Digital Law Firm Presents: On Funding, Entrepreneurship and Tax

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October 13, 2019

On Funding, Entrepreneurship and Tax

We have compiled the salient points on Government funding, entrepreneurship and tax scheme from the full text of Budget 2020, delivered by the Finance Minister on 11 October 2019 in the Parliament of Malaysia (Click here for the full text) :

  1. An allocation of RM25 million will be given to set up a contestable matching grant fund to spur more pilot projects on digital applications such as drone delivery, autonomous vehicle, blockchain technology, and other products and services that leverage on our investments in fibre optics and 5G infrastructure.
  1. The Government will provide RM20 million to Cradle Fund for the provision of training and grants to seed companies.
  1. The Government will continue providing funds of RM10 million to MDEC to train micro-digital entrepreneurs and technologists to leverage on e-Marketplaces and social media platforms to sell their products. 100 of these micro-digital entrepreneurs, a majority of whom are women and youth, were able to generate RM23 million in revenues over just 6 months, unleashing life changing experiences.
  1. To further support our up and coming entrepreneurs, SME Bank will introduce two new funds where the Government will provide an annual interest subsidy of 2% to reduce borrowing costs as follows:
    • a RM200 million fund specifically for women entrepreneurs, offering loans of up to RM1 million per SME; and
    • a RM300 million fund to support Bumiputera SMEs with the potential to become regional champions, with priority given to producers of halal products and manufacturers with high local content.
  1. The government will further allocate an additional RM50 million to My Co-Investment Fund (MyCIF) under the Securities Commission Malaysia to leverage such platforms to help finance the underserved SMEs.
  1. The Government will provide a RM1 billion 1:5 matching guarantee for dedicated private equity funds to invest in Malaysian consortiums.
  1. The Government will continue to support strategic projects through financing programmes under Bank Pembangunan Malaysia Berhad, offering a 2% interest subsidy per annum via:
    • the Sustainable Development Financing Fund size increased from RM1 billion to RM2 billion;
    • the RM1 billion Maritime & Logistics Fund; and
    • the RM2 billion Industry Digitalisation Transformation Fund which will now also support the implementation of connectivity projects.
  1. The Government has provided RM100 million for Small Business Loans (Program Pembiayaan Usahawan Perusahaan Kecil Komuniti Cina) for the Chinese community via Bank Simpanan Nasional with more than 380 branches throughout the country, at an interest rate of 4%.
  1. For the palm oil sector, the Government intends to support this industry with the following measures:
    • RM550 million palm oil replanting loan fund for smallholders collateral-free at an interest rate of 2% per annum, with a tenure of 12 years including a 4 year moratorium on repayment. The replanting will be undertaken using the latest seedlings and also in compliance with Malaysian Sustainable Palm Oil (MSPO) standards to ensure better productivity and marketability;
    • An allocation of RM27 million to support Malaysian Palm Oil Board’s (MPOB) efforts to market palm oil internationally and counter anti-palm oil campaigns;
    • Enhance implementation of biodiesel, with the B20 biodiesel for the transport sector to be implemented by the end of 2020. This is expected to increase palm oil demand by 500,000 tonnes per annum.
  1. To better facilitate access to financing for SMEs in priority segments, the Government will implement enhancements to the Skim Jaminan Pinjaman Perniagaan (SJPP). For Bumiputera SMEs, export-oriented SMEs and SMEs investing in automation and digitalisation, the Government guarantee will be increased from 70% to 80% and in addition, will reduce the guarantee fee to only 0.75%. A new SJPP allocation of RM500 million in guarantee facility will also be launched, earmarked for women entrepreneurs.
  1. To support Bumiputera entrepreneurial development, grants amounting to RM445 million will be provided in terms of access to financing, provision of business premises and entrepreneur training. This includes:
    • RM150 million for overall entrepreneurship development and upskilling by Perbadanan Usahawan Nasional Berhad (PUNB);
    • RM75 million by SME Corporation (SMECorp) for capacity building and export focus for Bumiputera SMEs, which includes enhancing marketing, packaging, and financial literacy;
    • RM170 million in total for access of financing via TEKUN, SME Bank and Pelaburan Hartanah Berhad; and
    • RM50 million for entrepreneurship under Unit Peneraju.
  1. The Government will continue to support strategic projects through financing programmes under Bank Pembangunan Malaysia Berhad, offering a 2% interest subsidy per annum via:
    • the Sustainable Development Financing Fund size increased from RM1 billion to RM2 billion;
    • the RM1 billion Maritime & Logistics Fund; and
    • the RM2 billion Industry Digitalisation Transformation Fund which will now also support the implementation of connectivity projects.
    1. For Indian entrepreneurs, the Government will provide RM20 million under TEKUN Nasional’s Skim Pembangunan Usahawan Masyarakat India (SPUMI) which is expected to benefit 1,300 entrepreneurs at an interest rate of 4%.
  1. The Government has embarked on a comprehensive review and revamp of the existing incentive framework, comprising the Promotion of Investments Act 1986, Special Incentive Package and incentives under the Income Tax Act 1967. This new framework is expected to be ready by 1 January 2021.
  1. The Government will also provide tax incentives to further promote high-value added activities in the Electrical and Electronics (E&E) industry to transition into 5G digital economy and Industry. These incentives include:
    • income tax exemption up to 10 years to E&E companies investing in selected knowledge-based services; and
    • special Investment Tax Allowance to encourage companies in E&E sector that have exhausted the Reinvestment Allowance to further reinvest in Malaysia.
  1. The Government is increasing the allocation from RM5.7 billion in 2019 to RM5.9 billion in 2020 on the Technical & Vocational Education & Training (TVET), including to:
    • further strengthen the public and private sectors’ synergy on the TVET programme through increased funding of the State Skills Development Centres (SSDCs). The Government will provide RM50 million through Perbadanan Tabung Pembangunan Kemahiran (PTPK) to fund TVET courses conducted by SSDCs;
    • promote greater industry collaboration by Public Skills Training Institutions (ILKA) by allowing ILKAs to utilise surplus revenues generated from TVET courses provided to the industry for expenditures such as upgrading equipment and hiring trainers from industry and providing matching grant fund of RM20 million to support customised TVET courses undertaken in collaboration with industries.
  1. The Human Resource Development Fund (HRDF) will collaborate with the industry to provide TVET training linked to employment opportunities. For this purpose, the Government will provide RM30 million to train more than 3,000 youths from low income households.
  1. Additionally, to assist farmers in their time of need, the Government will establish a RM100 million Disaster Assistance Fund to provide loans at an interest rate of 4%.
  1. The Government will allocate RM10 million towards a joint Government-UN Sustainable Development Goals (SDG) fund to co- finance SDG initiatives in Malaysia. In addition, the Government will allocate RM5 million to support the convening of Parliamentary Select Committee meetings and also for greater engagement by Members of Parliament with civil society, including to address the Sustainable Development Goals at the local level.

TAX

  1. Contributions towards DSR by the companies will be given tax deduction.
  1. To further encourage alternative sources of funding for startups companies and to attract more foreign investment to Malaysia, tax incentives given to venture capital and angel investors will be extended until the year 2023.
  1. The current tax deductions on the cost of issuance and additional deductions on sukuk issuance costs under the principle of Wakalah will be extended for 5 years until year of assessment 2025.
  1. To further promote Islamic fund and Sustainable and Responsible Investment (SRI) fund management activity, the tax exemption for fund management companies managing Shariah compliant funds and SRI funds, and the tax deduction on the cost of issuing SRI Sukuk will be extended for another 3 years until year of assessment 2023.
  1. The Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) incentives will be extended to 2023. A 70% income tax exemption of up to 10 years will be given to companies undertaking solar leasing activities.
  1. Approach (MNA) derived from patents and copyright software will be given tax exemption for a period of up to 10 years.
  1. To amplify the economic benefits of VMY2020, the Government will roll out a host of tax incentives targeted at the arts and tourism sector, such as:
    • Income tax exemption be given for organisers of approved arts and cultural activities, approved international sports recreational competitions, and conferences organisers;
    • New investments in international theme park projects will be given income tax exemption of 100% of statutory income or Investment Tax Allowance of 100% to be set off against 70% for 5 years;
    • Increasing tax deductions given to companies sponsoring arts, cultural and heritage activities in Malaysia from RM700,000 to RM1,000,000 per year.
  1. The current income tax exemption for women who return to work after a career break be extended for another 4 years until 2023.
  1. The Government will also extend double tax deduction on expenses incurred by companies participating in Skim Latihan Dual Nasional (SLDN) for another two years. In addition, the double tax deduction currently given to companies undertaking Structured Internship Programme (SIP) approved by Talent Corporation Malaysia Berhad (TalentCorp) will be expanded to include students from all academic fields rather than just engineering and technology.
  1. To ease the financial burden of parents who enrol their children in registered nurseries and kindergartens, individual tax relief for fees paid will be increased from RM1,000 to RM2,000.
  2. Digital Services Tax will be implemented with effect from 1 January 2020 to include services such as but not limited to downloaded software, music, video or digital advertising.
  1. To further encourage the private sector to donate as part of their corporate social responsibility, effective 5 September 2019, the Government has increased the donation reporting threshold from RM5,000 to RM10,000 under Subsection 44(6) of the Income Tax Act 1967. This will subsequently be increased to RM20,000 beginning 2020.
  1. To inculcate philanthropy, tax deduction on donation for charitable and sports activities and projects of national interest currently capped at 7% from the aggregate income for tax  payer who are other than company will be increased to 10% in line with  the threshold given to companies. The tax deduction is also expanded to:
    • Cash wakaf contribution to state religious authorities or a body established by state religious authorities administering wakaf;
    • Cash wakaf contribution to public universities allowed by the state religious authorities to receive wakaf; and
    • Cash endowment contribution to public universities
  1. Currently, income tax exemptions is given for all income received by religious institution or organisation established for the purpose of religious worship or the advancement of religion and registered under the Registrar of Societies Malaysia. Beginning 2020, similar tax exemption will be extended to religious institution or organisation registered as a Company Limited By Guarantee with the Companies Commission of Malaysia.
  1. The income tax relief of up to RM6,000 given on expenses incurred for medical treatment of serious illnesses will be expanded to include expenses incurred on fertility treatment.
  1. In response to the public view regarding the Real Property Gain Tax (RPGT) imposed on disposal of properties after 5 years onwards, the Government will enhance RPGT treatment by revising the base year for asset acquisition at 1 January 2013 for asset acquired before 1 January 2013 as compared to the previous base year of 1 January 2000.
  2. To ensure a more progressive personal income tax structure, it is proposed that a new band for taxable income in excess of RM2 million be introduced and taxed at 30%, which is a 2 percentage point increase from the current 28% rate. This increase will affect approximately 2,000  top income earners in the country.
  1. The SME income tax rate for Chargeable Income up to the first RM500,000 was reduced by 1% to 17% in 2019. To further support the growth  of  the  SME,  the  chargeable  income  subjected  to 17% rate will be increased to RM600,000, subject to the SME having paid-up capital of not more than RM2.5 million  and  annual sales  of not more than RM50 million.
  1. To improve efficiency of management of taxpayer appeals, the Government will merge the Special Commissioner of Income Tax and Customs Appeal Tribunal into the Tax Appeal Through this merger, taxpayers who are dissatisfied with the decision of the Director General of the IRB or the Director General of RMCD may submit a tax-related appeal under all applicable tax laws to the Tax Appeal Tribunal to be operation in 2021.

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