A continuity of the economic stimulus packages, the Malaysian Budget 2021 is an expansionary budget amounting to RM322.5 billion, marking the largest expenditure in Malaysia’s history. Aimed at improving Malaysians’ welfare and rebuilding the economy after the unprecedented COVID-19 pandemic, Budget 2021 focuses on three integral goals: Malaysians’ wellbeing, business continuity, and economic resilience.
Various incentives and assistance schemes have been proposed for small and medium enterprises (SMEs), micro-SMEs (MSMEs), and entrepreneurs to help them sustain their businesses amid the economic fallout from the pandemic. Below are the key measures under Budget 2021, following its passage by the Malaysian Parliament on 15 December 2020.
SMEs and MSMEs
Financing and Grants
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RM2 billion Targeted Assistance and Rehabilitation (TAR) facility under Bank Negara Malaysia (BNM) will be introduced through loans from banking institutions to assist affected SMEs.
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RM1.9 billion in soft loans and grants will be allocated to help SMEs and MSMEs with difficulty accessing financing under PRIHATIN and PENJANA packages, including:
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RM50 million to support peer-to-peer (P2P) financing platforms on a matching investment basis.
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RM2 billion of microcredit financing through TEKUN, PUNB, Agrobank, BSN, and other financial institutions, including RM110 million under the Micro Enterprises Facility by BNM to support gig workers, self-employed individuals, and the iTEKAD program.
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RM230 million allocated for SME working capital, upgrading automation systems and equipment, and COVID-19 SOP compliance.
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Assistance in Cash Flow
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Targeted Loan Repayment Assistance (TRA), which began on 1 October 2020, will continue with extended moratorium and flexible repayment for eligible SMEs.
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Micro-enterprises with loans up to RM150,000 may choose:
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A 3-month repayment moratorium, or
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50% reduction on monthly instalments for 6 months.
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The National Supply Chain Finance Platform (JanaNiaga), led by EXIM Bank with financial institutions, will assist SMEs facing cashflow issues.
Incentives & Deductions for Hiring
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Penjana Kerjaya under PERKESO will continue with enhancements for 6 months:
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Incentive for employees earning above RM1,500 will increase from RM800/month to 40% of monthly income, capped at RM4,000.
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Employers receive an additional 20% incentive, totaling 60% for employing disabled, long-term unemployed, and retrenched workers.
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For sectors relying heavily on foreign workers, a 60% salary incentive is provided: 40% to employers and 20% as a wage top-up to local replacement workers.
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Tax deduction for employers hiring senior citizens, ex-convicts, parolees, supervised persons, and ex-drug dependents is available up to YA 2025.
HRDF Exemption
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Companies affected by COVID-19 are exempt from HRDF levies for 6 months starting 1 January 2021.
Supports for Bumiputera Entrepreneurs
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RM6 billion allocated for Bumiputera entrepreneurs, including:
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RM510 million for financing Bumiputera SMEs/MSMEs through TEKUN and PUNB.
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RM2 billion for financing via Syarikat Jaminan Pembiayaan Perniagaan (SJPP).
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RM500 million from various sectoral schemes to increase involvement in key sectors.
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RM300 million under Lestari Bumi financing for Bumiputera micro and small businesses.
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Supports for E-commerce, Automation, and Digitisation
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RM150 million for training programs, sales assistance, and digital equipment for 100,000 local entrepreneurs under the e-Commerce SME and MSMEs Campaign.
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RM150 million under the SME Digitisation Grant Scheme and Automation Grant to support automation and modernisation; eligibility relaxed for MSMEs and start-ups operating for at least 6 months.
Manufacturing Sector
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Special tax rates for selected manufacturing companies relocating to Malaysia or bringing in new investments extended to 31 December 2022 under PENJANA.
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Incentives extended to selected service sectors with significant multiplier effects, offering income tax rate of up to 10% for 10 years.
Pharmaceutical & Healthcare
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Tax incentives (0%-10% for 10 years, 10% for the subsequent 10 years) for pharmaceutical manufacturers, especially COVID-19 vaccines. Applications accepted by MIDA from 7 November 2020 to 31 December 2022.
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RM35 million to Malaysia Healthcare Travel Council to enhance health tourism competitiveness.
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Income tax exemption for export of private healthcare services until YA 2022.
Science, Technology & Innovation, R&D
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RM1 billion for high value-added technology R&D in electronics and aerospace.
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RM500 million High Technology Fund for innovative companies.
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Reintroduction of tax incentives for non-resource-based R&D product commercialisation.
Other Measures
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Relaxed tax incentives for Principal Hub until 31 December 2022.
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New tax incentive for establishing Global Trading Centres (GTC) at 10% for 5 years, renewable for another 5 years.
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Increase of threshold for value-added activities in Free Industrial Zone (FIZ) and Licensed Manufacturing Warehouse (LMW) from 10% to 40% of annual sales.
Construction & Infrastructure
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RM5 billion allocated to contractors in Classes G1 to G4, including RM200 million for federal road maintenance and RM50 million for Program Perumahan Rakyat (PPR) houses. Procurement flexibilities extended to 31 December 2021.
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RM50 million under Skim Pembiayaan Kontrak Ekspres (SPiKE) via MARA for Bumiputera contractors.
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Tax incentive on Industrialised Building System (IBS) extended to 31 December 2025, with Investment Tax Allowance of 60% on qualifying expenditure over 5 years, set off against 70% of statutory income.
Sustainable Finance
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Government’s first Sustainability Bond for environmental and social initiatives in 2021.
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Income tax exemption for SRI sukuk and bonds extended to 2025.
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RM2 billion for Green Technology Financing Scheme 3.0 up to 2022, guaranteed by Danajamin.
Tax Deductions, Exemptions, and Incentives
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Tax incentives for MRO activities, Bionexus status, and economic corridor developments extended until 2022.
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Incentives for East Coast Economic Region, Iskandar Malaysia, and Sabah Development Corridor extended to 2022.
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Investors participating in Equity Crowdfunding (ECF) receive 50% income tax exemption on investment up to RM50,000/year, limited to 10% of aggregate income.
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RM30 million in matching grants to be invested on ECF platforms under Securities Commission supervision.
This article is authored by:
Fan Xiao Jun
Senior Associate, Gan Partnership
E: xiaojun@ganlaw.my
For enquiries on the Malaysian Budget 2021, please contact Fan Xiao Jun at xiaojun@ganlaw.my
