by S BIRRUNTHA / graphic by MZUKRI MOHAMAD

A REDUCTION in corporate tax rate would help lift financial burden for the small and medium enterprises (SMEs) that have been through financial distress due to business suspension during the Conditional Movement Control Orders (CMCO), suggested Asia Pacific Investment Bank (APIB).

Institute for Democracy and Economic Affairs senior fellow and Centre for Market Education CEO Dr Carmelo Ferlito concurred that the suggestion made by the bank is practical and viable, considering the strong impact of the Covid-19 pandemic.

He added that the recent CMCO arrived at the moment when businesses, in particular the small ones, were starting to recover after the hard hit from the first severe MCO.

“A general thought on corporate and income tax reductions is a must in the current scenario.

“The survival of the economic system, which is the survival of individuals and families, is at stake here,” he told The Malaysian Reserve in a phone interview last Friday.

However, Ferlito said the tax cut needs to be accompanied by the commitment to avoid extensive CMCO like the one recently involved in Selangor.

He noted that clarity on guidelines and standard operating procedures on the CMCO, as well as an Asean strategy on international borders would help the situation.

Recently, APIB CEO Chris Wang said the Covid-19 pandemic had taken a toll on 900,000 SMEs nationwide, especially those that operated in the tourism, manufacturing, catering and retail sectors.

He noted that the pandemic had caused a sudden drop in businesses, where SMEs were facing significant financial challenges, including a shortage in working capital and cashflow crunch.

Citing a survey done by the SME Association of Malaysia, Wang said 51.2% of Malaysia’s SMEs suffered losses of more than RM500,000 in business from March to September.

Another survey conducted by the Associated Chinese Chambers of Commerce and Industry of Malaysia shows that 25% of the local SMEs could face bankruptcy if another round of MCO is implemented.

Wang added that businesses in Selangor, Kuala Lumpur, Putrajaya and Sabah are especially hard-hit following the announcement of the CMCO by the government recently to contain the third wave of the Covid-19 outbreak.

Following that, Wang opined that the government should reduce corporate tax to help SMEs survive amid such a challenging time.

“The country’s corporate tax rate is 24%, which is way higher than some of its Asean neighbours including Singapore (17%), Thailand (20%) and Vietnam (20%).

“Reduction in corporate tax will not only lighten the financial burden of the SMEs, it will also attract foreign investments and stimulate the country’s economic growth,” he said in a recent statement.

Additionally, Wang also suggested that Bank Negara Malaysia extend the six-month loan moratorium period which ended on Sept 30.

He stressed that such an initiative will significantly improve the cashflow of the SMEs and give them space to survive the pandemic.

“The six-month loan moratorium programme implemented in March was beneficial to the SMEs as it had lightened their burden.

“An extension of the period of the programme is one of the best ways to further support businesses,” he noted.