SMEs or Small and Medium Enterprises has now been slightly redefined and reclassified, the Malaysia Budget 2009 revealed.
Effective from 2009 tax assessment year, companies which has a paid-up capital of not more than RM2.5 million but owned or controlled by another company with more than RM2.5 million capital will no longer qualify as an SME.
This means the company will no longer be able to enjoy all the benefits and privileges entitled to an SME such as access to financing, tax breaks and incentives, asset capital allowance, grants and others.
Previously, all companies with a paid up capital not exceeding RM2.5 million are categorized under SMEs, regardless how big or how powerful the shareholders are financially. Strong financial background and support by the holding companies, which sometimes were the market leaders, in turn gave an unfair advantage over those SMEs without big name shareholders.
SMEs are defined mainly based on two criteria, namely the number of people employed and the annual sales turnover or revenue. They are then classified into 3 different groups – Primary Agriculture, Manufacturing, Manufacturing-Related Services (MRS) and Services.