Enterprise
Pushing for change
Behonce Beh 
Budget 2018 is skewed towards accelerating Malaysia’s foothold in the fourth industrial revolution with the help of youths and startups
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ALTHOUGH there were many reasons for small and medium enterprises (SMEs) to rejoice due to Budget 2018 proposals, some caution is still needed. SMEs should not expect free handouts and instead, grind their axes to remain competitive and sustainable.

Koong foresees the Budget initiatives to trickle into the market by late next year

Some Budget 2018 proposals have wide-ranging applications for the SME sector, says the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM). “There were more than 10 items on the budget that encompassed SMEs from various industries. Many of them were too wide and did not have a focus on how to develop SMEs per se,” ACCCIM SME and Human Resource Development Committee chairman Koong Lin Loong tells FocusM.

 

To be sure, the total allocations and grants targeted for SMEs in Budget 2018 totalled over RM22 bil. This is an enormous sum of money which is to be dished out to help local SMEs. Most of the allocations are in the form of grants, soft loans and credit guarantee facilities.

The largest incentive for SMEs is the allocation of RM7 bil under the Skim Jaminan Pembiayaan Perniagaan (SJPP) or Working Capital Guarantee Scheme, of which RM5 bil is for working capital and RM2 bil with 70% guaranteed by the government for the services sector, including those pursuing opportunities in the fourth industrial revolution (IR 4.0).

Nevertheless, how the RM7 bil incentive allocation under SJPP will be implemented remain ambiguous. This needs to be publicised clearly so that eligible companies can have access to the funds. “The eligibility and access to the funding needs to be better ascertained and publicised on a wide and transparent basis.

Anand says more could have been offered to the tourism sector to promote inbound tourist arrivals

“The SJPP is intended to create funds for eligible SMEs in the manufacturing and services sectors to tap on to enhance their working capital, finance automation and process efficiencies, and also technological improvements,” says Baker Tilly Malaysia tax services leader Anand Chelliah.

Tourism sector major beneficiary

The tourism sector featured strongly in Budget 2018 proposals, with an estimated tourism arrival of 28 million next year. Last year, tourism arrivals were 26.8 million, accounting for RM82.1 bil in receipts.

In his budget speech on Oct 27, Prime Minister Datuk Seri Najib Razak announced that 2020 will be declared Visit Malaysia Year (VMY2020). Among the initiatives proposed in the Budget to spur the tourism industry include an allocation of RM2 bil for the SME Tourism Fund to provide soft loans to tour operators with an interest subsidy of 2% and an addition RM1 bil worth of soft loans to the Tourism Infrastructure Development Fund.

Several other incentives were announced in relation to tourism, including medical and health tourism. However, Anand explains the only incentive that SMEs could realistically relate to is the extension of the incentive for tour operating companies, due to expire next year. The two-year extension was granted so that it will coincide with VMY2020.

“Yes, more could have been offered to the tourism sector to promote inbound tourist arrivals; and I hope that the newly introduced tourism tax does not dampen things in the sector,” he adds. Foreign tourists is charged RM10 per room per night for all hotel classifications under the recently-enforced tourism tax. The Tourism and Culture Ministry is projecting to collect about RM210 mil worth of tourism tax revenue annually.

As for tax reliefs for the travel agencies, Koong feels its impact will be minimal as many of the agencies are running at a loss. Hence, Koong says the soft loan provided, would have a more positive impact for tour operators.

 

Scaling up micro businesses

Micro-businesses also formed part of Budget 2018’s initiatives. Key among the allocations was the RM500 mil allocation to Tabung Ekonomi Kumpulan Usaha Niaga (Tekun) Nasional to assist micro entrepreneurs, with an additional RM200 mil allocation to Amanah Ikhtiar Malaysia (Aim). There was also a proposal of RM80 mil allocation under the Rural Economic Financing Scheme (SPED) through Bank Rakyat and SME Bank to provide financing facilities to rural bumiputera entrepreneurs, among others.

When asked on how soon will SMEs be able to enjoy or see Budget 2018’s allocation trickle down to the market, Koong says it would usually take seven to eight months.

Koong anticipates some delays in the disbursements guidelines. For instance, the guideline on the extension of the incentive period for Accelerated Capital Allowance of 200% on automation equipment from year of assessment 2018 to year of assessment 2020 will likely be issued only late next year.

“Some of the Budget’s allocations derived from the 11th Malaysia Plan. It is not that simple for funds to be disbursed,” Koong says.

Shot in the arm for venture capital sector

THE government sent out a clear message in the Budget 2018 proposals to grow the startup scene by intensifying its venture capital investment.

According to the budget proposals, RM1 bil will be provided by major institutional investors for investment in venture capital (VC) mainly in selected sectors.

Raja Hamzah says foreign investors would often seek local institutional investor buy in

Furthermore, the government proposes expansion of income tax exemption to include management and performance fees received by venture capital management company, effective from year of assessment 2018 to 2022. This, according to RHL Ventures managing partner Raja Hamzah Abidin, will have a positive impact on the digital economy.

 

“Tax exemptions such as the income tax exemption for fees, and also tax deductions for companies and individuals investing in venture capital (VC) funds enables Malaysia-based VC firms to be on equal footing or even better from a tax perspective with our neighbours in Singapore.

“The RM1 bil for investing into VC will give the spur needed for local based VC firms and also incentivise foreign firms to be based in Malaysia, which will ultimately benefit our local startup ecosystem by increasing the availability of local capital and to keep the best of their talent in Malaysia,” he commented.

Raja Hamzah adds though there are strong interest from investors from North Asia and Europe to invest in Malaysia, many of them usually seek local institutional investors buy in.

“These incentives should encourage the flow of capital into Malaysia. The government through these initiatives has given a big stamp of approval and put real money to back up their words,” he comments.

Beh hopes institutional investment could give birth to a Malaysian startup unicorn

Meanwhile, BookDoc founder Datuk Chevy Beh told FocusM lauds the RM1 bil for institutional investment into VC and hopes such a move would foster more Malaysian-owned and backed startups. 

“We have seen local startups moving their businesses abroad owing to VC funding requirements. Hopefully with institutional investment, we could see regional and global unicorns that is Made-in-Malaysia within the next one or two years,” he opines. A unicorn, in financial terms, is a startup with a valuation of US$1 bil (RM4.23 bil).

An example of a Malaysian unicorn moving abroad is e-hailing service provider Grab, which moved their operations from Kuala Lumpur to Singapore in the middle of the year in order to better access global VC funding. As of July, e-hailing company Grab was valued at over US$6 bil.



This article first appeared in Focus Malaysia Issue 257.