Slow Retail Recovery Expected in 2021

The Bumiputera Retailers Organisation (BRO) which has 51 members and 6 affiliate members, is the voice of Bumiputera entrepreneurs in the retail and wholesale industry while the Malaysia Retailers Association (MRA) is a recognised representative of the retail industry by the Ministries and other authorities. It also represents some of the largest retail companies in Malaysia. It has 140 members. Datuk Wira Dr Ameer Ali Mydin, President of BRO and Vice President of MRA gives an overview of the industry and how its members are coping with the current economic situation.

How is the organisation helping the members overcome the current situation?

As the voice of the organisation, we highlight issues and concerns of all our members through memorandum submissions to the government to seek solutions for short and long business development.

What is the estimated number of members who have ceased business operations and the number of people who have lost their job?

Many of our members are deeply affected by the pandemic and are consolidating to either close or downsize their business operations.

With the expectation of more store closures in the retail business, unemployment will increase and salary cuts will continue until the end of this year.

Many retailers saw a 35% to 50% decline in footfall in October and November, while sales fell by almost 70% to 80%. The third quarter of 2020 saw footfall recover to almost 75% of the pre-MCO level, while sales stood at 60% to 70%.

Many retailers, including shopping malls and hypermarkets, employ about 450,000 people in total. We foresee a layoff of about 60,000 people by the end of this

year as retailers are unable to operate at full capacity compared to pre-COVID-19 period.

A joint statement on Budget 2021: Government intervention to save lives and livelihood, was issued recently by Bumiputra Retailers Organization, MRCA, SME Association of Malaysia and the Malaysia Shopping Malls Association. Has the government acted/responded to the issues/ proposals highlighted?

We acknowledge the government assistances to revive the retail industry.

The Wage Subsidy Programme (WSP) has helped SMEs to secure jobs and business sustainability. From the retailer’s perspective, we are still in continuous discussion to ensure the financial aid and support extends to retailers as our role is essential for the whole economic circle.

However, the Government should look into a more holistic approach to ensure the necessary help are pinned to the targeted group. For example, waiver of rental fees, moratorium and tax deduction should be addressed to retailers. These are very crucial to ensure the cash flow is sufficient for business and economic resilience.

To survive in the post-COVID-19 landscape, what would retailers need to focus on?

• Cost Rationalisation Priority should be given to increase operational efficiency and cost-effectiveness to ensure business survival. • Marketing Strategy Retailers should innovate and tailored their marketing strategy digitally to remain visible. Utilisation and optimisation of social media platform are effective to reach the new market segment of untapped customers of all ages. • Customer Experience Consumers are choosing convenience on top of everything. Retailers should focus on innovation and fusion of technology and human dimension to enhance customer service and entice the customer to return for more..

In other words, retailers should focus on expanding their digital marketing strategy to advertise products online that is only available in store. Customers can identify the product online and come to the store physically to buy the product.

In what ways can retailers create reasons for consumers/customers to return to in-store shopping postCOVID-19?

It is true that the pandemic has made many people discover the convenience of online shopping, but we have also heard many people complaining about missing delivery items and communication barrier in robotic customer service.

Online retail is here to stay but that doesn’t mean that brick-andmotar sector is going to go away.

This is where experiential retail comes to play. The look and feel experience combined with convenience of technology are reasons to entice customers coming back to store. Footfall decreased by 10% to 30% pre-pandemic period.

However, there was a -28.8% growth rate for Q2 2020 according to the Malaysia Retail Industry Report. Data recorded a 30% to 50% increase in footfall after the lifting of Conditional Movement Control Order with an expected recovery of 60% to 70% next year.

How will the industry of the future (post-COVID-19) look like?

The traditional industry will not be the same in the future. Retailers should remain focused on strengthening their resilience to weather the downward cycle while not losing sight of the future sustainability of the brick-andmortar industry.

For businesses to sustain, they need to adopt new business module such as going digital. The future of the retail industry is positive with digital transformation as it provides huge opportunities.

Having said that, it should be noted that more attention should also be given to brick-and-mortar retailers. The online retail segment in Malaysia is about 5% of the whole business. Focusing more on offline retailers by the Government, will encourage other transactions, including e-hailing drivers, parking management and restaurants, among others.

Cautious Optimism for Shopping Malls Sector

he Malaysian Shopping T Malls Associations, formed in 1984, plays a significant role contributing to the country’s growth in the shopping mall industry. Its membership is well-represented by a cross-section of professionals in shopping mall management comprising owners, developers and management personnel. The Association is one of the founding members of the Council of Asian Shopping Centres which comprises shopping malls associations from Malaysia, Indonesia, Hong Kong, China, Taiwan and Japan

In an interview with Malaysia Retailer, Tan Sri Dato’ Teo Chiang Kok, President of Malaysia Shopping Malls Association speaks frankly about the challenges the malls are facing in view of the current COVID-19 pandemic and suggests ways to overcome some of the core issues.

The Malaysia Shopping Malls Association has been around for 36 years. Can you share with us the current situation shopping malls are generally facing in view of the COVID-19 pandemic?

From July to September 2020, we experienced a steady recovery up to 70-80% footfall but suddenly with

Tan Sri Dato’ Teo Chiang Kok, President of Malaysia Shopping Malls Association.

the 3rd wave in October onwards, businesses deteriorated steeply and currently, it is much worse than the start of MCO with footfall down to 10 to 20%. This is compounded by the unclear SOPs and reports of unfair and arguable enforcement due to these unclear rules resulting in needless panic and fear and keeping away from shopping and patronising F&Bs.

Before the current CMCO imposition, we were optimistic that the economy would recover sufficiently by mid-2021, but with the drop in confidence this target would most likely be end-2021, barring any other unforeseen spikes as it is estimated that malls will need a minimum of 8 to 12 months to recover after MCO is completely lifted.

However, the recent SOP relaxations have seen slow improvements to malls’ footfall and we are cautiously optimistic.

How many members are there in your association and how many people are employed by members of the association?

There’s a total of 502 members comprising shopping malls, individuals and others.

How are the members coping in the current situation? In what ways is the Association helping its members weather the storm?

Our association has produced some PR video clips for our members to carry the message that malls are safe and encourage shoppers to visit our malls. We have also embarked on a promotion event nationwide amongst our members to boost footfall in the midst of observing SOPs and we will be collaborating with tourism authorities to inject shopping cash vouchers into the system to spur the shopping cycle.

How many retailers in shopping malls have ceased operations and would you be able to estimate the number of people who have lost their jobs?

Employment in the retail industry is 1.55 million. Direct employment at retail outlets within Malls plus Mall management staff is estimated at 452,000. Layoff is projected to be 68,000, Mall vacancy is 13% as at 1Q 2020; Projected: 20% to 30% by 2Q 2021 (subject to no anchor tenant leaving).

Recently MRCA, SME Association of Malaysia, Bumiputra Retailers Organization and the Malaysia Shopping Malls Association issued a joint statement on Budget 2021: Government intervention to save lives and livelihood. Has the government acted/responded to the issues/proposals highlighted? Are the incentives sufficient and if not, what more should the government do?

We were extremely disappointed that there were no effective provisions for our industry.

It is disappointing that the conditions for tax relief on rental reductions have not been removed, resulting in the severed ability of landlords to extend such rental reductions to assist retailers to conserve cash flow in the situation of extremely poor sales revenue and the severe reduction of up to 60% allowable capacity to trade due to compliance with social distancing.

We urgently seek government assistance for the preservation of cashflow: 1. Extend and remove limiting conditions of SME and 30% threshold for rental rebates for Tax Relief 2. Extend wage support and remove 500-person limit 3. Extend Utility Discounts and increase to 50% until Dec 2021 4. Extend Loan Moratorium till June 2021 and 5. Auto-renew and Waive all license/ permit fees for 2021

Most of the tenants/retailers in the shopping malls are also badly affected by the pandemic. How are your members helping the retailers to pull through these difficult times?

Mall operators have extended different modes of assistance from rental rebates and a multitude of tenants’ marketing assistance including packaging shopping perks with hotel / resort stays and theme parks, purchasing tenants’ shopping vouchers as giveaways, offering free promotional space, free promotions on the mall’s social media and other print as well as electronic media, joint promotions, free parking to attract and increase footfall, etc. Rental Discounts are tailored depending on the tenant’s needs, different trades require different schemes. Also, the programmes need to be tweaked depending on which phase of MCO is current.

Even for existing tenants, mall operators have a different array of assistance and perks to attract new and retain existing tenants. These include fit-out financial assistance, rent-free periods as well as the abovementioned marketing assistance programmes.

To survive and thrive in the post COVID-19 landscape, what would shopping malls/landlords and retailers need to focus on?

Plan for the possibility of the pandemic to be around for a longer time and start contingency plans immediately. The main focus should be managing and preserving cashflow as sales revenue will be badly impacted for the long haul while the cost of doing business (operating costs) has lesser room to adjust.

What are some of the changes that shopping malls/ landlords and retailers must embrace if they want to keep customers coming back or in what ways can shopping malls create reasons for consumers/customers to return to in-store shopping post-COVID-19?

There will be pent-up demand and shoppers are just waiting to come out again because malls are essentially places to socialise and are woven into the very fabric of our lifestyle and our community. Uncertainty for the retail industry lies ahead and we can only react and make short term plans but we are confident that once the situation improves, shoppers will return. Malls and retailers alike will have to plan more promotions and incentives to encourage shoppers to buy and spend.

Malls will have to think out of the box to transform their tenancy mix and adopt new angles to attract back their footfall following these current trends which may yet change again once infections are better controlled and the environment becomes safer.

Currently, as online purchases have increased, what do you think will be the shopping trend once the pandemic is over? How will this affect shopping malls and what does the shopping malls of the future (post-COVID-19) look like?

The growth of online shopping was already being experienced before the pandemic. However, due to this pandemic, the growth of online shopping has accelerated. However, as in other more e-commerce savvy countries, online shopping has limitations and the visitation to malls has been steadfast. Indeed many e-commerce platforms have diversified into brick-and-mortar premises to expand their reach. Similarly, retailers and shopping malls have adjusted and adopted various programmes to complement online shopping by being collection points, provide delivery service and pick-ups at curbside, etc.

We are social creatures and need human interaction and camaraderie. Shopping malls are avenues for such outings and get-togethers which online shopping cannot provide. In order to be sustainable in the long term, there must be an integration of online with brick-and-mortar shops but there will not be a switch to online shopping only because shopping malls are here to stay as they are an integral part of any societal community, especially our Malaysian lifestyle.

Any other observations or comments you would like to add?

Mall operators and tenant retailers are ultimately business partners and both parties must compromise and help each other through thick and thin to go through all adversities and good times together. Lives and Livelihoods Matter.

Sunway Malls Celebrates Christmas in the Spirit of Giving & Gratitude

Sunway Malls is ushering in the festive season in the spirit of giving and gratitude with a ‘Blessed Christmas’, in retrospect of this year coming to a close and hope for a new beginning ahead.

unway Malls aims to S encourage the act of blessing others through blood donation to save lives and further increase supply for the national blood bank. Sunway Malls is working with various hospitals and medical facilities to provide peace of mind and a safe venue for blood donors. Collectively, Sunway Malls targets a total of 5,000 blood donations by year end.

Sunway Malls is embarking on ‘#KitaSupportKita’, an appreciation programme to give back to front line retail staff through dining vouchers, shopping vouchers or Sunway Pals points which can be redeemed at all malls.

“This year, we hope to spread the message of counting our blessings while giving back to those in need with cheer, joy and gratitude with a ‘Blessed Christmas’ at Sunway Malls,” said HC Chan, CEO of Sunway Malls & Theme Parks. A clean and safe shopping experience remains top of mind for Sunway Malls, and a number of safety measures have been put in place in line with ‘Your Safe Space, Our Safe Space’.

Each Sunway Mall is decked up with festive Christmas trees, décor and ornaments, and shopping deals are aplenty with gift ideas from a variety of specialty stores ranging from fashion, beauty, home and living, digital lifestyle, food and beverages and much more. To add on to the festive cheer, shoppers will receive exclusive rewards upon spending in the mall during the season.

Sunway Pyramid will be bringing Santa to life through an interactive virtual Santa booth and lucky shoppers stand a chance to have their Christmas wish fulfilled.

Sunway Velocity Mall granted the wishes of three small local businesses run by single-parent families to bounce back and start a new by gifting them with household items, fulfilling their kids’ wishlists and assisting with business stocks worth a total of RM10,000. The Mall also visited Yayasan Sunbeams Home on 23 November 2020 and gifted all 136 children as well as 53 caretakers with a brand new pair of shoes from FUFA and XES.

Meanwhile, Sunway Putra Mall is organising the Tree of Wishes, a donation drive where shoppers can grant wishes and donate gifts for underprivileged children. The gifts will be presented to the children of Angel’s Children Home, a sanctuary for orphaned, abandoned, abused and neglected children in Kuala Lumpur on Christmas Eve.

Shoppers at Sunway Carnival Mall can experience the magic of Christmas with Disney at the Main Atrium from 7 December 2020 onwards and collect all three Disney’s exclusive calendar designs. Those who spend RM100 (RM50 for Sunway Pals members) in a single receipt from Dec 11 onwards will receive a Santa secret gift and they can also redeem a RM10 Parkson cash voucher when they spend RM250 (RM200 for Sunway Pals members) in two receipts from Dec 1 onwards.

At Sunway Big Box Retail Park and Sunway Citrine Hub, shoppers can redeem a Limited-Edition Snowman Mug when they spend RM200 in a maximum of two receipts. They can also join the festive ‘Grab and Win’ to redeem cash vouchers when they spend RM100 in a maximum of two receipts from Dec 7 till Dec 27.

What’s The Impact of

Budget 2021 was tabled in Parliament on 6th November 2020 with the theme “Teguh Kita, Menang Bersama”. Budget 2021 focuses on 3 key objectives, namely: 1. People’s well-being 2. Business continuity and 3. Economic resilience

Budget 2021 is the biggest budget in Malaysian history, with a record spending of RM322.5 billion – an increase of 8.58% compared to the allocated budget in 2020. Overall, the budget consists of more than 20 targeted actions aimed at specifically benefiting Malaysians across all levels of society, many of whom have been seriously impacted by the COVID-19 pandemic, which resulted in the decrease or loss of income.

The consequences of the global economic downturn attributable to the COVID-19 pandemic are certainly felt through industries. A fiscal deficit of RM86.5 billion, or 6 percent of Gross Domestic Product (GDP), is projected by the government in 2020, the largest gap since the 2009 global financial crisis. For 2021, the government has projected a deficit of RM84.8 billion or 5.4% of GDP. Not any better, the economic recovery is also estimated to be sluggish in 2021.

By Dato’ Seri Raymond Liew, Tax Practitioner

& President of McMillan Woods, a global business advisory network

FOR INDIVIDUALS

As part of Budget 2021, the government announced a slew of tax relief incentives. These tax relief benefits will be of special interest to those who typically do not qualify for most cash handouts from the middleincome group or (M40).

The most significant tax cut is the decrease in personal income tax by one percentage point to 13 per cent for individuals earning between RM50,001 to RM70,000 per year. This will benefit individuals in the middleincome group affected by the current economic condition. Other valuable tax reliefs for which individuals can qualify are as follows:

• For Lifestyle Relief, the restricted amount to be claimed for personal tax relief has increased from RM2,500 to RM3,000 and this relief has been expanded to include sportsrelated expenditure and electronic newspaper subscriptions. This will enhance the scope of income tax relief for lifestyle.

• The RM3,000 personal tax relief for the Private Retirement Scheme Relief (PRS) has been extended for 4 years to Year of Assessment 2025. This will provide more time for individual taxpayers to contribute to their Private Retirement Scheme for their retirement in the future.

• Tax relief amounting to RM8,000 for the National Education Savings Scheme (SSPN) will be extended from Year of Assessment 2020 to Year of Assessment 2022. This is to further encourage parents to save more for their children’s tertiary education.

• Medical treatment for parental care has increased from RM5,000 to RM8,000. Individuals can also claim medical expenses relief for self/spouse/child for serious disease of RM8,000 (also includes medical check-up that increase from RM500 to RM1,000), which is an increased from the previous limit of RM6,000. As a result, this will reduce the burden of medical expenses for taxpayers, their parents, spouses and children.

• Additional tax relief for disabled spouse increase from RM3,500 to RM5,000. This will reduce the financial burden of the individual taxpayer with a disabled spouse.

• Expenses incurred by individuals for up-skilling courses certified by the Department of Skills Development of the Ministry of Human Resources are eligible for RM1,000 relief for Year of Assessment 2021 and Year of Assessment 2022. This is to encourage individuals affected by the COVID-19 pandemic to enrol for up-skilling and re-skilling to build up new skills.

• There is an increase in the income tax exemption on compensation for loss of employment from RM10,000 to RM20,000 for each year of

service with the same employer or companies within the same group for individuals. The exemption will be considered if the IRB is satisfied that the loss of employment is due to health problems and will be applicable for Year of Assessment 2020 and 2021. This will help reduce the financial burden on individuals who lost their jobs due to the COVID-19 pandemic.

• A RM500 one-off payment would be allocated to the Ministry of Health Frontliners as a token of appreciation and this amount will be fully tax exempted. This will motivate our Frontliners to be more dedicated in their task to curb the spread of COVID-19 in Malaysia.

TAX

FOR COMPANIES

• Human Resource Development Fund (HRDF) levy exemption will be given for six months, effective 1st January 2021 for companies in the tourism sector that is affected by the COVID-19 pandemic. This will enable companies to use the funds allocated for payment of the levy to strengthen their cash flows.

• Private employers who hire fresh graduates for apprenticeship programmes will get an incentive of RM1,000 per month for 3 months and employers also can claim a grant up to RM4,000 for conducting training programmes for apprentices. This would encourage employers to hire fresh graduates which in turn will reduce • Malaysian citizens working abroad who return to Malaysia under the Returning Expert Programme (REP) are entitled to a 15% flat rate income tax for 5 consecutive years and also import duty and excise duty exemptions for the purchase of CBU or CKD vehicles (subject to total duty exemption limited to RM100,000). This is to attract skilled Malaysian professionals working abroad to return and work in Malaysia.

• Non-Malaysian citizens are also entitled to the 15% flat rate income tax for 5 consecutive years if they meet the criteria, namely hold key positions in companies that relocate their operations to Malaysia for 5 consecutive years (limited to 5 noncitizen individuals per company), earning a monthly income of RM25,000 and above as well as be Malaysian Tax Residents. This will attract expatriates to consider choosing to work in Malaysia and also for companies to relocate their operations to Malaysia.

• Effective January 2021, employees have the option to opt for the

the unemployment rate among graduates.

• Double tax deduction on remuneration provided for the employment of senior citizens, ex-convicts, parolees, supervised persons and ex-drug dependents, which is due to expire in year 2020 is extended for 5 years to 2025. This will further encourage employers to provide career opportunities for this group of individuals so that they can earn a decent living.

• For the tourism industry, the wage subsidy programme will be extended for another 3 months, targeting companies operating in the tourism and retail sectors and the limit of employees per reduction in the contribution to their EPF from 11% to 9% for 12 months. This will increase the disposable income of individuals. Besides that, EPF members are able to withdraw savings from their EPF Account 1 amounting to RM6,000 for 12 months (i.e. RM500 per month). This will assist members who have lost their jobs and will expect to alleviate the financial burden of approximately 600,000 affected contributors.

• Bantuan Prihatin Rakyat (BPR) rate of assistance ranging from RM350 to RM1,800 will be allocated to individuals including those who are still single based on household incomes ranging from RM2,500 to RM5,000 as well as the number of children.

• Meanwhile, for vulnerable groups such as children, disabled workers, older persons, chronically ill patients, and persons with disability (OKU) who can’t work, the monthly rate incentives now range from RM150 to RM500 per person. (For children, maximum would be RM1,000 per family).

application is increased to 500 employees. As the tourism sector has been badly hit by the COVID-19 19 pandemic, this will help to strengthen the cash flows of companies operating in this sector and to minimize retrenchment of employees.

• Meanwhile, an additional Prihatin Special Grant (GKP) of RM1,000 will be given to traders, hawkers, taxi drivers, e-hailing drivers, car rentals and tour guides in Sabah. This grant will help reduce the burden face by these individuals, whose operations had been badly affected due to the Movement Control Order (MCO) and Conditional Movement Control Order (CMCO).

STAMP DUTIES

• Full stamp duty exemption will be given to transfer of ownership document and loan agreement for the purchase of a first home where the property value increased from RM300,000 to RM500,000 and applies to sales and purchase agreement from 1st January 2021 to 31st December 2025. This will encourage Malaysians who have yet to own their own home to purchase a house, irrespective whether from housing developer or the secondary market.

• The stamp duty exemption will also apply to abandoned housing projects that are certified by the

Ministry of Housing and Local

Government for loan agreements and transfer instruments executed

TAX INCENTIVES

available in Malaysia, namely Pioneer Status which is an income tax exemption on companies involved in promoted activities and products, Investment Tax Allowance for qualifying capital expenditure like plant and equipment used for approved projects against statutory income, Multimedia Super Corridor (MSC), where tax exemption applies to companies involved in promoted activities (generally IT related) and Reinvestment Allowance for companies in manufacturing and selected agricultural activities that reinvest for expansion, automation, modernization or diversification. is applicable for companies that operate in Information and communications technology (ICT), Private healthcare facilities, Projects in transportation, communications and utilities sub-sectors approved by the Ministry of Finance, Research and development, technical

STAMP DUTY

from 1st January 2021 to 31st December 2025. This will alleviate the financial burden of the original purchasers of the abandoned houses and also to encourage developers to revived housing projects that were previously abandoned.

• The government will extend further for 5 years the stamp duty exemption period for life, flood and fire insurance products not exceeding RM100 under Perlindungan Tenang. This is vocational training institutions, and tourism projects. For manufacturing sectors, tax incentives are applicable to companies operating in Aerospace industry, Automotive industry, Agricultural sector, High Technology companies, Industrialised Building System (IBS) sector, and Strategic projects. grant received by Green Sustainable and Responsible Investment (SRI) sukuk issuers that is due to expire on 31st December 2020 has been extended for 5 years to 31st to encourage individuals in the B40 group to have insurance and takaful coverage. The stamp duty extension of 5 years is also applicable to contract notes for Trading of Exchange Traded Funds.

INDIRECT TAXES

• Taxes will be imposed on all cigarettes and tobacco products at all duty-free islands. In addition, excise duties at an ad valorem rate of 10% will be imposed on all types of electronic cigarette devices and non-electronic devices, including vaping products and also a rate of RM0.40 per ml for electronic cigarette liquids. This is to improve the revenue collection and ensure equal tax treatment on all types of cigarettes and other

• There are a few types of incentives

• Incentives for service sectors

• The income tax exemption on the tobacco products.

December 2025 and this exemption has been expanded to include all SRI sukuk and bond which meets ASEAN

Green, Social and Sustainability Bond

Standards approved by the Securities

Commission Malaysia (SC). This will further encourage the issuance of

SRI sukuk and bond that meets green, social and sustainability standards in Malaysia.

• For the healthcare industry, the tax exemption of 100% of the value of the increase in exports of services (limited to 70% of Statutory Income) is extended for another 2

years until 2022. Private healthcare service providers are eligible to get this exemption when providing healthcare services to foreign patients either in Malaysia or from Malaysia provided at least 10% of total patients per year comprised of qualified healthcare travellers and at least 10% of the company’s gross income per year is derived from qualified healthcare travellers. As a result, this will promote the export of private healthcare services in Malaysia as well as attract highvalue healthcare travellers.

• To encourage manufactures of pharmaceutical products including vaccines to invest in Malaysia, the Government will provide incentives including preferential tax rate which is 0 to 10% in the first 10 years and 10% for the next 10 years.

• For the tourism sector, the sales tax exemption of 15% for the purchase of locally assembled buses including major bus components like chassis fitted engine and air conditioner to be assembled locally is extended to 2022 to reduce the financial hardship faced by tour bus operators. Besides that, the imposition of tourism tax is expanded to accommodation premises reserved through online providers to ensure equal treatment between tourists who make reservations for hotels directly with the hotel operators and through online platform providers.

• For the free industrial zone and Licensed Manufacturing Warehouse (LMW), the current 10% limit on the sales value from value-added and additional activities has been increased to not exceed 40% of the company’s annual sales value. As a result, it will improve the competitiveness of companies in order to meet global trade dynamics.

• Principal Hub is a locally incorporated company that uses Malaysia as a base for conducting its regional/global business and operations to manage, control and support its key functions. Presently, the current incentive of income tax 0% to 10% for 5 years and renewable for another 5 years for applications with MIDA is due to end on 31st December 2020.

• In Budget 2021, it was proposed that the application period for the Principal Hub Incentive to be extended for another 2 years and also the minimum condition of the number of high value jobs, annual operating expenses and the number of key posts for renewal of the tax incentive for the second 5 years be relaxed. This move will attract more foreign companies to choose Malaysia as a base for establishing their Principal Hub.

• New companies relocating to Malaysia are eligible to claim a special tax rate of 0% for 10 years/15 years for eligible capital expenditure between RM300 million to RM500 million/RM500 million and above.

• For the construction and plantation industry which have a high reliance on foreign workers, a special incentive of 60% for the monthly salary for 6 months will be provided with 40% channelled directly to employers and 20% to local workers. This is to encourage the hiring of local workers to replace foreign workers.

• The tax incentives for the manufacture of Industrialised building system components – due to end in 31st December 2020 – has been extended for another 5 years and companies are only required to produce at least 3 basic components of IBS or IBS systems that use at least 3 basic IBS components to be given the Investment Tax Allowance of 60% on qualifying expenditure within 5 years to be set off against 70% of Statutory Income.

• For investments in equity crowdfunding, the tax incentives presently for Investments in Venture Capital (VC) is a tax deduction equivalent to the amount invested in the VC while for Investments in Venture Capital Company (VCC), it is given a tax deduction equivalent to the amount invested in the VCC and restricted to a maximum of RM 20 million per year. As for Angel Investors, a tax exemption is given to the investment amount made. In Budget 2021, it is proposed that a 50% tax exemption on the amount invested in equity crow-funding and the eligible amount for tax exemption is limited to RM50,000, capped at 10% of Aggregate Income.

SUMMARY CONCLUSION

In conclusion, many have commented that the Budget 2021 is not good enough to assist especially the SMEs and should have included further changes like an automatic extension of the loan moratorium, waiver of statutory contributions like EPF (especially Employers’ EPF contribution) and to expedite the GST and income tax refunds due to slacking in businesses generally in order to ease their cash flow situation. Whatever the comments on the budget, it must have an immediate impact on both the ‘rakyat’ and the businesses for their survivals during these critical times.

No Light Yet at the End of the Retail Tunnel

The third-wave COVID-19 pandemic and the second Conditional Movement Control Order (CMCO) have dampened the spirits of Malaysian retailers. For the third quarter of 2020, Malaysia’s retail industry recorded a poorer-thanexpected growth rate of -9.7% compared to the same period in 2019.

ccording to the Malaysia A Retail Industry Report (November), the latest quarterly result was way below market expectation. Members of the Malaysia Retailers Association projected the third quarter growth rate in September 2020 at -3.4%. This latest result was 185% worse than the earlier estimate. (Table 1)

The Recovery Movement Control Order (RMCO) started on 10 June 2020 and it was extended until 31 December 2020. With strict social distancing measures enforced during the entire third quarter of 2020, shopping centres and retailers were not able to operate at full capacity

Table 1: Year On Year Percentage Change In Retail Sales (Weighted), 2019/20

5

0 1.8%

% growth

-5

-10

-15

-20 -11.4%

-25

-30

-35

Period Jul-Sep 2019 -30.9%

Jan-Mar 2020 Apr-Jun 2020 -9.7%

-18.4%

Jul-Sep 2020 Jan-Sep 2020

Source : MRA/ Retail Group Malaysia as compared to pre-COVID-19 period. “Although almost all retail sectors were allowed to open for business during this period, Malaysian consumers were still wary of the virus spread. They travelled to retail shops for the basic necessities and chose not to shop around. The reduced take-home pays during this period also limited the purchasing power of Malaysian consumers,” the report stated.

For the first 9 months of this year, the retail sale growth rate was -18.4% compared to the same period a year ago.

COMPARISON OF RETAIL SALES WITH OTHER ECONOMIC INDICATORS

For the third quarter of 2020, Malaysia national economy reported a smaller contraction of 2.7%, as compared to -9.7% for retail sales (at current prices). The economy turned around after almost all economic sectors resumed operation.

The average inflation rate during the third quarter of 2020 stayed in the negative zone at 1.4%. The monthly decline was mainly due to drops in prices of transport as well as housing, water, electricity, gas and other fuels. On the other hand, the prices of food & non-alcoholic beverages increased during this period.

Private consumption growth rate retraced to with -2.1% during the third quarter of 2020. Household spending recovered when nonessential retail stores were allowed to open since May. During the third quarter of this year, the Consumer Sentiment Index (by MIER) improved slightly to 91.5 points.

However, it was still below the 100-point optimism threshold. Unemployment rate during the third quarter of 2020 reduced to 4.7%.

RETAIL SUB-SECTORS’ SALES COMPARISON

All retail sub-sectors, except Other Specialty Retail Stores, reported another declining sales during the third quarter of 2020. (Table 2)

The Department Store / Supermarket sub-sector recorded a negative growth rate of -6.2% during the third 3 months of this year.

Department Store sub-sector reported another disappointing result with a growth rate of -17.7% during the third quarter of 2020. This was the worst-performing retail sub-sector during this quarter.

For the third quarter of 2020, retail sale of Supermarket and Hypermarket sub-sector dropped by 15.1%. This latest result was worse than the first two quarters of this year. The growth rate of Fashion and Fashion Accessories sub-sector slowed down by 12.5% during the third quarter of 2020. During the third 3-month period of this year,

Table 2 : Year On Year Percentage Change In Retail Sales By Retail Sub-Sector, 2020

Retail Sub-Sector

Department store cum supermarket

Department store

Supermarket and hypermarket

Fashion and fashion accessories

Pharmacy and personal care

Other specialty retail stores

Source : MRA/Retail Group Malaysia

1st Qtr

-8.5

-17.5

-3.0

-30.0

-3.9

-17.9

2nd Qtr

-34.6

-62.3

-9.9

-44.2

-26.2

-40.9

3rd Qtr

-6.2

-17.7

-15.1

-12.5

-11.1

1.5

Pharmacy and Personal Care subsector recorded another negative growth rate of 11.1%, as compared to the same quarter a year ago, the report stated.

The Other Specialty Stores sub-sector (including photo shop, toys store, second-hand shop, optical store, children store, as well TV shopping channel) reported a marginal recovery with a growth rate of 1.5% during the third quarter of 2020, as compared to the same period last year.

NEXT 3 MONTHS’ FORECAST

Members of the retailers’ association are still pessimistic on their businesses in the next 3 months. They estimate an average growth rate of -15.1% during the fourth quarter of 2020.

The department store cum supermarket operators are expecting their businesses to deteriorate further during the last quarter of this year with a growth rate of -14.3%. Similarly, the department store operators are expecting their businesses to remain in the negative zone with a growth rate of -13.0% for the last 3-month period of this year.

Supermarket and hypermarket operators expect their businesses to remain in the red with a -14.2% growth rate for the fourth quarter of 2020. Despite year-end holidays and festivals, the business of retailers in the Fashion and Fashion Accessories sub-sector is expected to stay sluggish. For the last quarter of 2020, they expect a growth rate of -24.2% in retail sale.

Retailers in the Pharmacy and Personal Care sub-sector are not expecting their businesses to turn around soon. For the fourth quarter of 2020, this sub-sector is expected to report a poor result of -12.6% in terms of growth.

The businesses of retailers in Other Specialty Stores sub-sector (including photo shop, toys store, secondhand shop, optical store, children store as well TV shopping channel) will not be able to maintain the recovery momentum in the next quarter. For the last 3-month period of 2020, this sub-sector expects its business to drop by 24.2% as compared to the same period a year ago. (Table 3)

For the last quarter of 2020, Retail Group Malaysia (RGM) revised the retail growth rate downwards further from -2.5% (estimated in September 2020) to -18.2% (Table 3). This is lower than the estimate calculated from MRA members (at -15.1%) due to the prolonged second CMCO.

The second CMCO was implemented in Klang Valley) from 14 October 2020. This movement restriction was later extended to other states in Malaysia. “Third-wave Covid-19 restriction on interstate travel, working from home as well as delay in school opening (20 January 2021) have led to reduction in shopping traffic in malls, commercial centres and foods & beverages outlets located throughout the country, “ the report added.

Taking poor performance into consideration, as well as the much lower growth estimate for the fourth quarter, RGM revised its annual growth forecast downwards from -9.3% (estimated in September 2020) to -15.8% for Malaysia retail industry in 2020.

Retail Group Malaysia projects 4.9% growth rate in retail sale for 2021. “This coming New Year will remain a great challenge for the Malaysian retail industry,” the report stated.

Table 3 : Malaysia Retail Industry Quarterly Growth Rate, 2020

% growth

0

-5

-10

-15 -11.4%

-20

-25

-30

-35

Period First -30.9%

Second -9.7%

Third

(e) - estimate

Source : Retail Group Malaysia (e) (e) -15.8% -18.2%

Fourth Whole year

Retailers, Malls Association & SMEs Urge Government for More Aid in Budget 2021

Shopping mall operators, retail stores and SMEs recently banded together to urge the government to revise Budget 2021 and add new measures to help the industry survive the pandemic and save jobs.

joint memorandum by A four organisations – Malaysia Retail Chain Association (MRCA), SME Association of Malaysia, Bumiputra Retailers Organization and Malaysia Shopping Malls Association (PPK) – highlighted the “gravity of the situation with regards to the state of businesses in Malaysia” brought about by the lockdown followed by movement control order (MCO) and conditional movement control order (CMCO).

“The Budget has not lived up to the expectation for businesses that are hoping for a lifeline to sustain themselves through this unprecedented health and economic crisis,” the Associations said in a joint statement and added that the “current crisis is worse than Asian Financial Crisis in 1998 and Global Financial Crisis in 2008”.

It noted that SMEs provide employment of about 48.4% for Malaysians. “Based on the statistics from Social Security Organisation (SOCSO), in August 2020, the manufacturing sector reported the highest loss of employment (24%) followed by the accommodation and food and beverages sector (15%) and wholesale and retail sector (14%). These are the three worst-affected industries,” the Associations said in the statement.

Furthermore, the four Associations noted that 32,000 SMEs ceased operations between March and September despite the government’s economic stimulus packages.

“Without any sustainable and meaningful intervention by the Government, we fear that the number of business casualties will continue to rise to an unprecedented number and eventually lead to significant loss of employment for the rakyat,” they added.

“If these business fundamental issues are not addressed immediately, it is inevitable that the rate of loss of employment will increase abruptly from October onwards. This, in turn, will have a cascading effect on the economy due to the high rate of unemployment and when more companies fold, the Government will automatically lose a sizeable chunk of revenue from corporate income tax,” they said.

The Associations proposed nine measures for the Government to address the shortcomings of Budget 2021 to responding to the immediate challenges posed by the pandemic crisis.

THE 9 PROPOSALS

1Tenant Relief Assistance through Financial Aid to Shopping Mall Owners & Landlords

With shopping mall owners and landlords have incurred heavy losses during the MCO via rent discounts to help retailers that had to stay closed then, it will be financially difficult for them to continue subsidising rent during the CMCO period as they will encounter cashflow problems.

The Associations appealed to the government to give conditional financial relief to shopping mall owners and landlords to enable the savings to be used to help retailers in their premises, including by waiving or reducing land assessment tax and utilities payment such as by extending the previously-announced electricity discount (which expired in September) to December 2021.

They also appealed for direct financial aid to SME tenants to cover rental cost for at least two months during the CMCO and two months during the recovery period, and for the Government to grant tax rebates to landlords that give rent rebates or rent reduction to tenants.

2Waiver of Statutory Payment for Businesses

The four Associations pointed out that statutory payments is one of the biggest components of business costs.

In order for companies can continue to stay afloat, “We wish to propose to the Government to consider waiving all these statutory payment obligations until 31 Dec 2021 or for 1 year after the lifting of the MCO, whichever is later.”

They also proposed that this waiver should include the collection of music copyright royalty fees until the unresolved dispute between various collection bodies following the dissolution of Music Rights Malaysia Berhad reaches a settlement.

3Targeted Tax Incentive for Retail and Tourism Spending

Acknowledging the government’s RM150 million allocation in the Budget to support online retail spending through the Shop Malaysia Online initiative, the four Associations noted that the government has not given any incentives for physical retail shopping or tourism.

“We urge the Government to consider granting individual tax relief in support of domestic shopping or tourism as follows: a. Individual tax exemption for a sum of RM1,000 monthly (or RM10,000 from May-Dec 2020) for shopping of goods and services, to be substantiated by relevant receipts; b. Individual tax exemption for a sum of RM5,000 to be substantiated by relevant receipts.”

4Protecting Businesses through The Temporary Measures for Reducing the Impact of Coronavirus Disease 2019 (COVID-19) Act 2020 (“COVID-19 Act”)

The Act, gazetted on 23 October 2020, was intended to assist businesses that have been affected by the measures taken by the Government to curb the spread of the virus. However, it does not provide adequate protection to businesses due to the limitations set out in its provisions, the group noted. Tenants are only protected from warrant of distress for arrears from 18 March 2020 to 31 August 2020 (Section 30). This means that landlords are allowed to recover rent via the same instrument from 1 September 2020 onwards tenants although businesses have been severely impacted by CMCO.

As such, the Associations urged the Minister of Law to revise the Act in tandem with the current dire business conditions so that business owners who are affected by the

CMCO can actually rely on these provisions to save their business.

5Extending Wage Subsidy Programme (WSP)

Noting the WSP’s success in enabling many businesses to keep their staff, the groups were grateful that this programme would be continued for another three months but noted that it was “highly unlikely that most businesses will have recovered by March 2021 based on the current economic climate”.

“We wish to appeal to the Government to extend the WSP up to six months for a grant of RM1,000 per employee who earns less than RM4,000 a month,” the group said and added that it “should also be extended to all businesses and all SMEs as the majority of them would cut costs by reducing their workforce if such assistance is not available”.

6Tax Relief for Safety, Hygiene Spending

In compliance with the COVID-19 SOP, the operating costs increased at least 10-20% due to the purchase of equipment including consumables and non-consumables and high frequency of sanitisation of premises. In view of this, the group seeks tax relief for these expenditures incurred by businesses during this pandemic crisis.

7Extend Bank Loan Moratorium to all until June 2021

The Associations urged for the blanket extension of the moratorium or freeze on repayment of bank loans until June 2021, as cashflow is the lifeline of businesses.

8‘Travel Bubble’ to Restart Tourism Industry

The tourism industry contributed RM84.16 billion to the Malaysian economy in 2019 but prolonged closure of Malaysia’s international borders will be detrimental to the recovery of the tourism industry and related industries that rely on tourism, the Associations pointed out.

“We strongly believe that it is imperative for the Government to embark on a ‘travel bubble’ programme with selected neighbouring countries to reignite the tourism industry.” The Associations said that allocations towards achieving this goal should be made in the Budget.

To minimise the risk of imported COVID-19 transmission, strict criteria including rigorous testing for tourists can be put in place prior their arrival into the country, they said.

9COVID-19 SOP compliance certification for retail, restaurant premises

The Associations noted that although a majority of businesses strictly adhere to COVID-19 SOP, there are some that remain noncompliant. To increase customer confidence, they suggested that the Government introduce COVID-19 SOP compliance certification for businesses. The certification will not only provide the safety reassurance for consumers to physically return to shops and dine in restaurants, but will also encourage full adoption of the SOP during this critical period. The four Associations said they welcomed further engagements and dialogues with the Government through relevant Ministries to develop a sustainable solution to help businesses weather through the unprecedented crisis. “Together we can save lives and livelihood,” they added.