PETALING JAYA: While Budget 2027 has done well in recognising some of the biggest concerns from small and medium enterprises (SMEs), it still does not address the core problem of cash flow.
The Institute of Strategic Analysis and Policy Research (Insap) said Budget 2027 shows the government is trying to tackle rising operating costs, cascading taxes and wages for SMEs, but the measures announced will make little headway in easing the cash squeeze SMEs face.
"The government has identified the right problems, but not the root cause.
"A tax cut is worth as little as a few hundred ringgit a year, a tax refund limited to one sector and a minimum wage exemption that cannot stop workers from leaving will not change that," said Insap chairman Datuk Dr Pamela Yong.
She pointed out that the SME Association of Malaysia revealed last October that seven in 10 SMEs have less than six months of cash reserves.
Then in July this year, it warned again that micro and small firms may face critical operational distress within three to six months without liquidity relief.
"For these businesses, the pressing question is whether they can pay suppliers, rent and salaries in the coming months.
"Budget 2027 must be measured against that test."
According to Insap, the announced tax cut under Budget 2027 is too small to make a difference.
It cites the example of a business with chargeable income of RM100,000, which will only save RM1,000 a year, or about RM83 a month.
"More importantly, a tax cut only helps firms that make a profit. SMEs making little or no profit, often the ones with the thinnest cash reserves, gain nothing," it said.
Meanwhile, Budget 2027's policy to let manufacturers reclaim sales tax on machinery, spare parts and equipment bought from local traders is also too narrow a relief.
This policy helps only manufacturers and even then, only on certain purchases, said Insap.
"Even manufacturers say a narrow refund is not enough," it added, pointing to an August statement from the Federation of Malaysian Manufacturers which called for a systematic input tax credit for SST paid on business inputs such as materials, machinery, logistics and business services, warning that unrecovered taxes on inputs become "permanent production costs".
At the same time, the services sector, the largest in Malaysia, does not even get any comparable relief.
"Service businesses will keep paying tax on their inputs out of their own cash," Insap said.
Cascading tax is an economy-wide problem which needs an economy-wide solution, with Insap proposing an input tax credit mechanism that is open to all sectors which allows businesses to offset the tax they pay on business inputs.
Another risk SMEs continue to face is the loss of workers, and while SMEs with sales below RM50mil are exempt from the new RM2,000 minimum wage, this does not shield them from the job market.
Insap explained that larger companies that must pay the new rates are better able to offer higher pay which will likely attract more workers to join them.
"To keep staff, SMEs will have to match those wages from cash reserves they do not have.
"The new RM2,500 minimum wage for semi-skilled workers and graduates will widen this gap further," it said.
This exemption, which has no end date, may also discourage SMEs from growing beyond the RM50mil threshold, Insap added.
As such, Insap called on the government to also provide cash-flow relief that also reaches SMEs with little or not profit, a mechanism to end cascading tax on business inputs in all sectors, support for SMEs to compete for talent such as additional tax deductions for SMEs that raise wages, train workers or automate and a clear duration and criteria for the minimum wage exemption, with any future change announced at least 12 months ahead.
