Budget a mixed bag for SMEs


  • Focus
  • Monday, 02 Nov 2015

Some are warning that with imported inflation due to the weak ringgit, many SMEs with high import content will go under next year.

While Budget 2016 contains goodies for small and medium enterprises in certain sectors, it does not address the ringgit plunge and delays in GST refunds. And many SMEs are also worried about the hike in minimum wage. HO WAH FOON reports.

BUDGET 2016 is seen as a mixed bag of good and bad news for small and medium enterprises (SMEs), with the construction and tourism sector seeing brighter days ahead but the manufacturing sector left “disappointed”.

While the construction sector will get a strong boost due to over RM32bil in allocations for the building of highways and infrastructure, tourism firms will flourish with policy measures expected to generate RM103bil in earnings.

However, the manufacturing sector is not thrilled by the budget. Not only are there not many exciting incentives, the industrial sector will also have to contend with higher operation cost arising from increase in minimum wage.

Budget 2016, with total allocations of RM267.2bil for various sectors and ministries for next year, was announced on Oct 23 in Parliament by Prime Minister cum Finance Minister Datuk Seri Najib Tun Razak.

Najib allocated RM1.2bil to the Ministry of Tourism and Culture to woo 30.5 million tourists in 2016 with targeted contribution of RM103bil to the economy. Besides introducing E-Visa, income tax exemption for tour operators will be extended for three years from 2016 to 2018.

Malaysia will gain tremendously if the “smokeless” tourism sector is robust.

Tourism players often say: tourists kill nothing, except time; they take nothing, except pictures; they leave nothing, except footprint. They stay in hotels, but don’t take away hotels.

There is no measure on how to reduce cost of operation for SMEs. Instead production cost will rise next year, says Kang.
There is no measure on how to reduce cost of operation for SMEs. Instead production cost will rise next year, says Kang.

Sharing the bright outlook are SMEs linked to the construction sector. They are expected to get more jobs from the building of roads, highways and infrastructure that will receive allocations of more than RM32bil.

A total allocation of RM23bil for three major developments meant to lure foreign and local investors will also create more business opportunities for SMEs. These are National Vision Valley, Cyber City Centre and KLIA Aeropolis development.

“Budget 2016 has positioned Malaysia as a premier investment destination in the region with well-connected infrastructure,” says Datuk Wira Jalilah Baba, former director general of Mida (Malaysia Industrial Development Authority). She is now the chairman of consultancy firm Crewstone International Sdn Bhd.

The focus on strengthening infrastructure, plus the RM730mil’s worth in grants awarded to Mida, will support investments by SMEs and multinational companies, Jalilah adds.

Lim opines that the government should not have given a high allocation of RM17.3bil to defence.
Lim opines that the government should not have given a high allocation of RM17.3bil to defence.

And sectors that are considered strategic and being promoted include manufacturing and services in the electronic and electrical, aerospace, machinery and equipment, medical devices and selected chemical industry.

“The Government has provided the facilities and incentives for businesses to grow in Malaysia. It is now up to investors, especially SMEs, to seize these opportunities,” says Jalilah.

But for SMEs in manufacturing, life in 2016 is not looking to be easy.

According to the budget, from mid-2016 the minimum wage for private sector foreign workers in Peninsular Malaysia will be raised to RM1,000 from RM900, and in East Malaysia to RM920 from RM800, to discourage industries from taking foreign workers.

There is also the mandatory contribution for Social Security Organi­sation (Socso) to RM4,000 from RM3,000.

“The increase in the national minimum wage will impact small businesses,” says the Federation of Malaysian Manufacturers.

Budget 2016 has positioned Malaysia as a premier investment destination in the region with well-connected infrastructure, says Jalilah.
Budget 2016 has positioned Malaysia as a premier investment destination in the region with well-connected infrastructure, says Jalilah.

“While we acknowledge this is a step towards achieving a higher income economy, the timing of such a move is important, given the current economic environment. As such, the decision to raise the minimum wage should be deferred until the economy stabilises,” it points out.

As SMEs generally are labour-intensive with few moving into full automation, higher minimum wages and consequent higher overtime will be burdensome, according to Datuk Lim Kok Boon, president of the Malaysian Plastics Manufacturers Association.

The Malaysian Employers Federation (MEF) has estimated that it would cost private sector employers an additional RM3.6bil annually, with the rise in minimum wages. As over two million foreigners are likely to repatriate their windfall, this may not augur well for the weak ringgit that is already hit by foreign outflows.

Industry captains note that despite the nation facing continuous outflow of foreign funds and the currency slide for more than a year, there was no mention of what the government would do to overcome these two major challenges.

The budget announced on Oct 23 also did not address existing cash-flow problems faced by the SMEs in relation to the Custom’s delay in refunding excess GST payment.

The proposal by the SME Association of Malaysia to reduce corporate tax for SMEs to 15% from 20% was not heeded in the budget.

The new corporate tax for SMEs in 2016 will be 19%, as promised in the last budget.

Michael Kang Hua Keong, president of SME Association of Malaysia, believes the growth of the SME sector next year will be slower due to a combination of unfavourable factors: economic slowdown, impact of goods and services tax (GST), increase in wages and ringgit weakness.

The Government has projected GDP growth in 2016 to slow to 4-5%, down from 4.5-5.5% this year and 6% last year.

“Many of our SMEs are not ready to face all these challenges at one go. With the coming of Afta (Asean Free Trade Agreement) and hence more intense competition, I doubt the Government can achieve its goal of getting SMEs to contribute up to 41% of GDP by 2020 (from 36% this year),” says Kang.

“I believe many SMEs, particularly those in the manufacturing sector, will disappear in 2016. In my last round of meeting with members, many were saying they had to do internal restructuring and cutting off non-profit operations to reduce cost,” he reveals.

“There is nothing exciting about this budget, and we are disappointed. There is no measure on how to reduce cost of operation for SMEs. Instead production cost will rise next year,” says Michael Kang in a telephone interview.

Lim concurs with Kang: “As this budget did not address the ringgit plunge and imported inflation, many SMEs with high import content will go under next year.”

Lim opines that the Government should not give a high allocation of RM17.3bil to defence.

After all, there are more than 660,000 SMEs in the country. And the sector, which contributes 36% to GDP, has created more than 60% of the country’s jobs. Goods produced by the sector account for 19% of Malaysia’s exports.

“The priority is wrong. More should be given to help the economy during these trying times,” he argues. “It is not as if we are going to war. The Government should differentiate between what we need (for the country) and what we want.”

While manufacturers may be unhappy over the wages issue, they welcome the extension of the reinvestment allowance for another three years. The move will encourage companies to reinvest, upgrade and expand businesses.

For the emerging green sector, the allocation of RM1.2bil for the extension of green technology financing scheme until end-2017 is good news.

Due to fewer allocations and incentives for SMEs and entrepreneurship next year compared to this year, financial portal I-Money opines that the focus of Budget 2016 is “definitely” not on SMEs and entrepreneurs.

According to I-Money’s compilation, allocations directly linked to existing SMEs in Budget 2016 total only RM2.17bil, vastly down from Budget 2015’s RM5.29bil. And the grand total for entrepreneurship is RM6.26bil, RM260mil less than the previous RM6.52bil.

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Business , Central Region , Budget 2016

   

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