The allocation for Budget 2021 is the largest on record for the country at RM322.5bil. The government’s effort to boost digitalisation and automation in the SME and start-up sectors can be widely seen in the various introduction of incentives and the increase in allocation of funds to assist in the migration to business digitalisation. This re-enforces the focus also previously seen in the Budget 2020.

Though some of the initiatives below are still proposals and have not been passed by Parliament, it is still encouraging to see the government’s effort to support e-commerce and push for digitisation in the SME and start-up sectors.

In this article we consolidate and highlight the key incentives and our insights on some points for SMEs and entrepreneurs that have been proposed in the Budget 2021:

  1. RM25 million for the Micro Franchise Development and Affordable Franchise programmes as well as Buy Made in Malaysia programme
  • Entrepreneurs interested to venture into the franchising industry could seize the opportunity to participate in the above programmes under the Ministry of Domestic Trade and Consumer Affairs.
  • The Buy Made in Malaysia programme was launched as part of the PENJANA economic recovery plan to push consumption of local products and services. It is intended to create more visibility for Malaysian local products in hypermarkets and e-commerce platforms.

Our insight: We have assisted various SMEs with their licensing structure, as a prequel to a proper registered Franchising model. This could be a good reason for already such businesses under licensing model to make the leap towards registering a proper franchising model, and then to on board franchisees supported by such programmes.

 

  1. RM30million to be allocated through matching grants to be invested on Equity Crowd Funding platforms
    • In addition to the matching grant, an income tax exemption on aggregate income equal to 50% of amount invested (up to max. RM50,000) will be given to investors who invest in ECF platforms.

 Our insight: This presents a good opportunity for the public or retail investors interested in investing via ECF platforms to mitigate their downside risks inherent in equity investments, by enjoying direct savings through a reduction against their personal income tax. This tax exemption also gives company issuers another reason to raise funds via ECF platforms.

 

  1. RM35 million to promote Malaysian-made products and services under the Trade and Investment Mission.
    • In the government’s effort to promote more Malaysian-made products and services, more funds have been allocated to increase trade and investment opportunities through the Malaysian Investment Development Authority.

Our insight: This continues to encourage Malaysian businesses to produce goods in Malaysia and develop local expertise, with the view of exporting such goods and services globally.

 

  1. RM50 million allocated on a matching investment basis to support peer-to-peer financing platforms (P2P)
    • P2P financing is an alternative financial aid under the supervision of the Securities Commission Malaysia which has generated financing in excess of RM900 million to SMEs. This matching investment will be particularly of benefit to P2P platforms who are based on invoice financing.

Our insight: This presents opportunities to SMEs that offer competitive payment terms in their invoices to raise funds and ease pressure on their cashflows, which can be crucial in these trying economic times.

 

  1. RM150 million for training programmes and sales assistance for 100,000 local entrepreneurs to encourage adoption of e-commerce under the e-Commerce SME and Micro SME Campaign
  • Entrepreneurs will be provided with on-boarding training, seller subsidy and sales support to shift towards business digitalisation. Partner e-commerce platforms include but are not limited to Boost, Fave, FoodPanda, Grab, Lazada, Shopee and Zalora.

Our insight: This is a practical step to help entrepreneurs who want to bring their offline businesses online or to start entirely new online businesses. Do check out our article on this topic: Taking your Business Online

 

  1. RM150 million to implement the Shop Malaysia Online initiative together with the e-commerce platform
  • Shop Malaysia Online was introduced under the PENJANA economic recovery plan as part of the government’s initiative to spur economic recovery by stimulating online consumption through e-commerce promotions and online vouchers via a public-private partnership model.
  • The allocation under the Budget 2021 is expected to benefit 500,000 local sellers in Malaysia.

Our insight: This is a practical step to help entrepreneurs start e-commerce businesses. Do check out our article on this topic: Taking your Business Online

 

  1. RM150 million to the existing SME Digitalisation Grant Scheme and Smart Automation Grant
    • The eligibility conditions for both these grants have been relaxed to allow micro SMEs and start-ups to apply if they have been operating for at least 6 months.

 Our insight: This grant by MDEC is a continuation from the previous years, encouraging businesses to adopt automation and even artificial intelligence solutions to become more competitive, more profitable, develop new revenue streams and increase operational efficiency.

***

This article was written by Shawn Ho (Partner) and Natalie Ng. Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020 and 2021.  We are also ranked as a Recommended Firm by IFLR1000 2020 and 2021.

Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysian start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds.  Feel free to contact us if you have any queries.

 

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