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How Budget 2016 Will Affect SME and the Franchise Industry

The recent Malaysian Budget 2016 on 23rd October 2015 with the theme “Prospering the Rakyat” is the first budget announced under the 11th Malaysian Plan and was announced by our Prime Minister, Datuk Seri Najib Razak.  It sees the increase of RM3.2 million in our estimated revenue of RM225.7 million in Budget 2016 compared last year. As for the expenditure, the budget allocates a total of RM267.2 billion compared with the revised RM260.7 billion in 2015. Of this amount, RM215.2 billion is for Operating Expenditure and RM52 billion for Development Expenditure.

For all intents and purposes, it is a budget where the economic sector is focusing carefully hoping that there will be some relieve for them especially the SMEs and most importantly, how to expand their business in this challengingly wide arena. The economic sector receive the highest share of RM30.1 billion from the Development Expenditure of RM52 billion and the Budget is said to premise on striking a balance between the Capital Economy and People Economy.

It is well understood based on the current slow moving of economic due to the low spending of consumer in the past few months up to now coupled with the current weakened ringgit together with the recent implementation of Goods and Services Tax (GST) on this April 2015, the Budget is hoping to strengthen back the economy and encouraging the SMEs to grow intensively. The budget acknowledges that the SMEs indeed an important role in developing business and the Government is expecting the GDP growth rate from the SMEs will be at 41% by 2020. Therefore, five initiatives have been introduced and will be undertaken:

First Provide an additional RM1 billion for the Shariah-compliant SME Financing Scheme until 31 December 2017 with the Government subsidising 2% of the financing profit rate;
Second Allocate RM107 million for the SME Blueprint to provide funds for entities at various stages of business development;
Third Allocate RM60 million for the Entrepreneurs Acceleration Scheme, and SME Capacity and Capability Enhancement Scheme;
Forth Establish a RM200 million SME Technology Transformation Fund under the SME Bank to provide soft loans at 4%; and
Fifth RM18 million to expand the Small Retailer Transformation Programme (TUKAR) and Automotive Workshop Modernisation (ATOM) projects.

Apart from the five initiatives, there are a few points worth to take note from the Budget 2016. It seems that the budget focuses a lot on improving the infrastructure and transportation especially in the capital of Kuala Lumpur, Selangor and Klang area. Reducing traffic congestion, improving transportation facilities, possibility of constructing a coastal highway, and upgrading of airports can be seen as one of the key point to ease the current heavily congested capital city and to ensure the economy may grow rapidly by encouraging SMEs and well-known brand chain franchise to setup more businesses in the capital city.

Retailers are seen to be the main focus here to ensure more tourist are attracted to Malaysia as the Government is targeting 30.5 million tourists which expected to contribute RM103 billion to the economy. Franchisee should take this opportunity to expand their brand to strengthen their platform by influencing the buying power of the tourists before tackling overseas franchise. To facilitate the tourists visiting Malaysia, the Government will implement E-Visa by mid-2016. To benefit further of the current ringgit currency and in efforts to attract more tourists, 100% income tax exemption on statutory income for tour operators will be extended from year of assessment 2016 until 2018. These are certainly good news to the tour operators and hopefully by 2016 the retailers will recover from the recent declination of purchasing power of Malaysian’s consumers due to the recent toll hikes and a few price increased.

SMEs and the local franchise industry must try to keep their cost checked to avoid any possible price increase unless necessary, to keep the consumer from leaving. Selling of local Malaysian products are encouraged to avoid any increased of cost due to importation of goods and services as these will attract higher GST due to the current weakened Ringgit. Proper planning of cost management and cash flow management are extremely important to maintain the businesses.

With GST implemented, SMEs and the local franchise industry have been advised to expand by exploring into the possibilities of exporting their products or services into international market. As exporting will be charged 0% in terms of GST and the current level of Malaysian currency, it is a good news that a sum of RM235 million will be allocated to MATRADE for 1Malaysia Promotion Programme; Services Export Fund and Export Promotion Fund. The SMEs are encourage to tackle the China market and the Bank Negara will be providing the Ringgit-Renminbi credit swap facility for local banks in order to diversify the use of foreign currency in trade transactions.

Currently, SMEs are eligible to claim income tax exemption of 10% or 15% of the value of increase in exports and to further increase exports, SMEs now are given flexibility to comply with the value-add condition that is from 30% to 20% and from 50% to 40% for manufactured products. The Budget is giving flexibility for years of assessment 2016 to 2018.

With the current market flowing towards an increasingly liberalized global market, it requires Malaysian SMEs to move beyond national boundaries. We will be seeing soon enough where the Trans Pacific Partnership (TPP) will take place in the near future. SMEs and the local franchise industry should take this opportunity and prepared themselves to utilize the market access opportunity as soon as possible.

In another separate matter, local SMEs have to take this revised provision of penalty seriously in order to avoid possible penalised by the authorities. With the current revision of penalty of non-filing of tax return Form C, there is an extension from Budget 2015 which was RM200 – Rm20,000  penalty on offender to Budget 2016 which is RM200 – RM20,000 for first year non submission and RM1,000 – RM20,000 for non-submission of more than two years. Apart from that, initially there is no penalty for disclosing wrong info in tax return Form C but with the recent proposal we will be seeing a penalty of RM200 – RM20,000 coming into operation of the Act.

In this challenging times for the SMEs and the local franchise industry, Cheng & Co have been waiting to see the business owners to grow not only in Malaysia but internationally and with the recent implementation of GST this year, it forced the businesses to look for opportunities beyond the bad times and to move forward. We know in these desperate times, proper guidance and professional advice must be provided, Cheng & Co as one of the largest home grown Accounting Firm in Malaysia are able to understand the needs and the uncertainties especially GST, faced by the business owners especially SMEs and the franchise industry on how to further strengthen and expand their business.

*Original article published in Franchise Asia, 2016 Vol 29.

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