Opinion on the Prihatin Rakyat Economic Stimulus Package or “PRIHATIN”

Today, Prime Minister Tan Sri Muhyiddin Yassin announced a comprehensive economic stimulus package known as Prihatin Rakyat Economic Stimulus Package or PRIHATIN, valued at a whopping RM250bil. Also known as the caring package, this comprehensive budget for all Malaysians aims to alleviate cash flow challenges as well as help businesses tide through this challenging period. 

The global pandemic caused by COVID-19 has impacted the world and Malaysia in many ways. The Ringgit Malaysia has depreciated by 9% while the Kuala Lumpur Composite Index has taken a 20% hit. For the ordinary Malaysian, household income has also declined, leading to a surge in poverty level. The pandemic has also threatened the mental health of frontliners; and caused immense challenges to many businesses, including SMEs.

We are navigating unchartered waters and PRIHATIN is a timely measure for extraordinary times. As the PM said in his announcement – “this unprecedented situation requires unprecedented measure”. The allocated RM250bil is more than 3 times the amount allocated during the 2009 financial crisis. This demonstrates the commitment of the government in prioritising the wellbeing of the rakyat while also ensuring the survival of businesses impacted by COVID-19. 

The package is designed based on 3 main thrusts:

1) Protecting for the welfare and well-being of the rakyat

2) Supporting the business

3) Strengthening the nation’s economy

Some key highlights

a) Wage subsidy program

To ensure that jobs are preserved and businesses remain sustainable, a form of wage subsidy is proposed. The government announced a wage subsidy of RM600 a month for three months for employers that face a 50% drop in business since 1 January 2020 and this is applicable for workers earning a salary of below RM4,000 per month. This is similar to the stimulus package announced by the Singapore government recently where 25% of monthly wages (up to a monthly salary cap of S$4,600) will be funded by the Singapore government for 9 months till end 2020. Higher support of 75% is given to those in the aviation and tourism sector. 

b) Employees Provident Fund contributors aged below 55, can withdraw RM500 for up to 12 months

Stopping EPF contributions would not be a good move as EPF is meant for retirement. Reducing or cutting EPF contributions would affect the wellbeing of Malaysians when they retire. However, the stimulus package announced a programme allowing employers to defer, restructure and reschedule employers’ EPF contributions. This is expected to generate cash flow savings of RM10 billion. This proposal is certainly more palatable and is a welcomed move as it alleviates cash flow constraints, while also ensuring retirement savings are not significantly impacted.

c) Deferment of tax instalment payments for Small and Medium Enterprises

In the first stimulus package announced in February 2020, businesses in the tourism industry such as travel agencies, hoteliers and airlines were given a deferment of their monthly tax instalment payments for 6 months, beginning 1 April 2020 to 30 September 2020.  This is now extended to all small and medium enterprises but the extension is for 3 months from 1 April 2020. This proposal would assist SMEs in managing their cash flows but the impact may not be significant as affected businesses are now allowed to revise their estimates of tax payable earlier, i.e. in the 3rd month of instalment and with this facility, most businesses would have revised their tax estimates downwards. 

d) Deferment and waiver of rental expenses

The government proposed a deferment of 6 months’ rental for properties under “Rent to Own” scheme as well as a waiver of 6 months’ rental for properties under “People’s Housing Project” and Public Housing. This would ease the financial burden faced of families especially those in B40 and M40 groups. The proposal to waive 6 months’ rental on properties owned by the Federal Government is also a welcomed move but more can be done to alleviate cash flow challenges faced by businesses. A form of rental subsidy or rebate to businesses should be considered as rental costs is a significant part of their operating businesses. In Singapore, the government provided a rental waiver ranging from half a month to 3 months for stall holders in hawker centres, commercial and other eligible non-residential tenants in government agencies. 

By Sim Kwang Gek, Country Tax Leader of Deloitte Malaysia