How the Short-Term Economic Recovery Plan (STERP) May Benefit Your Business?
What’s in the STERP?
On 5 June 2020, Prime Minister Tan Sri Muhyiddin Yassin has announced the PENJANA - Short-Term Economic Recovery Plan (STERP) with valued at RM35 billion. The STERP is the 4th economy package announced by Malaysia Government, which aims to stimulus the economy and to help Malaysia economy to recover from economic challenges of COVID-19.
There are a total of 40 initiatives announced in the STERP and in this article we are going to focus in a few which will most likely benefit your business, and looking at them from FOUR (4) perspectives: -
A. Company or Business
B. Personal/Individual
C. Workplace
D. Industrial Sector
E. General Property Market
A) COMPANY OR BUSINESS
1. Extension of Wage Subsidy Program
· Extend RM600 for 3 months
· Allow reduced work week (e.g. 4-day work week with a reduced pay of 20%) and reduced pay (the maximum allowable reduced pay is 30%)
· Effective Date Mid-June 2020 to September 2020
2. Incentive of Hiring Youth and Unemployed Workers
· Youth:
Ø RM600 per month for apprenticeships for school leavers and graduates for up to 6 months
· Unemployed Workers Below 40 years old:
Ø RM800 per month for employment of unemployed for up to 6 months.
· 40 years old or above & people with disabilities:
Ø RM1,000 per month for employment of unemployed for up to 6 months.
3. Proposed Income tax rebate of up to RM20,000 per year will be given for three (3) years of assessment for newly established SMEs.
· For newly established SMEs between 1 July 2020 and 31 December 2021.
· Presently, no tax incentive is given to businessmen for starting new businesses.
4. The special tax deduction period for rental rebate to SME tenants will be extended to 30 September 2020.
· the discount provided must be at least 30% of the original rental starting from April 2020 to September 2020.
· Tenant must be a SME.
· To avoid dispute with tax department at a later day, landlords can request tenants to apply for a SME certificate in the website https://smereg.smecorp.gov.my/reg/
5. Expenses incurred on personal protective equipment (PPE) provided to employees were given tax deduction or capital allowances – now tax deduction will be expanded to cover more than PPE.
· It will now include tax deduction or capital allowances for COVID-19 prevention, including COVID-19 testing and thermal scanners.
· Effective Date Immediately. No ending date is mentioned.
6. Accelerated Capital Allowance (ACA) has be given on capital expenditure incurred on machines, equipment and ICT equipment for the period from 1 March 2020 to 31 December 2020. The ACA can be fully claimed within two (2) years with an initial allowance rate of 20% and annual allowance rate of 40%.
· In the new announcement the accelerated capital allowance on eligible capital expenses including ICT equipment will be extended to 31 December 2021.
7. Stamp duty exemption will be given on any instruments executed by SMEs for mergers and acquisitions (M&A) transactions.
· For instruments relating to M&A transactions executed between 1 July 2020 and 30 June 2021.
8. 50% remission of penalty will be given for late payment of Sales Tax and Service Tax due and payable.
· Effective Date from 1 July 2020 to 30 September 2020.
9. RM700 million grants and loans will be provided to SMEs and mid-tier companies to digitalise operations and trade channels.
10. PENJANA SME Financing – The banking sector will allocate RM2 billion funding to assist SMEs with a cap of RM500,000 per SME.
(B) PERSONAL / INDIVIDUAL
1. Income tax exemption and relief for mobile phone, notebook and tablet
· Income tax exemption of up to RM5,000 will be given to employees who receive a mobile phone, notebook and tablet from their employers; and
· Special individual income tax relief of up to RM2,500 will be given to individuals on the purchase of mobile phone, notebook and tablet.
· Presently, any gift of mobile phone, notebook or tablet by employers to employees is treated as perquisites to the employees and is taxable in the hands of the employees.
· On the other hand, expenses incurred by individuals on the purchase of personal computer, smart phone and tablet are given a tax relief of up to RM2,500 under the lifestyle relief
· Effective 1 July 2020 for income tax exemption given to employees.
· Effective 1 June 2020 for special individual income tax relief given to employees.
· Clarity is required from the authorities on whether the special individual income tax relief will be given on top of the current lifestyle relief.
2. Child care relief.
· The tax relief on child care fees paid to a registered child care centre will be increased from RM2,000 to RM3,000.
3. Extension of the period for personal income tax relief for domestic travelling expenses
· Based on the announcement on 27 February 2020, a special personal income tax relief of up to RM1,000 will be given to resident individuals for the following domestic travelling expenses incurred between 1 March 2020 to 31 August 2020:
a. Accommodation fees paid for tourist accommodation premises registered with the Ministry of Tourism, Arts and Culture Malaysia; and
b. Entrance fees paid for tourist attractions.
· Extension of period for the above-mentioned income tax relief for tourism expenses to 31 December 2021.
· Resident individuals who undertake domestic travelling may enjoy tax savings of up to RM300 (RM1,000 relief x the maximum individual tax rate of 30%) in the year of assessment 2020 and year of assessment 2021 [to be updated when more info is available].
4. Sales Tax exemption for purchase of passenger cars
· Full Sales Tax exemption will be given on locally assembled cars whilst a 50% Sales Tax exemption will be given on imported cars.
· The Sales Tax exemption is likely to result in a reduction of the selling price of passenger cars by approximately 5% to 10% which may boost the primary automotive industry that is badly affected by COVID-19.
· Effective Date 15 June 2020 to 31 December 2020.
(C) WORKPLACE
1. A special tax deduction of up to RM300,000 has be given previously for expenditure incurred from 1 March 2020 to 31 December 2020 on renovation and refurbishment of business premises.
· The special tax deduction for renovation and refurbishment of business premises will be extended to 31 December 2021.
· This tax deduction will not apply if such expenditure is entitled for capital allowances under Schedule 2 or Schedule 3 of the Income Tax Act 1967.
2. A further tax deduction will be given to employers which implement FWA or undertake enhancement of their existing FWA.
· WFH expenses may include operating expenses like software fees and subscription fees payable to foreign service providers all of which may attract withholding tax and possibly Digital Service Tax.
· Other expenses may include capital equipment such as laptops, printers for home use, extra monitor, sound equipment, etc.
(D) INDUSTRIAL SECTOR
1. A special Reinvestment Allowance (RA) will be given to eligible companies involved in manufacturing and selected agriculture activities for the years of assessment 2020 and 2021.
· Further details have to be obtained when the gazette order is issued.
· Effective Date for the years of assessment 2020 and 2021.
2. Foreign companies that relocate their manufacturing facilities into Malaysia will be given the following incentives:
· For new capital investments in manufacturing sectors of between RM300 million to RM500 million – 0% tax rate for a period of ten (10) years; or
· For new capital investments in manufacturing sectors in excess of RM500 million – 0% tax rate for a period of fifteen (15) years.
· The above incentive will be given to foreign companies that relocate and begin their operations within one (1) year from the date of approval and the investment amount has been achieved within a period of three (3) years.
· Effective Date for applications made from 1 July 2020 to 31 December 2021.
3. 100% Investment Tax Allowance (ITA) for a period of five (5) years will be given to eligible Malaysian companies that relocate their overseas manufacturing facilities into Malaysia.
· Currently local companies investing in selected manufacturing sectors may apply for pioneer status or Investment Tax Allowance. However, no tax incentive is given to local companies relocating their overseas manufacturing facilities into Malaysia.
· For applications made from 1 July 2020 to 31 December 2021.
4. Manufacturing License approval for non-sensitive industry within 2 working days
(E) PROPERTY INDUSTRY IN
1. Real Property Gains Tax (RPGT) exemption for disposal of residential homes
· Exemption of RPGT for disposal of up to three (3) units of residential homes by an individual.
· However, further clarification from the authorities is required on the applicability of the RPGT exemption to permanent residents of Malaysia as the speech made by the Prime Minister only mentioned about Malaysian citizens
· NOTE THAT an individual who has a history of buying and selling properties may not be able to enjoy the RPGT exemption as the gains arising from disposal of properties could be caught under income tax instead of RPGT. This is because such repetitive transactions may tantamount to an adventure in the nature of trade.
2. Stamp duty exemption for purchase of residential homes
· The Home Ownership Campaign (HOC) previously launched in January 2019 & ended on 31 December 2019 will be reintroduced.
· Wherein stamp duty exemption will be given on the instruments of transfer and loan agreement for the purchase of residential homes priced between RM300,000 to RM2.5 million
· Subject to at least 10% discounts provided by the developer.
· The stamp duty exemption on the instrument of transfer is limited to the first RM1 million of the home price while full stamp duty exemption is given on the loan agreement.
· For sale and purchase agreements signed between 1 June 2020 and 31 May 2021
3. Lifting of Loan Margin Limit for 3rd Property Purchase onwards
· the current 70% margin of financing limit applicable for the third housing loan onwards for property valued at RM600,000 and above, will be uplifted during the period of the HOC, subject to internal risk management practices of financial institutions.
· To clarify if the lifted loan margin is only for HOC program or otherwise [to be updated when more info is available]
In general, the above initiatives will be useful for: -
1) Any SMEs who are looking at restructure their corporate structures
- The free stamp duty for merger & acquisition plus the additional tax waiver for new business will be a great help.
2) Any SMEs who are looking at rearranging their workplace under the new norm
- Special tax deduction for fit out or renovation will be useful.
- Some spending can be claimed under the tax deduction which is meant for the improvement of FWA.
- The current soft office rental market due to the pandemic has create another opportunity for office tenants to lock in some savings for a longer term.
3) Any companies/businesses who are looking at restructuring their manufacturing operation with some additional CAPEX be put in.
- Manufacturing company/business shall seriously take this opportunity to adopt higher level of automation in their operations – considering the uncertainty of labour supply during the pandemic period and the higher cost (and less efficiency) of complying with the social distancing in their operation.
DISCLAIMER: The above information is for reference only and will not form any professional advice & the writer shall not be liable for any loss make due to the reliance of the information above. The reader shall seek professional advices before making any decision based on the information above.