KUALA LUMPUR, June 23 — The challenges faced by small and medium enterprises (SMEs) have become more apparent as evident in their ability to maintain business operations.

This matter, if not dealt with, can pose a threat to the economy and society considering that SMEs make up 97.2 per cent of business establishments and contribute 38.2 per cent to the gross domestic product in 2020.

Therefore, experts opined that the latest announcement on electricity and water tariffs is timely in helping SMEs cope and maintain costs amid various compounded pressures already felt by the industry such as soaring raw materials and goods prices.

In an announcement earlier, Natural Resources, Environment and Climate Change Minister, Nik Nazmi Nik Ahmad said users in the low voltage tariff category consisting of micro SMEs (MSMEs) will not experience any increase in electricity tariffs as the 3.7 sen/kWh surcharge is maintained.

Meanwhile, non-domestic users with medium voltage (MV) and high voltage (HV) usage from the industry will enjoy a reduced surcharge rate of 17 sen/kWh from 20 sen/kWh.

This means these categories of electricity users could enjoy lower electricity bills of between 28 per cent and 35 per cent per month.

Geostrategist Prof Dr Azmi Hassan told Bernama most SMEs, mainly MSMEs, are unable to allocate funds for operating expenses and have to use their small profits to cover the costs.

He believes the government’s move to not raise the electricity tariff for non-domestic users in the low voltage tariff category will have a positive impact on the targeted sector.

"For those who are able to generate high margins, they have a special allocation for overhead operations and fuel, but not MSMEs. If the cost of electricity goes up, for example, they have to take it from the profits to cover the increase.

"Hence, electricity rates are now based on appropriate usage, whether they use high or low voltage to suit their company’s profit margins,” he added.

Azmi went on to say that the bulk of operational costs for SMEs is from fuel and electricity.

"Therefore, I hope that companies which get a reduction in electricity charges can pass on the savings to consumers through price reductions. As the Minister said, the purpose of giving a reduction in electricity charges is so that the inflation contributed by SMEs, such as the price of food in restaurants, groceries, services, and hotels, among others, can be reduced because their costs are reduced.

"If those savings are not channelled, then the target to lower inflation will not be achieved,” he explained.

Meanwhile, Putra Business School economic analyst Associate Prof Dr Ahmed Razman Abdul Latiff pinpointed that the new electricity subsidy announcement is crucial and much needed at this point in time.

However, this may cause some concerns over the government’s ability to achieve its fiscal consolidation targets, he said.

"There could be a cause for concern over the ability to achieve a balanced fiscal but some domestic consumers no longer enjoy low electricity tariffs and this gives some savings to the government.

"At the same time, we also see that the average fuel price has decreased slightly and this enables the government to save subsidies for electricity,” Ahmed Razman said.

He is confident more savings can be achieved when a targeted subsidy mechanism is launched next year.

Current initiatives by the government include direct financial assistance, tax reduction and guarantees on loans to aid businesses. — Bernama