In need of a leg-up

  • SMEBiz
  • Monday, 23 Sep 2019

Boosting R&D: There is a need to incentivise more research and development among companies.

MOST businesses are going through a tough time. Demand is weak and margins are tight.

And with no end in sight on the trade war front, local companies are hoping for more supportive incentives and clearer policies in the upcoming budget to better ride out what is expected to be another challenging year.

The Federation of Malaysian Manufacturers (FMM) had earlier shared that most manufacturers are hoping for a reduction in the corporate tax rate to be on par with neighbouring countries. Malaysia’s current corporate tax rate is 24%. In comparison, the rate in Singapore and Thailand is at 20%.

A cut in the tax rate would have multiplying effects, said FMM president Datuk Soh Thian Lai.

“If (we could) reduce the rate, (companies will have) more profits, (and) will invest more, ” said Soh.

On better footing: The government is pushing for businesses to upgrade their operations to be positioned for any economic upturn.On better footing: The government is pushing for businesses to upgrade their operations to be positioned for any economic upturn.

However, the government has assured that such a move is unlikely to happen until the economy recovers.

In any case, Soh said there needs to be more incentive to encourage companies to invest in upgrading and automating their operations and to conduct more research and development (R&D) work.

This is crucial as businesses are currently at a crossroad to leapfrog to Industry 4.0. Companies would need funds to spur innovation and adopt new technologies to ensure that they are positioned for any upturn in the economy, be it domestically or globally.

“We’ve made a request for the current budget to remove the RM50,000 cap for SMEs for R&D. This double-deduction incentive also has a time-bar, and we’ve also requested to remove time bar and extend (the incentive) to medium and large companies to encourage them to embark on R&D to spur innovation, ” he said.

At the National Economic Forum 2019 held last month, Finance Minister Lim Guan Eng had mentioned that one of the thrusts in Budget 2020 will be on Malaysia’s mid-term plan to capitalise on the permanent reorientation of the global supply chain by focusing and riding on the proliferation of IR4.0 technologies such as automation, robotics, artificial intelligence and big data analytics.

“These are our new growth engines, ” Lim had said.

He also emphasised Malaysia’s goal to establish an entrepreneurial economy where growth will be led by the private sector.

But this will be a challenge when domestic investments are languishing. Companies have noted the high cost of modernising and upgrading their operations and given the current weak market, there is not a lot of profits that they can put to use for such developments.

“We need to build investors confidence, ” Lim admitted.

Tight-fisted: Domestic investments are languishing as companies are uncertain about the economy. — ReutersTight-fisted: Domestic investments are languishing as companies are uncertain about the economy. — Reuters

“The reason why DDI (domestic direct investment) is not moving as fast as FDI (foreign direct investment) is because of the trade war. They don’t know how far and how much they should go in. one of the biggest negative confidence factors (for business) is uncertainty.

“This is where we hope that the local investors can see what the foreign investors are doing and also make the same investments. Business cycles go up and down. And the long term trend is to go up later. You will miss out on the uptrend. That is something we hope the domestic investors or business can look at because by the time you need to get it on stream, it will take about 12-18 months. So don’t miss the boat, ” he said.

Local manufacturers are not fully convinced.

“We need more incentives to invest in machines and to upgrade our factory. I think this is what most of the factories will request for. Otherwise we won’t be able to invest anymore. The investment is so huge and, on top of that, we still have taxes to pay, ” shared one manufacturer.

Notably, the government has introduced several measures to catalyse the SMEs digitalisation process under the previous budget. This includes guarantee schemes by Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP) to ease SMEs financing access to apply IR 4.0 technology in their business as well as RM3bil allocation for the Industry Digitalisation Transformation Fund to accelerate adoption of new technology including artificial intelligence, automation, and big data.

However, one of the challenges faced by companies is the tedious process of trying to obtain funds under any of the government programmes.

“We got a grant to help fund one of our new machines. But they would only release the funds to us on a monthly basis. We already took the risk to invest so much but they can only pay what we pay to the bank (through installment). So I think it’s a very defensive move. If we could get the grant in full, we’ll be able to do more. You can’t have too many criteria for the incentive. That makes it difficult and does not help us grow, ” added the manufacturer.

Another issue often talked about by businesses is the lack of clarity and certainty in policy.

“We also want stable conditions, that the government can produce the right policies, and a business-friendly and investment-friendly climate for manufacturers, “ said Soh.

During last month’s forum, Datuk Ng Yih Pyng, deputy secretary general II cum adviser of young entrepreneurs committee for The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM), noted that while there seemed to be a lot of positive initiatives pushed out by the government, these have not been well communicated to the industry.

Additionally, there is a lack of consultation with stakeholders to ensure efficient policies are in place to aid and grow the industry.

“A lot of times, we have to make u-turns. That makes business decisions very difficult and there is no confidence in a lot of things because we don’t know whether these good initiatives will materialise at the end of the day. So I think it is not clear in terms of implementation, ” said Ng.

He added that there needs to be quicker implementation of government initiatives as today’s business environment is evolving at a much faster pace.

“For any good policy, the government must have political will to push through and fast, ” he said.

Ng’s view was supported by other industry leaders.

“As long as the government can come out with the right policy, as a facilitator, once you have the right policy, the business part will do their jobs right. For example, with regards to the labour policy, they’ve been sitting on it for almost a year without having any outcome. Businesses will be a bit loss if you can’t decide what you want to do with that kind of policy, ” said Peck Boon Soon, ACCCIM’s socio-economic research committee chairman.

Ng further pointed out that there is still a lot that needs to be done before the industry can truly embark on transforming their business and be IR4.0-ready.

If the right enablers are not in place, businesses seem to be pretty much “in a big trap for now”.

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