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4As Malaysia appeals service tax waiver for members amidst COVID-19 storm

4As Malaysia appeals service tax waiver for members amidst COVID-19 storm

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The Association of Accredited Advertising Agents Malaysia (4As) is appealing for tax and non-tax-based temporary relief support for its members. Among the support measures include an exemption from Sales and Service Tax (SST) and double deduction relief of advertising expenditure incurred by all Malaysian-owned companies be exempted from claims submission, with extensions on qualifying criteria for tax deduction.

In particular, the 4As is seeking a waiver of SST on all advertisement creation, production and placement by Malaysian companies until 31 December 2020 or until Q1 or Q2 of 2021. It is also requesting a waiver of SST until 31 December this year or until Q1 or Q2 of 2021 from being charged by all Malaysian companies providing services to advertising companies through an order under the Service Tax Act for persons who are exempted from the payment of service tax.

Among the other proposed measures by the 4As include double deduction relief of advertising expenditure incurred by all Malaysian companies for tax computation purposes during the above specified time period, additional tax relief for capital and operating expenditures in 2020, as well as easing bank credit facilities application requirements for all Malaysian advertising companies.

The joint memorandum was prepared in consultation with the Commercial Radio Malaysia, Malaysian Media Specialists Association, Malaysian Advertisers Association, Malaysian Newspaper Publishers Association and Outdoor Advertising Association of Malaysia. It was submitted  to the government through the Ministry of Finance, Ministry of International Trade and Industry, and the Ministry of Communications and Multimedia.

4As CEO Khairudin Rahim said in the last four months, only 80% or less of businesses were operating at full capacity while some temporarily suspended operations. As a result, many advertisers either cancelled or rescheduled campaigns and slashed budgets, as ad expenditure was used to shore up employee salaries and defray accumulated debts. Khairudin added that consumers were hardest hit as they experienced unemployment and salary cuts, resulting in weak consumer consumption, despite some receiving direct cash assistance.

"To date, this has led to a decline of 20% in ad spend in the first five months of 2020, on the back of decreased revenue streams ranging between 20% and 50%. Based on estimations, ad spend is forecasted to drop by 20% year-on-year by end 2020 while revenues are expected to flatline," he added.

According to Khairudin, it is also estimated that most of the industry’s creative and media agencies, including some media owners, have experienced pay cuts ranging from 10% to 30% while an estimated 5% to 10% employees have been laid off. It is also believed at least 10% have closed down or re-engineered themselves to offer different services. Meanwhile, Khairudin said another 20% are expected to downsize or close over the next three months if conditions do not improve.

Although the Malaysian economy posted a 0.7% year-on-year growth in the first quarter of 2020, Khairudin said it is expected to contract deeply with recovery estimated only at the end of 2020 due to the economic uncertainties posed by the COVID-19 pandemic. He explained that consumer spending will undoubtedly be an essential ingredient in spurring the economy into a recovery mode and to achieve that, advertising will be a key driver.

"To encourage an increase in consumer spending, we believe that an increased and sustained levels of advertising activities are required. This may be achieved by enticing companies to increase their advertising budgets by taking into account incentives and specific stimulus packages offered by the government," he said.

He added that on the other hand, the savings derived by advertising and marketing companies that have availed themselves to incentive facilities provided by the government, may be passed on to companies choosing to increase their advertising budgets especially those in the manufacturing sector.

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