Introduction

The sudden and deadly COVID-19 pandemic has led to lockdowns across the globe in an effort to stymy the spread of the virus. The unfortunate side effect of this necessary life-saving measure is a near standstill of business activity within affected countries. This article will look at Malaysian tax relief efforts and consider what else might be done to lessen the effects of the impending global recession.

On 18th March 2020, the Malaysian government issued a nation-wide Movement Control Order (‘MCO') that compelled all non-essential businesses to shut their physical premises until 31 March in an effort to keep the population in their homes. With the subsequent extension of the order for a further 2 weeks Malaysian taxpayers, whether individuals or corporations, are now faced with the daunting task of surviving an extended period without revenue.

A Summary Malaysian Tax & Economic Reliefs

The Inland Revenue Board (‘IRB') and Royal Malaysian Customs (‘RMC') implemented a number of measures to ease the taxpayers' hardship during these difficult times. Some of the measures are:

The list of extensions goes on. Broadly summarised, these relief measures come in two forms:

1) Tax incentives for specific goods, industries or donations, and;

2) Extensions to the filing and payment deadlines.

These are supplemented by the RM250 billion broad-spectrum economic stimulus package (‘PRIHATIN') targeted at individuals. For businesses, Bank Negara Malaysia (‘BNM') has recently enhanced allocations to the Special Relief Fund (‘SRF') from RM2 billion to RM5 billion with a lower financing rate at 3.50% and the All Economic Sectors (‘AES') Facility from RM5.8 billion to RM6.8 billion, with a reduced financing rate of 7% (down from 8%), among other measures.

The Big Picture

While individual taxpayers may be able to get by on the handouts temporarily, without continued income in the form of steady employment, their economic position becomes unsustainable. Hence the importance of supporting Small - Medium Enterprises (‘SME').

SMEs account for the majority of Malaysian businesses and the majority of Malaysian jobs. With business slowed, or dried up entirely, their ongoing overheads will mean that employee pay cuts and retrenchments are likely.

Deadline extensions will allow SMEs more time to prepare their finances. Indeed, similar extensions have also been implemented by tax authorities in major countries like the United States, Germany and Australia.

Germany, for example, has allowed for deferring tax payments, reducing advance payments, and relief in the area of enforcement; Deferrals of tax collection to be facilitated, without the assessment of interest-in particular if the collection would impose a considerable hardship on the taxpayer. Postponement of the date of tax payments and a waiver of late payment surcharges until 31 December 2020.

Great efforts have already been made to assist the Malaysian taxpayer. However, more relief will be needed. Beyond deferment and extensions, the IRB should look into measures that actually lower the tax burden.

On top of their own deadline extensions, the Australian Tax Office has recently introduced the "backing business investment" initiative which allows eligible businesses to accelerate their depreciation deductions on the purchase of certain new depreciating assets. This is also coupled with ‘cash-flow boosts' that are automatically credited, dispensing with the need to apply for the boost.

Double Deduction, Double Relief

Generally, Malaysia has used double deduction to incentivise taxpayers to incur certain revenue expenses. In the past, this has been used to encourage spending on:

And more.

In the present crisis, SMEs should be given double deductions for the salaries of retained employees (provided no retrenchments occurred) and for expenses incurred in retaining employees through the next 12 months when, hopefully, the economy has recovered to some degree.

Conclusion

More must be done to ensure the survival of SMEs. Deadline extensions only delay the inevitable and increased financing facilities are not always desirable for SMEs, especially the smaller businesses which cannot afford the added financial obligations. Tax deductions lighten the employer's burden and provides a way for the government to keep SMEs running while also safeguarding employee retention.

Prepared by: Abu Daud Abd Rahim, Khairul Anwar Mohamed & Demetria Rinesha Samuel