.
Automation and digitalisation
The Industry4wrd Intervention fund, which is supposed to be spread over five years, has been fully utilised. Many companies, namely SMEs, which would like to go digital and embark on Industry 4.0, have not benefited.
(The fund provides a matching grant (70:30) on a reimbursable basis up to RM500,000, based on eligible expenditures.)
However, the current budget allocation of RM45 million is insufficient, with an overly stringent process. The budget allocation should be increased and its approval process simplified to not more than one month as there are more than 500,000 SME manufacturing companies and related services sectors [in line].
We also appreciate if the government would subsidise 50% of internet costs for SMEs subscribing to more than 100mbps. In addition, RM10 million in programme funding for the promotion and nurturing of some 5,000 start-ups and five unicorns should be allocated for 2023.
Other targeted assistance
We propose waivers or 50% discounts on the cost of business permits and licences, as well as assessments in 2023. In this regard, the first chargeable income threshold of RM600,000 is relatively high. Its reduction to RM500,000 at a tax rate of 15% would be helpful.
In view of the lack of support for smallholders of orchards in market expansion and R&D, we propose double capital allowance for companies that invest in the R&D of orchard and food or fruit-related downstream activities.
In addition, an extension of the Tourism Tax Exemption until 2023 would alleviate the plight of tourism-related SMEs requiring extended support.
Tan Sri Low Kian Chuan
The Associated Chinese Chambers of Commerce and Industry of Malaysia
Enhance investment climate
Improving business regulations at the federal and state levels, and within local authorities, which in some instances remain costly and complex, will help to facilitate economic growth. Ministries and government agencies should not unnecessarily increase fees and charges that would burden businesses.
In addition, there should be standardisation and an increase of the qualifying expenditure for Accelerated Capital Allowance (ACA) for both Category 1 (high labour-intensive industries) and Category 2 industries to RM10 million from RM4 million and RM2 million respectively.
Raise the cap on double tax deduction for R&D expenditure.
SME taxpayers need simplified tax system compliance rules as well as strong public delivery services. A one-stop process allowing simultaneous and expedient licence applications for all new permits should be made available.
Needful incentives and grants
A rethink of the investment incentives framework is timely. The framework should be time-sensitive and abound with innovation, productivity, technology transference, product complexity and quality of employment. Next, the tax payable threshold of 85% should be abolished. The estimated tax payable for a year of assessment should be any amount as forecast by the company.
The digitalisation matching grant should be increased to RM20,000, or RM4,000 for five years, for SMEs to take up a greater digitalisation scheme. It will spur more cloud and online subscriptions for the long term, rather than a one-off grant, as SMEs may not be willing to continue paying in the future.
Reverse the suspension of the Brand Promotion Grant, which was launched in 2003 to develop and promote Malaysian-owned brand names in overseas markets.
Revitalise private investments
The reinvestment allowance (RA), which is due to expire in 15 years, could well be extended a further five years.
Reduce the preferential tax rate for SMEs to 15% from 17%, and increase the first threshold of the chargeable income of SMEs subject to the preferential tax rate to RM1 million from RM600,000 currently.
Heighten fund allocation for automation, digitalisation and facilitation (low interest rates and simplified application process) to help SMEs transition towards environmental, social and governance (ESG) criteria. In addition, brand and marketing development should be given to support SMEs' export potential in a Regional Comprehensive Economic Partnership (RCEP) market.
For SMEs in need of working capital amid rising business and borrowing costs, SME loan programmes and enterprise financing schemes can be made more attractive with low interest rates, less collateral required and no repayment penalty as well as ample time for business recovery.
Design a debt-based crowdfunding platform for SME financing that matches SMEs with retail investors who can back SMEs.
There should be a Dedicated Productivity Solutions grant for SMEs to improve labour productivity and capital utilisation efficiency. Its coverage should include the purchase of technological equipment, digital marketing tools and solutions, consultancy and technical services.
Facilitate ESG and green investing
Effective implementation of Green Government Procurement (GGP) best practices framework within ministries, government agencies, local authorities, statutory bodies and GLCs is needed. Subsidies and tax rebates are needed to boost demand for green products and services like electric vehicles, solar panels or renewable energy. There should be a provision of 100% tax exemption on ESG and green investment in a company's budget.
Corporate tax credits will encourage investment in renewable energy production and also facilitate the solar industry through incentives for homeowners and companies to install solar panels. To this end, extend the Green Technology Financing Scheme (GTFS) from the end of this year to Dec 31, 2024.
Consultation fees incurred for the adoption of ESG practices should be given double tax deduction.
Tourism sector recovery support
We anticipate a higher tourism fund from the government to cover promotional activities, tourism products and services to uplift the sector's growth potential while leveraging the weakening ringgit. Low-hanging fruit include continued waiver of the tourism tax and allowing higher personal income relief from local tourism expenses (from RM1,000 to RM3,000) as well as Ministry of Tourism, Arts and Culture's engagement with private tour agencies and foreign agencies to drive Malaysia as the preferred destination in Asia and Asean. Double tax deduction for advertising and promotional expenses of up to 3% of total turnover should be allowed, while the Entertainment Duty Act 1953 should be repealed. All other non-gambling activities should also not be taxed.
American Malaysian Chamber of Commerce (AMCHAM Malaysia)
Investments are flowing into Malaysia, with exports from existing businesses — such as semiconductors in the electrical and electronics segment and also in newer areas such as medical devices, chemicals and aerospace — booming.
To ensure we see the implementation of all the approved investments, Budget 2023 has to continue to address the impact of Covid-19 on the economy and well-being of the population. Interventions made in key ecosystem enablers such as talent, health and energy supply have to be addressed; this is not just for foreign investors but for domestic investors too.
Given the critical need for talent, the mismatch of talent has to be addressed immediately through short- and long-term interventions despite low unemployment numbers. In the short term, we will need solutions and policies to bring in the talent needed immediately and grants provided to companies that are supporting talent growth at all levels. Skills development funds need to be better aligned with company needs and supported with greater expediency to mitigate today's gaps.
Investors will also be looking to see what systemic challenges will be addressed to ensure that a longer-term talent pipeline is put into place so that their investment(s), as they mature, can access talent locally.
Budget 2023 will also need to ensure there are adequate allocations for measures and treatments, including early screening, for the growing challenge of non-communicable disease so that the entire talent pool is kept healthy and productive.
Access to affordable and reliable energy supply is critical. To ensure competitiveness with other global sites, the budget should lay the groundwork for encouraging investments in renewable energy systems and also incentivise companies that are actively working and addressing energy transition, carbon reduction and other climate-change mitigating actions.
Dr Haji Abd Halim Husin
Malay Chambers of Commerce Malaysia
The Malay Chambers of Commerce Malaysia (DPMM) needs help at the policy level to encourage further automation of businesses. To this end, we encourage companies to lease rather than buy. This is with the hope that the government will allow a double tax deduction for leased items, if [it is not providing] bigger automation grants.
Provide DPMM with a six-month moratorium, or at least three months, for businesses to weather the increase in banks' interest repayments. DPMM's [member] companies continue to seek funding and assistance to be ready for the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which will be formalised at year's end.
As agriculture is integral to maintaining the sustainability of Malaysia's food security, this [segment] needs serious attention. There should be grants for urban agriculture. Agriculture using abandoned land as well as promotions for high-tech agriculture should be widely encouraged.
In view of the weakening ringgit, we expect the budget to exploit fiscal strategy in the US dollar. Fortunately, the government had raised US$1.3 billion from sustainability sukuk in April 2021. While a report on this has yet to be issued to the public, the Ministry of Finance had pledged that the proceeds could be utilised for employment generation. We are hopeful that US$100 million can be allocated to micro, small and medium businesses to be specifically used for employment generation and green energy-based transport.
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