Thursday 29 Feb 2024
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This article first appeared in The Edge Malaysia Weekly on April 6, 2020 - April 12, 2020

In the past week since the announcement of the highly anticipated Prihatin Rakyat Economic Stimulus Package worth RM250 billion on March 27, a chorus of frustration has been heard from one group — small and medium enterprises (SMEs).

Business associations have appealed to the government to come up with more measures to help them ease their cash flow problems and financial constraints.

Entrepreneurs have taken to the media or social media to voice their concerns, as their businesses have been disrupted like never before because of the Covid-19 pandemic and the 28-day Movement Control Order (MCO) that began on March 18.

In particular, the SMEs are finding themselves among the hardest hit by the coronavirus outbreak, considering that big corporations are at least arguably in a better position to withstand the headwinds.

Before going into details, let us take a step back and look at the bigger picture.

The RM250 billion stimulus is a combination of two packages launched by the government — the first being Pakatan Harapan’s

RM20 billion worth of measures on Feb 27, followed by a RM230 billion booster from Perikatan Nasional exactly a month later.

Of the second package, almost RM128 billion will be channelled to preserve the people’s welfare, RM100 billion to support businesses, including SMEs, and the remaining RM2 billion to strengthen the economy.

According to Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed, the Prihatin package is among the world’s largest and shows the government’s seriousness in mitigating the fallout from Covid-19.

“[The stimulus package] is about 17% of the nation’s gross domestic product [GDP], whereas the UK’s is 16%, and the US’ and

Singapore’s are 11%,” he said on national TV on March 29.

If the Prihatin package is indeed one of the world’s largest — and includes an allocation of 40%, or RM100 billion, to support businesses — why are business owners still so unhappy?

 

‘Save us to save jobs’

SME Association of Malaysia president Datuk Michael Kang Hua Keong tells The Edge that the Prihatin package did not address the challenges that SMEs face, especially their cash flow problems.

“To many businesses, their cash in hand can last them only until March or April. When they have zero revenue, how are they going to pay all their fixed expenses? And if you think about it, two-thirds of Malaysians are relying on the SMEs [as their source of income]. If the SMEs collapse, many people will lose their jobs,” he warns.

As clichéd as it sounds, SMEs are the backbone of Malaysia’s economy.

In 2018, local SMEs, which comprised 98.5% of the local business population, contributed 38.3% to the overall GDP, 17.3% to total exports and 66.2% to total employment in the country.

National Chamber of Commerce and Industry of Malaysia (NCCIM) secretary-general Datuk Low Kian Chuan points out that the country’s economy is not only slowing down but, to a certain extent, also experiencing almost zero economic activity.

“The government should realise that businesses, be they SMEs or big corporations, are very concerned about the current situation. It’s not just a cash flow problem; we are talking about zero income here,” he tells The Edge.

Johor South SME Association adviser Teh Kee Sin believes a tripartite partnership between the government, employers and employees is needed to save the economy.

“All of us have to survive this crisis hand in hand, even if it means we have to lose money in the next two years. The government needs to save the SMEs to save jobs,” he says.

Although the cash handouts to the B40 and M40 income groups have drawn criticism, Teh says this measure could help boost domestic consumption, given that foreigners are not coming to the country to spend.

“The government’s intention is good. Everybody is closing their doors now. Even if you do have orders in hand, you cannot do anything, because nobody is going to accept the goods,” Teh says.

Nevertheless, he urges the government to come up with more effective measures to rescue the SMEs so that people can keep their jobs.

“I can’t find a better word to describe this, but many businesses will ‘die’. We need at least two years to recover from this crisis,” he says.

Malaysian Institute of Accountants (MIA) president and Baker Tilly Johor partner Huang Shze Jiun concurs. “The most important thing is to save jobs. If you cannot keep people employed, you will have a vicious cycle, as in businesses cannot be sustained. Accounting firms like us are also relying on SMEs to survive. If they fail, all of us will suffer together,” he says.

 

The wage subsidy controversy

It has not gone unnoticed that among the measures announced in the Prihatin package, the most hotly debated is the RM5.9 billion wage subsidy programme, which will be introduced to assist employers in retaining workers.

Under this programme — estimated to benefit 3.3 million workers — the government will provide a salary of RM600 per month to every employed person for three months.

However, this programme applies only to workers earning less than RM4,000 per month, and only if their employer has experienced a decline of more than 50% in income since Jan 1.

Moreover, three months after the implementation of the programme, employers must ensure that there has been no retrenchment and that they have not imposed unpaid leave nor forced a wage cut.

SME Association of Malaysia’s Kang says the government should remove the conditions under the wage subsidy programme and hopes the subsidy can be doubled to RM1,200 per month.

“Companies are not allowed to negotiate with their employees a possible pay cut or take unpaid leave. Our hands are tied. We have to pay workers’ salaries in full. Where do we get the money? What can we do?” he asks.

NCCIM’s Low says companies should be given the flexibility to engage with their workers and discuss the use of their annual leave and other related matters.

“Our wage subsidy programme has certain conditions imposed. [In] other countries, there are no such conditions. The government’s directive to employers is to pay full salary. This should be made more flexible, rather than compulsory,” he says.

“Everybody has to make sacrifices. Otherwise, the employers will have to bear most of the burden. If the MCO is prolonged for another two weeks, how can you ask the employers to pay six weeks’ salary without any income?” Low asks.

Johor South SME Association’s Teh says if employees are willing to sacrifice a little to save their jobs, the government should not exert too much pressure on employers.

“To be entitled to the wage subsidy programme, businesses need to prove that their income has decreased more than 50%. If my income has dropped that much, I am halfdead already. Do you think I still want that RM600? Many businesses would rather close down,” he says.

MIA’s Huang says professional firms should be entitled to an 80% wage subsidy during the MCO period.

“For factories, labour cost usually makes up 50% to 60% of their total costs, whereas for professional firms, we are talking 80% to 90%. It is a very different conundrum,” he says.

 

Covering fixed costs

Although the Prihatin stimulus package’s headline number is impressive at 17% of GDP, research firm Fitch Solutions Country Risk and Industry Research points out that the actual cash infusion is only RM19 billion.

Other than the RM5.9 billion wage subsidy programme, the government has also allocated RM10 billion for one-off cash handouts to households and individuals.

Business players highlight that not only is more cash infusion needed for SMEs, but the government should also step in to help reduce their fixed costs during the MCO period.

Although the government has announced measures to help employers manage their cash flows, these programmes have their shortcomings.

First, the Employees Provident Fund (EPF) will introduce the Employer Advisory Services programme, which allows companies to defer payments as well as restructure and reschedule their contributions.

The measure is expected to provide employers with an estimated cash flow of RM10 billion, benefiting more than 480,000 SMEs and affected companies while securing more than eight million jobs.

In addition, the government is allowing the postponement of income tax instalment payments by SMEs for a period of three months.

MIA’s Huang says the postponement and deferment will not fundamentally resolve SMEs’ problem, as they are just “kicking the can down the road”.

“One thing to recognise is that companies pay income tax only when there are profits to be made. With the current situation, I doubt many companies can make significant profits or any profit at all. The best way forward is to waive the income tax. Otherwise, the cash flow problem will still come back a few months later,” he says.

SME Association of Malaysia’s Kang agrees.

“Many SMEs will be making losses this year, so the government should consider waiving income tax. The government should encourage SMEs to work harder and make profit in the future, so that they can resume paying tax. If businesses are closing down, there will be less tax collection,” he explains.

Johor South SME Association’s Teh says all statutory contributions — such as EPF, Socso, income tax, the Human Resources Development Fund as well as sales and services tax (SST) — should be exempted for 2020.

 

No light at the end of the tunnel

To assist SMEs, including micro-entrepreneurs, the government and Bank Negara Malaysia will provide RM4.5 billion in additional funds.

This allocation consists of a top-up of RM3 billion to the Special Relief Facility (SRF) for SMEs, RM1 billion to the All Economic Sector Facility fund, as well as RM500 million under the Micro Credit Scheme.

Yet, business owners are not too excited.

SME Association of Malaysia’s Kang says a loan is for companies to generate profits, not pay overheads.

“The SRF is a loan for you to do business, not for you to pay fixed expenses. No businessman in his or her right mind will take a bank loan to pay fixed expenses if they knew they would have zero revenue,” he says.

MIA’s Huang says business owners would want to see the light at the end of the tunnel before taking a loan and, at this point in time, they cannot see it.

“If SMEs take the loan to pay fixed expenses, that money is gone. In future, the business owners still have to repay the loan, and if the businesses are no longer there, they will be left in a deeper hole,” he adds.

Fortunately, the government is expected to make an announcement on further refinements to the stimulus package in the coming week.

It is learnt that Finance Minister Tengku Datuk Seri Zafrul Aziz last week met various business associations to get a better idea of what the industries need so that the government can provide more targeted help.

Business owners will certainly be looking forward to hearing what the government has in store for them.

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