Tax Relief Proposals for SMEs

This article is written by S. Saravana Kumar and Yap wen Hui and was originally published in the Malay Mail. Reproduced with permission.

The movement control order (MCO) has affected all of us, from individual and businesses. However, as majority of the business establishments in Malaysia are small and medium enterprises (SMEs), they are the worst hit sector in Malaysia. Although the SMEs welcome the extension of time for tax filings and payments, they are seeking for more assistance from the Government such as some special tax relief. Some additional tax relief measures that the Government can consider are:-

• A lower corporate tax rate or a tax rebate of RM 250,000 in the year of assessment (“YA”) 2020 for SMEs that do not retrench its employees. The tax rebate can be modified depending on the SMEs turnover size and number of employees.

• Double deduction on all financing costs such as interest, guarantee fees, arranger fee etc on the financing obtained by SMEs in 2020 provided the financing is used wholly as working capital for the SMEs’ business and there is no retrenchment of employees.

• Double deduction on expenses incurred to purchase equipment to facilitate the work from home concept during the MCO period. This can include the expenses to purchase laptops and subscribing to online communication applications.

• Double deduction on office, factory, warehouse and workers’ hostel rental expenses for at least 6 months beginning March 2020 or alternatively, a special tax rebate for landlords who waive rental during the same period.

• Accelerated capital allowance and industrial building allowance for SMEs that incur capital expenditure to acquire additional equipment and building in the YA 2020.

• Ease the conditions for SMEs to claim the allowance for increased export. 

• Tax credit arising from overpayment of taxes in the past can be used as a tax credit for future tax obligations including for the YA 2020.

• Waiver or reduction in withholding tax and service tax on payments made to non-residents for online business promotion initiatives. This will help to reduce the cost of doing business as some SMEs are bearing the withholding tax and service tax on behalf of the non-residents.
• (Waiver of sales tax for taxable products manufactured from March 2020 to year-end.
• A longer and flexible instalment scheme for all kinds of tax payments, including income tax and customs duties.
• Suspension of civil suit proceedings for non-payment of tax until 15 October 2020 to enable taxpayers to focus on rebuilding their business rather than litigating in court especially for the first 6 months.
• Suspension of tax audits and tax investigations for 6 months until end September 2020 to enable SMEs to focus on their business. Criminal investigation for tax and custom offences can continue.
• Stamp duty waiver for financing documents executed between 1 March to 31 December 2020.
• Temporary waiver of service tax on SMEs involved in the service sector such as hospitality, food and beverage and consultancy with an annual income of RM 2.5 million or less in 2020.
• Temporary suspension of sales tax on products manufactured in Malaysia in 2020.

These proposals may help SMEs to weather the present challenges and express the Government’s empathy on the challenges faced by the SMEs.

* S. Saravana Kumar is a tax lawyer and partner with Rosli Dahlan Saravana Partnership (RDS). He was recently named as one of the top 100 lawyers in Malaysia by the Asia Business Law Journal.

* Yap Wen Hui is a legal and tax trainee with RDS. A barrister by training, she read law at the University of Warwick.