Budgeting in a pandemic — Thisha Gunasilan

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NOVEMBER 1 — The Covid-19 pandemic erupted when Malaysia (and most countries) had just begun to implement the 2020 budget. Since then, the short-term priority has been to craft and implement immediate responses to the crisis such as through stimulus packages.

On 27 February 2020, the then Prime Minister Tun Dr Mahathir Mohamad unveiled the initial financial stimulus, valued at RM 20billiontargeted towards mitigating the impact of the pandemic on the Malaysian economy by implementing a three-pronged approach. First, by easing the cash flow of affected businesses; second, to assist affected individuals; and third, to stimulate demand for travel and tourism.

The Prihatin Economic Stimulus Package (ESP) was unveiled by Prime Minister Tan Sri Muhyiddin Yassin on 27 March 2020. The Prihatin package, with goodies worth RM250 billion (inclusive of RM20 billion initial financial stimulus)was crafted to provide immediate assistance to lessen the burden of the people, especially those who are affected during the Covid-19 pandemic. One of the key measures introduced in this ESP was the introduction of the Wage Subsidy Programme (WSP).

On 6 April 2020, additional measures to the Prihatin ESP amounting to RM10 billion were announced by the Prime Minister. The additional measures are mainly for the benefit of SMEs.

On 5 June 2020, the Prime Minister of Malaysia announced the Short-term Economic Recovery Plan (Penjana) worth RM35 billion, providing additional measures to the Prihatin ESP announced previously. Broadly, Penjana initiatives were crafted to spur the nation’s economic recovery from the Covid-19 pandemic which has also crippled the global economy.

On 23 September 2020, the Malaysian Government announced the RM10 billion Prihatin Supplementary Initiative Package (Kita Prihatin) in line with its effort to boost economic recovery.

To-date, the Government has initiated measures worthRM305 billion to ease the burden of people in light of the Covid-19 pandemic. There has been talk that there may be nothing much for the peoplevin the 2021 budget. There is a need for the Government to re-strategise and re-prioritise to prepare for a budget in a pandemic. Perhaps, some of the initiatives introduced in the earlier stimulus packages can be enhanced or reinforced.

The WSP was introduced with a view to prevent large-scale retrenchment by funding a portion of the employees’ wages. The WSP has provided much needed support in sustaining businesses and safeguarding employment. This would need to be extended perhaps into the first quarter of 2021.

The pandemic has undoubtedly resulted in many business closures and job cuts and left many unemployed. As of mid-2020, Malaysia’s unemployment rate stood at 5.3%. In order to prepare these unemployed group for future employment, there is a need to introduce tax and non-tax measures that will allow those in the unemployed category to be upskilled or reskilled.

Under PENJANA, incentives to spur capital investment in manufacturing facilities in Malaysia were introduced to attract investors to relocate their businesses into Malaysia by addressing the risk of re-shoring. Under this incentive, a special tax rate of 0% is accorded to new companies with new investments in Malaysia and 100% investment tax allowance for existing companies in Malaysia relocating overseas facilities into Malaysia.

The likelihood of success of this measure in attracting the right players into Malaysia is unknown. These incentives need to be followed through and enhanced marketing activities by the relevant authorities are required. The foreign direct investments will help to create job opportunities and supply chain spin-off.

The tourism sector has been badly hit by the pandemic. There is a need to introduce measures that help to sustain those in this sector. Hoteliers in the hospitality industry should be encouraged to spend on refurbishing their premises to prepare for increased occupancy once the pandemic settles. Perhaps, the Government can consider the introduction of special grants for those in the hotel business, specifically for refurbishments. An extension of the loan moratorium period to those in the tourism sector will be beneficial to those affected. Alternatively, targeted assistance by banks is welcomed.

The Covid-19 pandemic saw the closure of many food and beverage outlets. Measures to revive the food and beverage industry are necessary. Consideration can be given to the removal of service tax on food and beverage services for a short duration of time to encourage spending.

Lastly, it is necessary to relook into ways to collect more revenue. Perhaps, a special tax can be imposed on companies making super-profits during this pandemic.

Budgeting in a pandemic has become a challenging process. However, the measures that are put in place now will help to shape our economy in the coming years. The longer-term implications of the crisis should be considered. Sometimes a crisis provides an opportunity to rethink so as to build a stronger, sustainable and resilient economy. Therefore, this is an opportunity to announce long term tax reform measures to enhance the business environment and tax framework so that we have a sustainable ecosystem for the future.

*Thisha Gunasilan, is Director of Tricor Taxand Sdn Bhd, a member of the Taxand global organisation of independent tax advisory firms and part of the Tricor Group.

**This is the personal opinion of the writer and does not necessarily represent the views of Malay Mail.

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