E-commerce companies especially frustrated by MSC status application process
Many however refuse to go on record, fearing reprisal from the authorities
THE Digital News Asia (DNA) story on MOLPay’s experience in applying for Multimedia Super Corridor (MSC Malaysia) status has opened a can of worms, with a flurry of similar companies expressing their frustration over the process.
On Jan 30, DNA reported that MOLPay was unhappy with the approval committee that decides what companies are eligible for MSC Malaysia status, which comes with a slew of benefits including a 10-year tax break.
The committee had approved the online payment company’s application with the condition that it abide by pricing conditions dictated by said committee, which comprised representatives from various Malaysian government agencies and ministries.
In the wake of that story, other IT company founders have reported similar conditions imposed on them, as well as their frustrations with the “unengaged analysts” who make up the approval committee. Few were willing to go on the record, however.
Tommy Ming, chief operations officer for a Malaysian IT company whose business deals with online transactions, shared that his company went through the initial stages of the application process but “gave up.”
“I've been told that an e-commerce company can only take subscriptions and advertising revenue as tax breaks as an MSC company, because e-commerce companies are regarded as trading companies unless we have manufactured or created our own products,” he told DNA via Facebook chat.
Ming said that for his company, one with revenue growth of more than 90% annually since 2009, the requirement on revenue was a turn-off.
A DNA reader who works for a Malaysian mobile payment company said that his company had originally applied for MSC Malaysia status but dropped the application before it went to the committee as it found the process too tedious.
“We decided to apply for 'Pioneer Status' instead and the process was much smoother -- we were asked to clarify some points about our business as part of the process as they [the approval committee] would need a cash flow projection and would use it as a basis [for its decision].
Pioneer status grants companies a 100% exemption from taxable statutory income for a period of five years for the first round. It is open to companies from all industries and differs slightly from the general MSC Malaysia status with regards to its terms of guarantees, with no requirement for applicant companies to be based in an MSC building, for example.
However, the committee insisted the mobile payment company in question state a number for its pricing. "I told them this was not acceptable for a B2B (business-to-business) company as there is no fixed number. We have to make sure our pricing is fluid, but in the end, we provided them with our best case numbers,” the employee said.
Another founder, whose startup deals with financial products, said that his company began the application process for MSC Malaysia status in 2013 and received it six months later after changing its business model on paper.
“We changed it to the point we didn’t even recognise the business plan anymore. We got asked what transaction fees were, and after the explanation was given, were told that this did not fall within the approved types of business models for MSC companies, and were asked to change to one of a list of suggested models,” he said.
In sharing his experience, he said that a lot of times the phrase "committee's decision" was thrown about by the analyst when asked why certain decision were made, except one could never fully confirm if the analysts themselves were just reluctant to understand the business model and thus explain it to the committee.
“Can you believe that after being made to make multiple illogical changes in our application to the point of vexation, we asked our analyst if she even bothered to see our website, and her reply was a bored ‘No’?
“She just wanted everyone to be a software vendor it seems -- that was the mould she was trying to fit us into. I wouldn't be surprised we got the same analyst,” he added, referring to MOLPay’s case.
That being said, he noted that his company’s experience with its client manager/ analyst was “a world of difference” from those from e-Xpats Malaysia who were utterly professional and efficient.
“e-Xpats Malaysia is also under MDeC, I’m made to understand. So our bad experience could be down to a bad client manager/ analyst, or could be indicative of a structural rot,” he said.
The MSC Malaysia e-Xpats Centre is a centre within the Industry Development Division (IDD) of the Multimedia Development Corporation (MDeC). This centre, located in Cyberjaya, houses the MSC Facilitation & Services Department (MFS) of MDeC, together with the Employment Pass Unit of Immigration Department of Malaysia. MDeC is the government agency that manages the MSC Malaysia initiative.
Many founders DNA reached out to for permission to share their stories for this story declined, citing fears of reprisal from the relevant authorities in suspending foreign worker visas; or were still in the process of applying for MSC Malaysia status and feared being rejected. Those who did agree to share their views, did so on the condition of anonymity, for similar reasons.
In the stories shared by local companies on social media, the trend of issues faced in applying for MSC status appears most dominant with companies that ply their trade in the e-commerce space.
SecQ.Me, an MSC Malaysia status company that created personal safety app Watch Over Me, had no issues with its application process however.
“Surprising, we got our MSC status fairly easy -- there weren't any questions asked on our pricing model. I guess it all depends on who handles your application,” said founder Khoo Chen Shiang, when sharing his own experience.
When asked for his thoughts, the COO Ming concurred, claiming that the same issues have cropped up from discussions he’s had with other e-commerce companies. He added that the tedious process is made much more difficult when the account manager doesn't understand e-commerce.
“The account manager we got gave the example of Lazada having applied successfully for MSC status. When I asked the account manager what was the purpose of Lazada applying for it since it is basically a trading company by its business model (reselling products), she replied ‘For branding.’ There's no difference being an MSC or non-MSC company besides branding?” he said.
MDeC, which previously said its representatives on the MSC Malaysia approval committee had no voting rights but merely acted as facilitators, still has not responded to DNA's requests for further clarfication on the concerns raised by Malaysian IT companies.
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