KUALA LUMPUR: Small and Medium Enterprises (SMEs) are surprised and disappointed with the introduction of the capital gains tax under the 2024 Budget, without any consultation with SME stakeholders.
Small and Medium Enterprises Association of Malaysia (Samenta) national president Datuk William Ng said it recognises that Malaysia is one of the last remaining holdouts in Asia where capital gain is not taxed, and that by taxing capital gain, we will be able to increase our tax revenue and hopefully reduce our debt.
"By implementing a tax on capital gains, we can increase our tax revenue and, hopefully, reduce our debt. However, this must not be at the expense of entrepreneurship and SMEs."
"If we must introduce a wealth tax to avoid the politically difficult decision to bring back the goods and services tax (GST), we should be introducing an inheritance tax or windfall tax instead of a blanket capital gain tax, which would hurt SMEs disproportionately," he said in a statement today.
Ng added that it is painful to see that full-time share punters, who are not adding any value to the economy or industry, are exempted from any tax, while hardworking SMEs who are already contributing to corporate income tax and providing meaningful employment to Malaysians, will be taxed upon their retirement, sales of business or when bringing on board new investors.
As the details of the capital gain tax are not finalised, Ng said Samenta is hopeful that the government will engage with all stakeholders including the SMEs, prior to implementing the new tax.
He noted that there should be carve-outs, including full waiver for sale of shares by founders or after a holding period of five years, to encourage long term investments and entrepreneurship.
Ng said there can also be a waiver of gain tax on any activity that is deemed to be a merger and acquisition (M&A) to encourage consolidation among SMEs. Meanwhile, he also said the association is disappointed that there is little or no measure to encourage SMEs to move up the value chain through investments in research and development (R&D), except in a few selected industries.
"We are grateful that the finance minister has continued to make available funds to SMEs for various purposes, including for automation, green economy and the halal industry.
"However, the challenge for SMEs is no longer just access to financing, but more importantly, is to scale up the value chain so that we can increase our profit margin and be more competitive in the longer-term.
"This is a missed opportunity to encourage SMEs to focus on innovation. "Coupled with the proposed funds for start-ups, we cannot but wonder if the government has given up on SMEs to scale the value chain, and is instead trying to encourage new, unproven start-ups to take up that role," he added.
As such, Ng said Samenta is hopeful that the measures announced today at the Budget 2024 reading can be fine-tuned so that SMEs are not unnecessarily disadvantaged.
He said while SMEs did reasonably well in 2022, with its share of the gross domestic product (GDP) increasing to 38.4 per cent – this is still far lower than the target of 45 per cent by 2025 and 50 per cent by 2030 as envisioned by the National Entrepreneurship Blueprint, and to be on par with the country's neighbours such as Singapore and Indonesia.