📢 How Will the New 2% Dividend Tax Impact SMEs?
The recent budget introduced a series of tax reforms aimed at providing relief while simultaneously ensuring long-term growth for businesses. For SMEs, these changes might seem appealing on the surface, but as always, the true impact lies in the fine print.
The 2% Dividend Tax: More Than Meets the Eye
The newly introduced 2% dividend tax has raised eyebrows, and rightly so. While many perceive this as targeting stock market dividends, the real impact hits closer to home for SME owners. Often, in family-run businesses, SME owners refrain from drawing a full salary, ensuring the ongoing feasibility of their operations before receiving dividends. Now, with a portion of those dividends being taxed, it feels like a penalty, especially since these dividends are distributed from profit that has already been taxed. Essentially, this tax introduces a form of double taxation. Dividends are paid out of profit after tax, meaning the business has already been taxed on these earnings. Taxing them again in the hands of shareholders forces SME owners to rethink their profit distribution strategies and tax planning. However, the government’s aim here is to promote greater equity and ensure that profits are either reinvested into the business or taxed appropriately, preventing a loophole where dividends could be drawn with minimal tax burden.
Foreign Source Income: A Long-Term Leakage?
The extension of the foreign source income tax exemption for individuals by another 10 years may seem like a short-term benefit. The exemption allows individuals to retain their foreign income without contributing to the Malaysian tax base, which could mean lost opportunities for bolstering national coffers. While this benefits individuals with overseas investments, there is a question of whether the exemption will create imbalances, as it may divert income outside the country without benefiting domestic economic growth.
Grants and Financing Funds: A Lifeline for SMEs
One of the key elements of the budget is the strategic allocation of RM18.6 billion through various funds and channels to support SMEs. Unlike traditional financing from banks, these government grants and financial assistance programs offer flexibility to businesses that may struggle with conventional lending policies. Through agencies like SME Bank, BSN, Bank Pembangunan Malaysia, and MARA, the government is providing targeted financing to help businesses expand, invest in digitalisation, and even export to foreign markets. Specific programs, such as the RM100 million equity crowdfunding platform for local vendors, and the RM3.2 billion micro-sized loan fund, demonstrate the government’s commitment to supporting SMEs and mid-tier companies. By utilising these financial resources, SMEs have the opportunity to innovate, grow, and secure their place in both local and international markets, bridging the gap that traditional banks may leave unaddressed.
While the budget promises growth, the reality is that it comes with its challenges. SMEs need to adapt quickly, rethinking their tax strategies, managing financial flows more effectively, and ensuring they are ready to leverage alternative financing options.
#SyarikatOng #Budget2025 #TaxStrategy #SMEGrowth
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