In an effort to curb the spread of the pandemic, the Malaysian Prime Minister announced a Movement Control Order (“MCO”) on 16 March 2020, restricting non-essential business operations as well as domestic and international travel.
On 4 May 2020, the Government implemented the Conditional Movement Control Order (“CMCO”), under which, certain restrictions under the MCO were lifted allowing for the return of most business operations, subject to compliance with Government-issued standard operating procedures.
As the nation’s attempts to ‘flatten the curve’ improved, the Prime Minister on 7 June 2020 announced the Recovery Movement Control Order (“RMCO”), effective from 10 June 2020 to 31 August 2020. A significant number of activities and business operations that were previously prohibited under the CMCO are now allowed to resume under the RMCO, save for certain activities and businesses which have a high risk of Covid-19 propagation.
Cognisant of the significant impact of Covid-19 on businesses and the tremendous losses suffered as a result of the MCO and CMCO, the Malaysian Government announced various initiatives to assist individuals and businesses over the past few months under the PRIHATIN Economic Stimulus Package. The Government identified a 6-step plan to save the economy, under the broad headings of “Resolve”, “Resilience”, “Restart”, “Recovery”, “Revitalize” and “Reform”.
In pursuance of the country entering the “Recovery” phase, the Prime Minister had on 5 June 2020 announced the Short Term Recovery Plan (“PENJANA”), setting out 40 Governmental initiatives targeted towards “Empowering the People”, “Propelling Businesses”, and “Stimulating the Economy”. In this article, we will highlight some of the pertinent initiatives announced under PENJANA which are intended to support business activities.
Dana PENJANA Nasional
An investment fund comprising of RM1.2 billion will be established in July 2020, for the purposes of matching private capital investment with selected venture capital and early stage tech fund managers with a view to accelerate digitalisation. The fund will be used for seed stage/co-creation funds, series A/B funds, growth stage tech funds, venture debt funds and opportunistic funds (such as e-sports and healthcare).
The fund will be beneficial for local start-ups and private sector venture capital funds and is expected to revitalise the local start-up industry.
PENJANA Small-to-Medium Sized Enterprise (“SME”) Financing
An additional RM2 billion has been allocated to the banking sector to provide SMEs adversely impacted by Covid-19 with further financial assistance to sustain business operations at a concession rate of 3.5% per annum. This financing initiative provides a maximum loan amount of RM500,000 per SME and will be available from mid-June 2020.
A total of RM400 million has been allocated towards the PENJANA Microfinancing initiative to offer further funding support will be provided to SMEs at a subsidised interest rate of 3.5% per annum aggregated approved financing capped at RM50,000 per enterprise, and RM50 million specifically earmarked for women entrepreneurs.
This microfinancing initiative will spur the creation of more micro-enterprises in the country, which is crucial towards the promotion of entrepreneurship. It will also support one of the objectives of the Ministry of Entrepreneur and Cooperative Development (“MEDAC”) which is to produce more job creators and boost employment in the country.
Bumiputera Relief Financing
A total of RM500 million will be made available for Bumiputera businesses from June 2020 onwards. RM200 million will be dedicated for Bumiputera-owned Shariah-compliant businesses for the funding of working capital, operational expenditure, system automation, equipment, and expenditure to implement social distancing practices. Financing of RM100,000 up to RM1 million for up to 5 years at 3.5% per annum will also be granted to such businesses. The remaining RM300 million will be allocated for utilisation only as loans for working capital purpose at a maximum of RM1 million at an interest rate of 3.5% per annum.
This relief financing scheme is expected to ease issues with cash flow which many Bumiputera entrepreneurs have been confronted with as a result of the pandemic and is targeted at boosting their business operations.
SME Go-Scheme for Liquidity Support
A total of RM1.6 billion has been allocated to the Small Medium Enterprise Development Bank Malaysia Berhad (“SME Bank”) to provide financing support to contractors and vendors who were awarded with small projects by the Government under the Economic Stimulus Package and PRIHATIN. This financing support is effective from July 2020 and does not require any deposit or collateral. SME Bank will remit funds directly to contractors and vendors based on the presentation of invoices or claims.
This scheme is implemented with a view to provide liquidity for SME contractors to start delivering on Government projects and is expected to ease issues with cash flow which SMEs and small scale contractors with limited financial resources face in performing such projects.
E-COMMERCE AND DIGITALISATION
Micros and SMEs E-commerce Campaign
To encourage e-commerce, eligible micro-enterprises and SMEs will obtain on-boarding training, seller subsidy and sales support. This will be implemented through a co-funded programme with Malaysia Digital Economy Corporation (MDEC) and participating e-commerce platforms such as Boost, Foodpanda, Grab and many others from June 2020 to September 2020.
The Government will provide grants and loans to eligible enterprises to assist with technological advancement and adoption. Such support will be provided under programmes such as the SME Digitalisation Matching Grant comprising of RM100 million, the SME Technology Transformation Fund totalling RM500 million and the Smart Automation Grant of RM100 million. This would help with the productivity and innovation of companies in Malaysia as the Malaysian Government had previously announced the digitalisation of the economy through the Industry 4.0 National Policy to boost connectivity and technological innovation.
An innovation sandbox will be implemented in June 2020 for start-ups to pilot new technology solutions. The sandbox will provide a relaxation of regulations for the purpose of testing new technology solutions (e.g. drone delivery, autonomous vehicles, etc.).
MyAssist MSME One Stop Shop
An online one-stop business advisory platform for micro-enterprises and SMEs will be set up to enhance the outreach of the existing physical SME Hub. The online hub will be made available from June 2020, and will provide services encompassing guidance for funding facilities, trade facilitation, branding, and promotion, as well as support for technology and legal support.
Remission of Penalty
50% remission of penalty will be granted for late payment of sales and service tax due and payable during the period commencing from 1 July 2020 to 30 September 2020.
Special Tax Reduction for Renovation and Refurbishment
Special tax deduction for renovation and refurbishment of premises up to RM300,000 will be provided. This is only applicable to such expenses incurred during the period commencing from 1 March 2020 until 31 December 2020 and which has now been extended to 31 December 2021.
Tax incentive for Newly Established SMEs
SMEs established during the period commencing from 1 July 2020 to 31 December 2021 will be eligible for income tax rebate of up to RM20,000 per year for 3 years of assessment.
Other Tax-Related Incentives:
- Accelerated capital allowance on eligible capital expenses will be extended until 31 December 2021;
- Special tax deduction equivalent to 30% reduction in rental for SMEs will be extended until 30 September 2020; and
- A matching grant of RM10 million will be provided to eligible social enterprises to undertake social projects to address challenges suffered by targeted communities.
CREATIVE INDUSTRY SUPPORT
The Government has allocated a total of RM225 million towards assisting the arts, culture, entertainment, events and exhibitions sector:
Loans and Grants by MyCreative Ventures (“MyCV”) and Cultural Economy Development Agency (“CENDANA”)
RM100 million worth of soft loans with an interest rate of 3.5% per annum and RM30 million will be set aside for the creative, events, and exhibitions industries under MyCV while the remaining RM10 million will be provided by CENDANA.
Digital Marketing Grant
To further innovate and enhance digitalisation particularly in the entertainment and creative industry, RM50 million will be allocated towards the Digital Marketing and Promotions Grant under MyCV with a maximum grant of RM5,000 per event.
MyCV will collaborate with the private sector to help the creative and entertainment industries to adapt and embrace the new norm by way of training in digital distribution methods and promotion, development of new business models and connectivity.
Accelerated payment terms by Government linked companies (“GLCs”) and large corporates
The Government is encouraging GLCs and large corporations to reduce their vendors’ credit payment period to provide relief to the cash flows of SMEs. Companies that have agreed to participate include Axiata Group Berhad, Telekom Malaysia Berhad, Tenaga Nasional Berhad and Petroliam Nasional Berhad.
All businesses will be granted tax deduction or capital allowance for measures undertaken for Covid-19 prevention such as Covid-19 testing and purchase of PPE and thermal scanners. This initiative would ease the financial burden of companies that incur such expenses for the purposes of complying with the Government-issued Standard Operating Procedures (“SOPs”) and providing safety and health equipment prescribed in the SOPs.
Stamp Duty Exemption
Stamp duty exemption will be granted to SMEs for any instruments executed for mergers and acquisitions within 1 July 2020 to 30 June 2021. This would encourage the establishment of new businesses and transactions.
To assist the tourism sector, the PENJANA Tourism Financing comprising of RM1 billion will help finance transformation initiatives by SMEs. Further details of this fund will be announced in July 2020.
The Government had also announced tax incentives for the tourism sectors. These incentives would reduce hotel stay costs for travellers and are expected to boost tourism in Malaysia:
- The current service tax exemption for hotels will be extended to 30 June 2021.
- A new exemption for tourism tax will be in force from 1 July 2020 to 30 June 2021.
- Extension of period for personal income tax relief of RM1,000 for domestic tourism expenses incurred between 1 March 2020 and 31 August 2020 will been extended to 31 December 2021. The expenses are limited to accommodation expenses at premises registered with the Ministry of Tourism, Arts and Culture. This is intended to encourage residents to pursue domestic tourism trips.
- Extension of period for deferment of corporate tax instalment payment for tourism industry on estimated tax due within 1 April 2020 to 30 September 2020 will be extended to 31 December 2020. This deferment means that the corporate tax instalments that are usually due and payable has now been suspended and payment is deferred to the following year.
Covid-19 Temporary Measures Act
It was also announced by the Prime Minister on 7 June 2020 that the Government will be introducing a Covid-19 Temporary Measures Act (“Act”) which will be tabled during the July 2020 Parliamentary session. This Act aims to address and mitigate the potential negative impact on economic activities caused by contractual breaches and enforcement of insolvency actions on groups affected by Covid-19 and the Movement Control Order. This Act would be very relevant at this point in time as it may possibly grant temporary relief to parties impacted by the consequences of the pandemic in respect of the performance of their contractual obligations.
As demonstrated above, many of the incentives announced under PENJANA are intended to provide relief to businesses, to provide financial support for businesses impacted by the Covid-19 pandemic and to foster a push towards e-commerce and digitalisation. As businesses slowly start to recuperate whilst ensuring compliance with Government-issued SOPs, technological adoption and e-commerce transitions appear to be at the forefront of Government efforts to revitalise the economy. In pursuing survival in the post Covid-19 world, businesses are encouraged to undertake technological adoption and shift towards e-commerce as a primary revenue stream and in this regard, the incentives under PENJANA would most certainly provide a much-needed push in this direction. It is hoped that these incentives would kick-start such a transition in order to preserve businesses and facilitate safe trade and economic activities whilst the world continues the ongoing battle against Covid-19.