The current COVID-19 crisis has Malaysia in its firm grip. Since the implementation of the Movement Control Order on 18 March 2020, the economy has significantly slowed down and Malaysia is in the midst of what could possibly be the biggest economic crisis since its independence.
Last week, the government reacted and on 27 March 2020 unveiled the Second Economic Stimulus Package 2020 (the “ESP2”) entitled “Prihatin Rakyat ESP2”. The ESP2 is valued at MYR 250 billion and the funds will be allocated as follows:
This newsletter seeks to present an overview of key measures to help you identify how your business may benefit from the newly announced ESP2. Our focus will be on measures in favour of businesses, especially financial, fiscal and labour measures. There are further measures from which Malaysian citizens will benefit directly. For the sake of the purpose of this newsletter, we have not mentioned them here. Please note that this update cannot be deemed wholly conclusive yet, as we are still waiting for the ESP2 to be approved by the Malaysian Parliament.
The government announced in the ESP2 several measures to ease financial access for businesses, especially targeting SMEs. In addition, the government has renewed its call for private banks to support Malaysian businesses in financial distress.
The government and Bank Negara Malaysia (“BNM”) will provide additional funds worth MYR 4.5 billion to enhance access to financing for SMEs and to support economic growth. This fund covers five key initiatives, as follows:
It must be noted that to benefit from these various measures, SMEs must fulfil the following criteria in accordance with the guidelines of SME Corporation Malaysia:
In a press release on 27 March, BNM instructed interested SMEs to apply for financing by calling or emailing the participating financial institutions (commercial banks, Islamic banks and development financial institutions), or visiting the financing referral platform at imsme.com.my. As mentioned by BNM, SMEs can also avail themselves to Credit Guarantee Corporation Malaysia Berhad to benefit from BizMula-i and BizWanita-i schemes.
In addition to the specific measures directed at SMEs, the ESP2 announced several measures for all companies facing cashflow constraints such as:
In accordance with the government’s previous direction, the ESP2 also welcomes the willingness of banking institutions to offer a six-month delay or loan repayment moratorium, conversion of credit card balances to term loans, and restructuring of corporate loans. The Prime Minister of Malaysia, Yab Tan Sri Dato’ Haji Muhyiddin, stated that this measure is important in enabling companies to continue maintaining employment and to continue their business activities. This initiative, which he states to be worth at least MYR 100 billion, should provide relief to borrowers.
To encourage banking institutions to offer individuals and SMEs a moratorium for payments on borrowing, the ESP2 has stated that the bank’s income from interest or profit from loans or financing involved with the moratorium will only be taxable when the income is received after the moratorium period (which is from 1 April 2020 to 30 September 2020).
The ESP2 contains three measures in favour of employers who are struggling to cope with the COVID-19 crisis: the Wage Subsidy Program, the Employer Advisory Services programme and an exemption from payment of Human Resources Development Fund levy for six months.
The ESP2 has introduced the Wage Subsidy Program to subsidise affected employers MYR 600 per month for each employee earning less than MYR 4,000 for a period of three months. The criteria for the program is as follows:
This program will alleviate affected employers’ cash flow during this period and ensure that affected employees remain in employment. However, the Wage Subsidy Program only targets the lower-paid workers.
The ESP2 has introduced the Employer Advisory Services programme, which should start on 15 April 2020 for services on the restructuring of employers’ contributions to the Employees Provident Fund. This service includes options for delaying payments, restructuring, and rescheduling employer contributions. The government expects this measure to provide cash flow savings to employers and secure the jobs of employees in companies affected by the COVID-19 outbreak.
The ESP2 has provided for an exclusion from levy payments for the Human Resources Development Fund for all sectors for a period of six months beginning April 2020. This measure is expected to assist company cash flow.
Finally, the ESP2 provides certain tax measures in order to tackle the cash flow issue.
SMEs will be given a deferment for payment of monthly tax instalments for a period of 3 months from 1 April 2020 to 30 June 2020. This proposed measure should help ease the cash flow burden of SMEs.
Nevertheless, further clarification is to be provided by the authorities on the scope of taxpayers that can benefit from such a measure, as the definitions of SMEs by SME Corporation Malaysia (please see above), and under the Income Tax Act 1967 (“ITA”), differ.
Under the ITA, SME is defined as a resident company in Malaysia with paid up capital of up to MYR 2.5 million at the beginning of the basis period and a gross income from all business sources of not more than MYR 50 million for a year of assessment.
In other affected sectors, companies are allowed to amend the tax amount income incurred in the third, sixth and ninth monthly instalments during the basic accounting period.