KUALA LUMPUR: The government could consider an extension for deferment of income tax instalments for all small and medium-sized enterprises (SMEs) until December 2020, Malaysian Rating Corporation (MARC) says.
The rating agency had on Monday pointed out the current supply chain disruption in the economy will likely impact businesses over a longer time frame than is currently anticipated and SMEs, being the backbone of businesses in Malaysia, are financially fragile.
“We feel that additional support for businesses would help sustain their cash flows and retain employees, ” it said in a statement.
Last Friday, Prime Minister Tan Sri Muhyiddin Yassin announced the PRIHATIN Rakyat Economic Stimulus Package (Prihatin) totaling RM250bil (17% of GDP), of which RM25bil (10% of Prihatin) will come from a direct fiscal injection.
A big chunk is in the form of loan moratoriums (RM100billion or 40% of Prihatin), while the other large component is withdrawals from the Employees Provident Fund (EPF) (RM40bil or 16% of Prihatin).
MARC pointed out that as the government is in a tight fiscal situation, it could use some support from the private sector.
Note that the RM100bil worth of loan moratoriums will only defer the burden shouldered by businesses.
As such, the private sector, especially financial institutions, could play a role in ensuring businesses remain viable in the medium term.
“For example, more assistance through special funds could be provided by financial institutions to SMEs with good prospects to help them through this turbulent time, ” it suggested.
MARC said the government could also look at measures to help the informal sector, in which employees are paid daily or are on short-term employment contracts.
As such, they do not have access to financing and do not benefit much from the voluntary EPF withdrawals. In addition, measures to ensure the MCO does not contribute to existing problems in supply chains could also be introduced.
“We believe price monitoring alone to ensure price stability is insufficient, as this would only serve to further distort the market for essential food items, ” it said.
MARC said given the wider scope of assistance provided to the rakyat and businesses, we are now projecting a larger budget deficit by one to two percentage points higher than the recent estimate of 3.4% of GDP in 2020.
“We think the government has some room to partly finance this through debt issuances (another six-percentage point leeway before it hits the self-imposed 55% of GDP limit).
“In addition, deficits could be partly financed through one-off dividends from government-linked companies (GLCs) and reallocations of some of expenditures previously planned for other purposes (e.g. tourism activities), ” it added.
MARC said it did not think that worsening fiscal and debt metrics will trigger negative rating actions by global credit rating agencies (Malaysia’s fiscal balance: -3.4% of GDP; A-rated countries: -1.1% of GDP; general government debt: 56% of GDP; A-rated countries: 49% of GDP).
This is because Malaysia’s deficits are mainly financed by domestic resources. Also, history shows that during the last recession in 2009, Malaysia’s sovereign rating was unaffected even though its budget deficit had surged to 6.7% of GDP from 4.6% the previous year.
In summary, Prihatin is a more comprehensive, rakyat-centric package meant to mitigate the impact of the Covid-19 outbreak which is increasingly being felt nationwide across all sectors and divides. It also serves to complement the Economic Stimulus Package 2020 announced earlier in February.
“If the economic situation worsens, more measures should be introduced. This time, the focus should be on supporting private sector businesses given that the Covid-19 outbreak is not likely to be a short-term phenomenon.
“In any case, we think it is also important to ensure proper implementation of the Prihatin and any subsequent economic packages. This is because unsuccessful outcomes will lead to massive insolvencies, retrenchments and income losses, with dire socioeconomic implications at the national, employer, and household levels, ” MARC said.
Source : https://www.thestar.com.my/business/business-news/2020/03/30/extend-income-tax-deferment-for-smes-marc-urges