Views on the PENJANA stimulus package
By Sim Kwang Gek, Country Tax Leader of Deloitte Malaysia
KUALA LUMPUR, 6 June 2020 - The announcement of the RM35 billion stimulus package titled “Pelan Jana Semula Ekonomi Negara” or “PENJANA” is aimed at helping businesses recover from the impact of COVID-19. Overall, the stimulus package is targeted and focused towards protecting jobs, empowering businesses especially the SMEs, and ensuring Malaysia gets its fair share of foreign investments that are looking to relocate part of its businesses, arising from the impact of the pandemic.
Some key highlights:
1. Extension of wage subsidy programme
Extension of the Wage Subsidy Programme for another 3 months would further ease the financial burden faced by businesses and provide job security to affected employees. The amount of wage subsidy is fixed at RM600 per employee up to a maximum of 200 employees. Employers who are not allowed to operate during the conditional movement control order (MCO), are allowed to apply for the programme. It is uncertain at this juncture if the conditions imposed under the existing wage subsidy programme will continue to apply. One of the conditions was that the programme only applies to employees earning a monthly salary below RM4,000. I am hopeful that this requirement can be removed as SMEs do employ people above such income threshold. Perhaps, the wage subsidy could apply to the first RM4,000 paid to the employees instead of being restricted to employees earning a monthly salary of RM4,000 or less.
2. Attracting foreign direct investments
As a measure to stimulate the economy, the government has announced generous tax incentives to attract foreign companies to relocate their businesses into Malaysia. A tax holiday of 10 or 15 years will be offered to new foreign investments in the manufacturing sector, depending on the amount of capital investments put in. The minimum capital investment amount is RM300 million. For existing companies in Malaysia, a 100% Investment Tax Allowance will be given for companies relocating their overseas facilities into Malaysia with capital investment above RM300 million. These measures are crucial and timely to encourage foreign investments in the current economic climate, where tax costs can be a key consideration in selecting a location for investment. The condition to require the new investments to commence operations within 1 year from the approval date and putting a 3-year cap on the time frame for capital investment is a good move as this will accelerate the implementation of approved projects.
Another good initiative is the commitment by the government to issue manufacturing licence for non-sensitive industries in 2 working days. This is indeed commendable and will enhance Malaysia’s competitiveness in doing business. Malaysia is currently ranked 12th with 81.50 points amongst 190 global economies in the World Bank Doing Business 2020 Report, recording an improvement from 15th position in the previous year.
To spur set of new businesses, an income tax rebate up to RM20,000 per year for 3 years of assessment will be given for newly established SMEs between 1st July 2020 to 31st December 2021. Assuming that the income tax rebate is deducted from the final tax payable of the SME, this provides a tax savings of RM60,000 for 3 years. The stamp duty exemption given to SMEs on any instruments executed between 1st July 2020 to 30th June 2021 for mergers and acquisitions (M&As) will encourage SMEs to build scale and capacity.
While the focus is understandably on SMEs, the current crisis has also forced larger companies to restructure to be more agile, efficient, and competitive. In this regard, the stamp duty exemption should apply to all businesses and not limited to SMEs. In addition to stamp duty exemption, a Real Property Gains Tax (RPGT) exemption should be introduced as RPGT cost may arise in many M & A activities or restructuring projects.
4. Stimulating the property sector
The revival of the Home Ownership Campaign (HOC) should bring cheer to property developers. This is a timely measure to ease oversupply of properties, stimulate the property sector and spur buying sentiment. The tax incentives are similar to the previous HOC where a stamp duty exemption is given on the instruments of transfer and loan agreement for the purchase of residential homes priced between RM300,000 to RM2.5 million, subject to at least 10% discounts provided by the developer. The exemption on the instrument of transfer is limited to the first RM1 million of the home price while full stamp duty exemption is given on loan agreement. These are effective for sales and purchase agreements signed between 1st June 2020 to 31st May 2021. It is unclear if this incentive applies to all purchasers of properties or are limited to Malaysian citizens - which was the condition set under the previous HOC.
Individual taxpayers who intend to dispose their residential properties would enjoy RPGT exemption for disposal of residential homes (limited to the disposal of three units of residential homes per individual) from 1st June 2020 to 31st December 2021. While this measure provides some tax savings for individual taxpayers, its impact on stimulating the property sector is unclear due to the downward prices in the secondary property market
5. Accelerating digitalisation of businesses
The proposal to set up Dana Penjana Nasional (an investment fund) to encourage the digitaliszation efforts by Malaysian businesses, is a timely measure as the pandemic has accelerated the need for businesses to embrace digitalisation. The targeted fund size is RM1.2 billion with 50% funded by international investors. From a tax perspective, it is hoped that the Dana Penjana Nasional will equally benefit from existing venture capital tax incentives and investment fund incentives, to ensure both investors and investees enjoy tax efficient funding
6. Embracing the new norm of working from home
To facilitate the implementation of working from home (WFH), employees will get to enjoy a tax exemption of up to RM5,000 on handphones, notebooks and tablets provided by their employers. This is effective 1st July 2020.
In addition, there is also a special individual income tax relief of up to RM2,500 on the purchase of handphones, notebooks and tablets effective from 1 June 2020. This is on top of the existing lifestyle tax relief of RM2,500 that is applicable for similar purchases as well as other items such as reading materials, sports equipment and broadband subscriptions. The tax relief offered should encourage consumer spending on these items.
7. Extension up to 30 September 2020 on the special tax deduction equivalent to 30% reduction in rental for SMEs
Rental costs form a significant part of operating expenditure of most businesses. Thus, I believe that this special tax deduction should be made available to all businesses. Alternatively, for businesses that do not qualify for the special tax deduction, a double tax deduction could be given to the tenants on the rental expense incurred as the cash savings can be channeled towards business continuity and staff retention.
The views and opinions expressed are those of Sim Kwang Gek, Country Tax Leader of Deloitte Malaysia, and do not necessarily reflect Deloitte’s view.
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