Some of the stimulus measures, which have yet to be passed in Parliament, are discussed below.
Relief for the Tourism and Specified Industries
The first economic stimulus package announced on February 27, 2020 sought to alleviate the pandemic’s immediate impact upon the tourism industry. Incentives for the tourism industry include double tax deduction on expenditure incurred on training courses for employees, a six-month deferral on the payment of monthly income tax installments, as well as exempting the hospitality industry from service tax on the provision of accommodation and related services for six months commencing March 2020.
Apart from the tourism sector, port operators were also granted import duty and sales tax exemptions on equipment and machinery used directly in port operations for one year commencing April 2020, whilst international shipping companies operating in Malaysia may apply for a double tax deduction on expenditure incurred, prior to the commencement of operations, to establish a regional office in Malaysia. The application must be made by December 31, 2021.
Other tax benefits include the grant of accelerated capital allowance on qualifying capital expenditure incurred on machinery and equipment and tax deduction up to a maximum amount of 300,000 ringgit on qualifying expenditure incurred from March 1, 2020 to December 31, 2020 on renovating and refurbishing business premises.
Broadening the Economic Stimulus Package as the Covid-19 Crisis Deepened
As the Covid-19 outbreak worsened, the Movement Control Order (MCO) was implemented with effect from March 18, 2020. During the MCO period, all business premises, other than those involved in essential services, must be closed, and this necessarily impacted the broader economy precipitating the issuance of a second economic stimulus package on March 27, 2020 (second stimulus package) and a third package on April 6, 2020.
Wage Subsidy Program
The Wage Subsidy Program (WSP) was introduced by the government under the second stimulus package to prevent large-scale retrenchment by funding a portion of the employees’ wages.
Available to all businesses regardless of nature or size, the government will contribute between 600 to 1,200 ringgit per month towards the salary of each local employee who earns a salary of 4,000 ringgit or less, up to a maximum of 200 employees. Stringent conditions apply as businesses (other than those with less than 75 employees) must show a decline in revenue or income of more than 50% since January 1, 2020, and further, are prohibited from reducing salaries, retrenching or imposing no-pay leave upon employees for six months, among others.
Moratorium on Loan Repayments
Small and medium-sized enterprises (SMEs) have been granted an automatic six-month moratorium on the repayment of bank loans (except credit card balances) from April 1, 2020. Banks are also encouraged to grant similar moratoriums to corporate borrowers. In this regard, banks that grant such moratoriums will be taxed on the interest income accruing on affected loans only upon actual receipt of the interest, that is, after the expiry of the moratorium period.
Tax Payments and Filings
The Inland Revenue Board has granted an extension of time for the filing of income tax returns and tax payments for the year of assessment 2019 whilst taxes which are due during the MCO period may be paid by or before May 31, 2020, without incurring any late payment penalties. Revisions to the estimates of tax payable may be made vide the third, sixth and ninth tax installments respectively. Commencing April 2020, SMEs and the tourism sector have been granted an automatic three-month and six-month deferral respectively on the payment of their monthly tax installments.
Similarly, the Royal Malaysian Customs Department has granted an extension of time to May 13, 2020 for the payment of sales tax, service tax on imported taxable services, tourism tax and departure levies which are due in March and April 2020.
To reduce overhead costs, a six-month waiver on rental payments has been granted on all premises owned by the Federal Government or their agencies. Similar waivers or discounts are granted to SMEs in the retail sector if they operate in premises owned by a government-linked company. Malaysia Airport Holdings Berhad will also provide rebates on rentals payable for airport premises, as well as landing and parking charges.
Where the business premises are privately-owned, landlords are under no legal obligation to waive or reduce the rental chargeable but those who do so may obtain a further tax deduction equivalent to the amount of rent forgone from April to June 2020 provided that their tenant is an SME and at least 30% of the original rental rate has been reduced for that period.
Electricity and Other Discounts
A discount scheme on monthly electricity bills has been implemented for six months, commencing April 1, 2020. The rate of discount is 15% for hotels, travel agencies, domestic airlines, shopping malls, convention centers and theme parks, 2% for the industrial, commercial, and specified agricultural sectors, and ranges from 2% to 50% for households.
Foreign workers’ levy will also be reduced by 25% (except for the domestic help sector) for work permits expiring between April 1, 2020 and December 31, 2020 whilst levies payable to the Human Resources Development Fund will be waived for six months commencing April 2020 for all sectors.
Employees’ Provident Fund
To increase employees’ disposable income, the statutory contribution rate by employees to the Employees’ Provident Fund (EPF) has been revised from 11% to 7% for wages commencing April 2020 to December 2020. The EPF has also established the Employer Advisory Services program with a view to assisting affected businesses to restructure or reschedule their EPF contributions to enhance cash flow.
The main thrust of the economic stimulus packages is to enhance cash flow for households and businesses. Nevertheless, deferring rather than waiving payment obligations, whether statutory or otherwise, merely delays the inevitable and may result in a snowballing effect post-MCO. It is also clear that businesses’ ability to perform binding contractual and other obligations has been impaired.
To obviate costly disputes and litigation post-MCO, perhaps the only practical solution is to pass the appropriate legislation and address these issues now.
Irene Yong is a Tax Partner at Shearn Delamore & Co, Malaysia
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.