Monday, January 13, 2025
GOVT POLICY IMPEDING SMEs, DAMAGING ECONOMIC GROWTH
The following article by Ravindran Raman Kutty appeared in Free Malaysia Today.
From Ravindran Raman Kutty
I recently met a young entrepreneur in the bustling world of logistics, where time is money and competition is fierce; the challenges he undergoes highlight the growing difficulty for those in small and medium enterprises (SMEs).
He said 2023 was one of the toughest years in his decade-long business journey. His words, full of frustration and a sense of being overlooked, highlighted the struggle SMEs like his face in an increasingly unfriendly economic environment.
Putrajaya’s recent policies have added new layers of complexity and financial pressure. Many small business owners feel caught in a system that favours the large and wealthy, leaving the little players behind.
One of the first issues the young businessman raised was the cost of diesel. As a logistics company owner, his fleet relies heavily on fuel.
“I used to pay RM2.05 per litre for diesel. Now, it’s RM3.03 as I don’t qualify for subsidies,” he said. It turns out that only those with certain types of 4×4 vehicles — such as those used by plantation owners — are eligible for the diesel subsidy.
“It’s frustrating. The big players in the industry still get diesel at RM2.05 per litre through fleet cards, while I’m paying nearly a ringgit more,” he said.
His plea for a review fell on deaf ears, despite presenting evidence such as company registration documents and tax returns, The message was clear: it was a Cabinet decision, and the officials couldn’t do anything.
It is just one example of how the government’s approach to economics is making it harder for SMEs to survive, let alone thrive.
The introduction of mandatory e-invoicing for businesses (January for large corporations and June for SMEs) requires the purchase of expensive software for compliance; it is a heavy burden on SMEs already struggling with high operational costs.
“It’s just another expense I have to absorb. The government should be making it easier for us, not harder.
Earlier, it was GST, now it’s this, what will be next, I wonder? I am not against such rules, but how can I or players like me pay for such expensive systems and infrastructure?,” he said.
The most recent government move, to increase the minimum wage to RM1,700 per month, may seem like a win for employees but is another strain on businesses that already operate on thin margins.
To make matters worse, this is accompanied by higher contributions to EPF, further stretching finances for small business owners.
He expressed a deeper concern about the direction the government seems to be taking. “All they’re doing is increasing taxes and levies to get more money without understanding the real pressures we face.
“Again, the minimum wage is necessary and important, but there must be a criterion, like one’s annual turnover and an extended period of time for compliance for startups like mine,” he added.
The frustrations didn’t end there. He said he saw little benefit from the government offering tax incentives to foreign investors in places like Johor’s Forest City and the newly designated special economic zone in Gelang Patah.
He said these initiatives attract many companies from China, which don’t bring much spillover effect for local businesses, because their suppliers and vendors are based in China, unlike Japanese, European and US firms.
“We just want a level playing field. The government should stop burdening us with higher costs. If they can’t help us, at least don’t make things harder.”
SMEs across the country are struggling under the weight of these new policies, with little in relief or meaningful support coming from the government.
As he shared his story, it became evident that the government’s economic policies do not match the needs of SMEs, which form the backbone of Malaysia’s economy.
The struggles of this young entrepreneur serve as a reminder to the government that if we want to build a prosperous, inclusive economy, we must rethink our policies and start supporting the people who need it most — those in the SMEs.
Ravindran Raman Kutty is an FMT reader.
My Comments :
I have been pointing this out in this Blog for years.
When they introduced the GST in 2014 they killed off thousands of businesses. Long time SMEs just shut down and the businessmen stayed at home. They were afraid of being sent to jail (which they were threatened) if they were in breach of the GST regulations. For the common man, every breach is jail and fines. For the common man.
When they consolidated the banking sector in early 2000s they impoverished many SMEs. Many SMEs do not "qualify" for loans from banks which are strictly regulated. Many SMEs may not have proper records, documentation etc. They are run purely by seat-of-the-pants entrepreneurs. These are the types that can push the economy forward. When the huge and diverse financial system was consolidated (as part of the ketuanan Melayu policy) there were few options for the SMEs to borrow money. Hence we saw the rise of the Ah Longs - until today. At 18% or 25% annual interest the SMEs are often bled dry. They cannot expand their businesses if they pay 18% or 25% on Ah Long financing.
The Minimum Wage policy is also killing off new employment and new startups. In just over two weeks the Minimum Wage will go up to RM1,700 per month. Already many businesses have had to fire their workers and maintain a minimum work force. The situation in Pulau Langkawi is especially serious. Without sufficient workers starting a new business will be very difficult. SMEs will die a quicker death, unemployment is going to increase.
The private medical health care act was drafted by a GLC who is the largest player in the private medical health care industry. They drafted regulations suitable for large hospitals but which are not suitable for smaller medical clinics, small hospitals and small medical centers. For example if a maternity clinic is located in a two storey shoplot they still must have a lift with minimum 24 person capacity etc. These expensive regulations make it very high cost for an ordinary maternity home (with say one doctor and a few nurses) to survive. Another regulation is when a maternity clinic (in a shop house) applied to increase the number of beds, the regulations say they must first hire one staff nurse and four other nurses before their application is approved (which may take six months!!). Or the application could be rejected. So who pays the salary of one staff nurse (RM3,500 - RM5,000) plus four more nurses while waiting for the approval or rejection? The maternity home in question shut down after almost 20 years in operation. All the staff lost their jobs.
The latest nightmare is the e-invoicing crap. This reminds of the ISO crap. Do you all recall the ISO crap. The gomen (Dr Mahathir at that time) began pushing the ISO crap. Pretty soon every other gomen department was declaring 'we are ISO compliant'. (Now it has changed to 'shariah compliant' - more crap). The ISO achieved nothing. It was just a useless and time wasting extra layers of record keeping. And after Dr Mahathir retired in 2003 has anyone heard about ISO? Those of you below 35 years of age may not even understand what I am talking about. No one cares about ISO now. But at that time it caused so much chaos and added to the cost of doing business.
There is another angle to this. The SME industry is heavily non-Malay. Whereas the GLC run businesses are still part of the old ketuanan Melayu crap. The GLCs are not genuine businesses. They operate within their own cocoon minus any relationship to economic principles, standard business practises, level playing fields etc. Plus they are funded by public funds - they do not even need banks. Or Ah Long.
But here is the catch - they do not produce new wealth. Even when they plant oil palms or build houses they do it with tongkats and subsidies, direct or indirect. They have an unfair advantage. Meaning on a level playing field they may not be able to plant oil palms or build their houses. Meaning they can only plant oil palms and build houses on an uneven playing field. Meaning to produce something they need inputs that are not theirs. inputs which they did not generate on their own. Meaning their oil palms and the houses they build have an implied higher opportunity cost which has to be absorbed by the rest of the country. They are not efficient. When they are not efficient they cannot create new wealth.
Hence the need for monopolies, oligopolies, licenses, permits, APs, quotas and all the associated rubbish.
Here is the latest example - Singapore is cutting their electricity tariffs. Here in Malaysia the gomen licensed monopoly GLC will be raising the electricity tariff. They operate inside their own "ketuanan" cocoon.
Unemployment will increase. Human capital development will just not happen. We are doomed.
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