14 October 2014

SMEs get incentives galore in Malaysia's Budget 2015

Offering a helping hand for small and medium sized enterprises (SMEs) was a big part of the Malaysian Budget 2015, which was announced by Prime Minister and Finance Minister Datuk Seri Najib Tun Razak on October 10. 

"Currently, SMEs contribute 33% to GDP and the share is targeted to increase to 41% by 2020," he noted in his speech.

To accelerate the participation of SMEs in economic activity, the Malaysian government proposes the implementation of the SME Investment Partner programme. Under the programme, SMEs will be given financing assistance in the form of loans, equity or both, particularly at the startup stage. An initial fund totalling RM375 million will be provided for a period of five years, of which RM250 million is from SME Bank and RM125 million from private investors. In addition, RM10 million will be allocated for the Business Accelerator Programme under SME Corp.

To enhance use of new technology, automation and innovation in the development of SMEs, RM80 million is allocated for a Soft Loan Scheme for Automation and Modernisation of SMEs under Malaysian Industrial Development Finance.

TEKUN, the national agency  which provides business opportunities, business capital financing and guidance and support services for entrepreneurs, has already channelled loans totalling RM3.1 billion to nearly 300,000 borrowers with loan limits of between RM1,000 and RM100,000. "In 2015, TEKUN will provide additional funds of RM500 million which will be distributed as follows:

First: RM350 million is allocated for Bumiputera entrepreneurs to provide financing to nearly 33,000 new borrowers;

Second: RM50 million will be allocated to Indian Entrepreneurs Financing Scheme that will benefit 5,000 Indian entrepreneurs;
Third: RM50 million will be allocated to the Young Professional Women Entrepreneurs Development Programme that will benefit 5,000 professional women; and
Fourth: RM50 million will be allocated to the Armed Forces Veteran Entrepreneur Development Programme that will benefit 5,000 veterans," said Najib. "To assist SME entrepreneurs from the Chinese community, the Government will provide soft loans totalling RM50 million, and RM30 million for hawkers and petty traders."

Additional help for SMEs in the service sector is also forthcoming. The government wants the services sector to contribute 60% of GDP by 2020, up from 55.2% in 2013. To boost the services sector, Malaysia is implementing various initiatives, including:

  • Setting up a Services Sector Guarantee Scheme amounting to RM5 billion for SMEs in the services sector;
  • Establishing a Research Incentive Scheme for Enterprises (RISE) with an allocation of RM10 million to encourage companies to set up research centres in high technology, ICT and knowledge-based industries;
  • Reintroducing the Services Export Fund (SEF) totalling RM300 million to encourage SMEs to conduct market feasibility studies and undertake export promotion to penetrate new markets; and
  • Strengthening the Franchise Development Scheme under the Ministry of Domestic Trade, Co-operatives and Consumerism in collaboration with the Malaysian Franchise Association. 

"The RISE addresses several longstanding economic agendas, and to have them refreshed in the new fiscal budget underscores the criticality of these goals in the nation's long-term roadmap. With RM10 million set aside to encourage the founding of research centres in high-tech, ICT and knowledge-based industries,  IDC expects this capital injection to further catalyse the inflow of foreign direct investment (FDI).  Although it was not made clear if RISE's coverage would be fully extended to include foreign investors, such a motion would be extremely relevant and well-timed – large multinationals such as Intel and AMD have long flagged Malaysia for its competitive advantage in the R&D sector relative to peer Asian nations, and further incentives would serve to validate this view," Ho Sui-Jon, Market Analyst, IDC Financial Insights Asia/Pacific, representing IDC Malaysia commented.

"Additionally, RISE will also play a none-too-small role in pushing Malaysia forward in the high-tech goods value chain. This pursuit was last backed by policy-makers during the announcement of the latest Financial Sector Master Plan, where it was stated that value-added manufacturing will replace the nation's dependence on parallel medium industries moving forward.

"Should IDC's assumptions hold true, we can expect cross-sector spillovers that will far surpass the RM10 million outlay in scope, taking the form of more aggressive enterprise resource planning (ERP) investments moving forward."

The Government will also introduce a new Islamic finance product for investment in 2015 called the Investment Account Platform (IAP). The IAP is expected to provide opportunities for developing viable SMEs, he added. 

Automation is being encouraged in the manufacturing industry, with high labour intensive industries such as rubber products, plastics, wood, furniture and textiles to enjoy an automation capital allowance of 200% to be provided on the first RM4 million expenditure incurred within the period from 2015 to 2017. For other industries, the automation capital allowance of 200% will be provided on the first RM2 million expenditure incurred within the period from 2015 to 2020.

To develop creative industries such as animation, filming, designing and cultural heritage, the Government has allocated RM200 million to MyCreative Ventures in 2012. To further promote the industry, a Digital Content Industry Fund will be set up under the Communications and Multimedia Commission with an allocation of RM100 million.

"The  Digital Content Industry Fund, an extension of the MyCreative Ventures fund of 2012 will be set up under the Communications and Multimedia Commission, with RM100 million allocated. Given that this directly benefits the film, animation, design and other associated industries, all of which are data-intensive, IDC expects a significant portion of the fund to be channelled back into Third Platform IT investments. Ranging from the management of proprietary data through virtual, cost-effective and secure services, to the delivery of media on various alternative channels beyond mass broadcasting, it is hoped that this initiative heralds the conception of a much more vibrant app/ media/ mobility ecosystem in Malaysia," said Ho.

A more specialised incentive package is to be offered for investment projects based on technology, innovation and knowledge, particularly involving highly qualified employees with high salaries. RM1.3 billion has been set aside for the Ministry of Science, Technology and Innovation to implement several programmes including:

  • A target of 360 high-impact innovative products to be commercialised within the next five years;
  • Research funds of RM290 million to implement high-impact R&D&C programmes;
  • Rebranding of SIRIM, the national agency for R&D and quality standards. For this, an SME Technology Penetration and Upgrading Programme and technology auditing will be implemented;
  • Introduce a new Public Private Research Network spearheaded by Ministry of Education in collaboration with the Malaysian Technology Development Corporation with an allocation of RM50 million; and
  • Strengthen the Technology Commercialisation Platform Programme by Agensi Inovasi Malaysia with an additional allocation of RM50 million.

For infrastructure, the High-Speed Broadband (HSBB) network will continue to be implemented in areas of high economic impact, covering state capitals and selected major towns nationwide. A sum of RM2.7 billion will be spent over the next three years to build 1,000 new telecommunication towers and laying of undersea cables.

Ho noted:  "The recalibration of various subsidy schemes is likely to have a positive, albeit delayed, impact on the adoption of consumer and enterprise technologies. However, the national budget has also disclosed more direct interventions – the RM2.7 billion earmarked for the development of a national HSBB being the more significant of these – which will potentially have more far-reaching effects.  While there seems to have been a shift away from the goal of providing universal access to HSBB across Malaysia, there is hope that this investment will bring the nation into a more competitive positions – in terms of cost, speed, and coverage – with other countries in the region.

"The amount of investment ploughed into fast-tracking the establishment of a truly 'barrier-less' nationwide retail internet infrastructure will serve as both precedent and stepping stone for future higher-value, higher-sophistication technological propositions with broader commercial applications.  More importantly, such an infrastructure should align itself seamlessly with the Digital Malaysia initiative, and will prove to be a crucial enabler for the 'Third Platform' of technology development (comprising of the Big Data, Cloud, Social and Mobility domains).

Ho noted that changes under 'Mainstreaming Technical and Vocational Education', under which the government has committed RM1.2 billion to enhance vocational and community college programmes, could also impact the IT industry.  "While it was not made clear exactly how these initiatives will be iterated, IDC is cautiously optimistic that they would take a form beyond tuition subsidies and fee waivers, to include actual enhancement of education facilities as well as, quite possibly, the establishment of new academic programmes. If that should be the case, it would give rise to significant potential in new applications of IT and ICT in the country, as well as preparing next-generation talent with the tools to compete locally and globally," he said.

Ho added that enforcement of GST in mid-Q2 2015 will disrupt the local sale of personal devices such as mobile phones, tablets, and PCs during the periods near to the launch date. "IDC expects a measureable acceleration in purchasing trends in the first quarter, in anticipation to the impending pricing hikes and commensurately, we will witness a reduction in sales numbers after its implementation.  We expect that this will only be a short term phenomenon and that the market will normalise by the end of the year," he said.

Ho observed that a budget item overlaps with existing Digital Malaysia initiatives, relating to the technological uplifting of the local SME sector. "RM150 million has been provisioned for qualifying enterprises to purchase GST-compliant accounting software. In IDC's opinion, this would have been an exemplary move, had it been made one year ago.  Given the short remaining time left before the planned enforcement of the new tax model, it is unlikely that end-users and system integrators will be able to meet the deadline if they are indeed only now beginning to embark on the transition. The subsidy will nonetheless find some utility if and when the compliance deadline is extended, depending on the number of non-compliant SMEs remaining come Q2 2015," he said.

"However, it would also be interesting to see if this programme would accommodate organisations which have already completed or are in the process of their transformation in complying with the GST – for instance, rebates to reimburse/reward the relevant parties for being on or ahead of schedule with compliance."