Positive factors impacting economy despite pandemic
KOTA KINABALU: Despite the gloomy sentiments overshadowed by the pandemic, there are some lights in the macro environment worth noting, an online forum hosted by the Federation of Chinese Associations Sabah (FCAS) noted.
FCAS vice president Datuk Chua Soon Ping pointed out at Saturday’s forum that oil palm price remain high at around RM3000 per barrel, and this is expected to continue into year 2021. This no doubt will benefit Sabah as significant of our economy is supported by oil palm.
He said that the state government recently announced the contribution of Petroleum Tax for Sabah, estimated to be around RM1.5 billion. Such revenue will significantly improve local economy.
Chua also brought up that the formation of Regional Comprehensive Economic Partnership (RCEP) will put Malaysia in the centre of global supply chain, thus benefiting the country’s economy. He commented that Malaysia should take full advantage of this opportunity and increase economy collaboration with countries like China, which is the first country to rebound from the pandemic crisis.
However, he also noted that the public debt in 2020 is RM1.2 trillion, which is 7.5% higher than in 2019. As such, a strong recovery in year 2021 is unlikely.
The forum was held to discuss the details of the Malaysian Budget 2021 and what are its impact to the individual, corporate as well as SMEs. It was attended by key industry leaders as well as a panel of reputable tax professionals, sharing their views and knowledge on the budget.
Besides Chua who is organizing chariman, the other participants were Tan Sri Datuk Seri Panglima Dr T C Goh (President of the Federation of Chinese Associations Malaysia), Datuk Goh Chee San (Partner at Ernst & Young Tax Consultants Sdn Bhd), Koong Lin Loong (Managing Partner at Reanda LLK International) and Dato George Lim Su Chung (Founder & Chairman of G&A Group).
TC commented that the revenue forecast tabled in the budget for 2021 was over optimistic. It shows an estimated revenue of RM236.9 billion, which represented a growth of 6.5-7.5%. Considering the current economic condition where businesses may be making loss or closing down, such strong growth seems unlikely.
A more positive note is the reduction of operational expenditure by 1.9%, whilst increasing development expenditure by 23.2%, it shows the government’s determination to revitalize the economy.
In Goh’s speech, he urges the government to address the high administrative expense from the public sector. HR expenses for 1.6 million public servants and 750,000 pensioners is projected to be over RM100 billion, which represented over 40% of 2021’s operational expenses. He feels the government should implement an effective rewards and punishment mechanism to enhance operational efficiency.
He also commented whilst there are plenty of incentives given to individuals and SMEs, the corporate tax remains unchanged at 24% is disappointing.
In order to achieve the projected revenue, he foresees a more stringent tax collection for 2021, including those operating within the “shadow economy/ underground economy”. This may include home businesses, tuition teacher etc. As such he advises businesses to be diligent and careful in their tax declaration and be prepared that the Inland Revenue Board will be more aggressive in tax collection.
In light of the shrinking economy growth and uncertainty, he urges the government to not expect a tax revenue that is too high and causing pressure on businesses and individuals.
Khoong pointed out that the Budget 2021 is a continuation of the economy stimulus packages launched by the government since March 2020, that includes Prihatin, Prihatin PKS+, Penjana and Kita Prihatin”.
He emphasized that a number of incentives have been made available to individuals as well as companies through these packages, many of which extends into 2021.
“Company Income Tax revenue for 2021 is expected to be at RM64.6 billion, as compared to RM59.4 billion achieved in 2020, it may be too optimistic,” says Koong. As such, he expects the government to be a lot more aggressive in tax collection and investigation in the coming year.
He also thinks that Personal Income Tax revenue for 2021, which is expected to be RM42.4 billion as compared to RM35.9 billion in 2020, is over optimistic as many would have lost their job or have salary reduction.
Koong also mentions that there are 1.3 million registered companies in Companies Commission of Malaysia (SSM), however, only 250,000 companies are tax paying entities. It means only approximately 20% of companies are contributing to the national tax revenue.
In his presentation, he encourages SMEs to include all the ongoing stimulus measures introduced by government such as moratorium, wage subsidy, soft loan and grants to be taken into account as a part of government’s effort to support the SME economy.
Goh presented in his session that Skim Simpanan Pendidikan Nasional (SSPN) for children’s higher education, is eligible for RM8,000 tax relief until year 2022.
Besides this, there is also an RM2,500 Lifestyle Tax Relief for purchase of smart phone, computer, tablet and e-publication. On top of this, there is additional tax relief of RM500 for purchase of sports equipment or activities. However, such purchase must be done by end of 2020.
Goh also reminded property owners of the exemption of Real Property Gain Tax RPGT for property sold between 1 Jun 2020 to 31 Jan 2022, which is limited to only three properties each person.
Renovation for business premises can also enjoy tax relief of up to RM300,000 for renovation done between March 1 2020 to December 31 2021
Goh strongly encourages the public to find out all the tax incentives and take full advantage of them.
Lim, representing the voice of SMEs in Sabah, urges the government to reduce company income tax by 50% to boost business activity; allow SMEs to apply for clean loan with relaxed condition; continue to allow moratorium to SME and wages subsidy; simplify the process of Digitalization Grant to encourage SMEs to transform.
He urges Sabahan entrepreneurs to take a bolder and more innovative approach to overcome business challenges. Lim also thinks businesses should leverage on resources within the ecosystem and aim to achieve greater efficiency. Lastly, he encourages the public to support local products and businesses as they are more vulnerable in such challenging environment.
In closing, Chua urges the government to restart the Malaysia My Second Home (MM2H) program which has been put on hold since earlier this year. The government must allow more foreign direct investment together with a strong MM2H program in order to bring in more economic activities and cashflow into our country.
TC on the other hand commented that the support from government and business environment in Malaysia is still very good as compared to other economies in the region. Thus he encourage people to look at it from a more positive perspective taking into consideration the global pandemic and economy challenges.
He is also proposing to the government to roll out a subsidized digitalization platforms to assist Sabah businesses in the digital transformation.
Koong encourages Sabahan SMEs to look at supports given from MDEC and SME Corp, especially soft loans and grants for digitalization purpose.