SMEs in Malaysia are privileged to have many financial and non-financial incentives available to them. Financial incentives come in the form of grants, conventional loans, venture capital funding, or tax incentives while non-financial incentives may be in the form of physical infrastructure, information and training provided by the Government or by trade associations. All these incentives are mainly provided for or coordinated by Government agencies. The main agencies that offer incentives to SMEs are Small and Medium Industries Development Corporation (SMIDEC), Malaysia Technology Development Corporation (MTDC) and Malaysian Industrial Development Authority (MIDA).
Malaysian Government Budget Incentives
The Government recognizes that SMEs may face cash flow constraints at the initial stages of operations and has proposed to offer SMEs the flexibility to pay taxes at the end of financial year instead of monthly instalments. This flexibility is for a period of 2 years from the date of commencement of operations.
The Government will also begin to implement a single-tier tax system to improve the efficiency and to simplify the administration of corporate tax, effective from the year of assessment 2008. Under a single-tier tax system, profits are only taxed at the company’s level and dividends received are exempted from tax. With the single-tier system, dividends can be more easily distributed. A transition period of 6 years will be provided to ensure smooth implementation of the single-tier system.
SMEs with a paid-up capital of RM2.5 million and below are eligible for a reduced corporate tax rate of 20% on the chargeable income of up to RM500,000. The tax rate on the remaining chargeable income is maintained at 28%. Dividends distributed will be given a tax credit of 20% in the hands of the shareholders. As per Budget 2007, to enhance the nation’s competitiveness, the company income tax rate of 28% will be reduced in stages by 2 percentage points. For the year of assessment 2007, the rate will be 27%, while for the year of assessment 2008, the rate will be 26%, including for SMEs. In the latest Budget 2008 announcement, the corporate tax rate will be further reduced to 25% in 2009.
Small-scale manufacturing companies incorporated in Malaysia with shareholders’ funds not exceeding RM500,000 and having at least 60% Malaysian equity are eligible for the following incentives:
- Pioneer Status with an income tax exemption of 100% of the statutory income for a period of five years; or
- Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within five years. This allowance can be offset against 100% of the statutory income for each year of assessment.
A sole proprietorship or partnership is eligible to apply for this incentive provided a new private limited/limited company is formed to take over the existing production/activities.
To qualify for the incentive, a small-scale company has to comply with any one of the following criteria:
- The value added must be at least 15%; or
- The project contributes towards the socio-economic development of the rural population.
The company shall carry out the manufacturing of products or participate in activities listed as promoted products and activities for small-scale companies.
Applications should be submitted to MIDA.
Loan and Credit Management
Loans and credit are two sides of the same coin. This is an integral part of any organisation today because they help to keep a person’s financial health or a business afloat. Knowing your loans and credits and understanding how to manage them makes a big difference in the likelihood of your business and in life.
In a business, loans are very common as you will be borrowing from a bank or a financial situation either as capital, start-up or business expansion. Depending on the term and the purpose of the loan, they must be properly managed and honoured in order for your business to continue.
Credit status is something that affects businesses as well as individuals. It is crucial to manage your credit health because it is recorded by the central bank that can determine future borrowings, credibility and other factors pertaining to your financial standing both as an individual and a business.