SMEs ‘surprised and disappointed’, rue lack of consultation on new tax

BUDGET 2024 | The government’s decision to introduce capital gains tax has left SMEs “surprised and disappointed” because there was no consultation.

Small and Medium Enterprises Association of Malaysia (Samenta) president William Ng said since the details have not been finalised, the association is hoping that stakeholders would be engaged before the tax is implemented.

“We recognise that Malaysia is one of the last remaining holdouts in Asia where capital gain is not taxed, and by taxing capital gain, we will be able to increase our nation’s revenue and hopefully, reduce our debt.

“However, this must not be at the expense of entrepreneurship and SMEs.

“If we must introduce a wealth tax to avoid the politically difficult decision to revive the GST, we should be introducing an inheritance tax or windfall tax instead of a blanket capital gain tax, which would hurt SMEs disproportionately,” he said.

Ng also lamented to see that full-time share punters, who add little value to the economy and industry are exempted from any form of taxation.

“But hardworking SMEs which are already contributing to corporate tax and provide meaningful employment to Malaysians, will be taxed upon their retirement, sale of a business or when bringing on board new investors,” he added.

Ng then suggested carve-outs, including a full waiver for the sale of shares by founders or after a holding period of five years, to encourage long-term investments and entrepreneurship.

“There can also be a waiver of gain tax on any activity that is deemed to be a merger and acquisition to encourage consolidation among SMEs,” he added.

‘Missed opportunity’

While recognising the government’s efforts in recent years to promote automation, digitalisation, and low carbon transition for SMEs, Ng expressed disappointment for the “little or no measure” to encourage SMEs to move up the value chain through investments - except in a few selected industries.

“We are grateful that the finance minister has continued to make available funds to SMEs for various purposes, including for automation, green economy and the halal industry.

“However, the challenge for SMEs is no longer just access to financing, but more importantly, is to scale up the value chain so as to increase our profit margin and be more competitive in the longer term.

“This is a missed opportunity to encourage SMEs to focus on innovation. Coupled with the proposed funds for start-ups. We cannot but wonder if the government has given up on SMEs to scale up the value chain, and is instead trying to encourage new, unproven start-ups to take up that role,” he mentioned.

On the same note, Ng said Budget 2024 provided two positive outcomes for SMEs, including the introduction of a Government Procurement Act.

The business leader said SMEs are hoping that such a legislation would increase transparency and efficiency and in turn, ease the pressure on the government to charge more wealth tax in subsequent years.

Decentralise TVET funds

“The second is the focus on TVET and the long-term visa for foreign graduates of local universities. This will help increase the number of skilled workers in the industry.

“We are hopeful that the funds for TVET can be decentralised and disbursed through state-level skills development agencies, as this would ensure better coordination with the industry and the ability to reach industry clusters quicker,” he said.

Ng added that Samenta is hopeful the measures announced by Prime Minister Anwar Ibrahim with regard to Budget 2024 would be fine-tuned so that SMEs are not unnecessarily disadvantaged.

“While SMEs did reasonably well in 2022, with our share of the GDP increasing to 38.4 percent - this is still far lower than the target of 45 percent by 2025 and 50 percent by 2030 as envisioned by the National Entrepreneurship Blueprint, and to be on par with our neighbours such as Singapore and Indonesia,” he added.

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