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Key Tax Proposals

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As part of the Budget 2023 announcement, Malaysia introduced some key tax proposals, covering major taxation areas like Corporate Tax, Tax Incentives, Indirect Tax, Individual Tax and Stamp Duty.
   

Corporate tax

  • Malaysia will introduce the Global Minimum Effective Tax Rate (“GMETR”) of 15 % as recommended under Pillar 2; Budget 2023 also proposed the introduction of a Qualified Domestic Minimum Top-Up Tax (“QDMTT”) to ensure that any top-up tax in respect of profits earned in Malaysia is collected in Malaysia. 
  • A reduction of income tax rate from 17 % to 15 % for the first RM100,000 of chargeable income has been proposed for Micro, Small and Medium Enterprises (“MSME”), effective from YA 2023 as follows:

    ​Chargeable Income
    		​Income Tax Rate
    ​First RM 100,000
    		​15 %
    ​RM 100,001 to RM 600,000
    		​17 %
    ​Exceeding RM 600,000
    		​24 %
      
  • Revision of time limit to carry forward business losses for companies operating in industries with long gestation periods (e.g., forest plantation and hydroelectric projects) to up to 20 years of assessments;
  • It is proposed that the definition of ‘plant’ will be extended to include intangible assets, such as software which was previously specifically excluded. 
   

Tax Incentives

  • The income tax exemption on statutory income for BioNexus status companies is proposed to be enhanced with an increase from 70 % to 100 %. It is also proposed that the application period for Malaysian Bioeconomy Development Corporation Sdn Bhd (“MBDC”) will be extended until 31 December 2024;
  • It is proposed that the application of the 100 % income tax exemption on intellectual property income arising from patents and copyright software for a period of 10 years will be extended until 31 December 2025;            
  • It is proposed that further deduction given on the remuneration of ex-convicts is extended to attendees and former attendees of the Henry Gurney School, protection and rehabilitation institutions and non-government care centers registered under the Department of Social Welfare, effective from YA 2023 until 2025;
  • It is proposed that a special tax deduction of up to RM 500,000 will be given to hoteliers who purchase qualified Malaysian-made handicraft from handicraft entrepreneurs certified by Perbadanan Kamajuan Kraftangan Malaysia for expenditure incurred from 1 January 2023 to 31 December 2023; 
  • Reinvestment Allowance of 60 % on qualifying capital expenditure on renovation, expansion and modernisation activities to be set off against 70 % of statutory income for selected hotel and tourism projects for a period of five years from YA 2023 to 2027, which is aimed at reviving the tourism sector as it has been badly affected by the COVID-19 pandemic;
  • Scope of tax incentive for individual investors who invest in Equity Crowdfunding (“ECF”) to be expanded to include investments made by an individual investor through a Limited Liability Partnership Nominee Company; and such tax incentive is to be extended for a period of three years, i.e., up to 31 December 2026;
  • It is proposed that the tax incentive for angel investors who invest in an investee company in the form of ordinary shares is extended for a period of three years, i.e., up to 31 December 2026;
  • The deduction on cost of listing in Bursa Malaysia is to be extended for a period of three years from YA 2023 to 2025 and the tax deduction is expanded to cover the cost of listing technology-based companies on the Main Market;
  • It is proposed that companies providing private healthcare services are eligible for income tax exemption equivalent to 100 % of the increased value in exports of services which can be set off against 70 % of the statutory income derived from the export of healthcare services to foreign healthcare travelers either from Malaysia or abroad is to be extended for three years from YA 2023 to 2025;
  • It is proposed that the tax exemption on statutory income derived from domestic tour packages to and within Malaysia is to be extended to YA 2023 for tourism packages within Malaysia with participation of at least 400 local tourists per year, or tourism packages to Malaysia with participation of at least 200 inbound tourists per year;
  • It is proposed that tax deduction of up to RM 300,000 be given for the rental of electric vehicles effective from YA 2023 to 2025 to encourage the utilisation of low-carbon vehicles;
  • It is proposed that a one-off grant of RM 1,000 is to be given to all registered MSMEs and licensed taxi drivers with the aim to provide financial aids to such businesses, where one million businesses are expected to benefit from the one-off grant;

  

Tax incentives relating to Malaysia´s Low Carbon Nation Aspiration

The following tax incentives are proposed in order to achieve Low Carbon Nation Aspiration by year 2040:


Companies undertaking Carbon Capture and Storage (“CCS”) in-house activities:

  • Investment Tax Allowance of 100 % of qualifying capital expenditure for a period of 10 years which can be used to set off against up to 100 % of statutory income; 
  • Full import duty and sales tax exemption on equipment for CCS technology commencing from 1 January 2023 – 31 December 2027; and
  • Tax deduction for allowable pre-commencement expenses within 5 years prior to the date of commencement of operation;

  

Companies providing CCS services:

  • Either Investment Tax Allowance of 100 % of qualifying capital expenditure for a period of 10 years which can be used to set off against up to 100 % of statutory income or tax exemption of 70 % on statutory income for a period of 10 years; and
  • Full import duty and sales tax exemption on purchase of equipment for CCS tech-nology from 1 January 2023 until 31 December 2027;

  

Companies engaging in CCS services 

  • tax deduction on fees incurred for use of CCS services for YA 2023 to YA 2027.

  

GREEN INCOME TAX EXEMPTION

It is proposed that the tax incentives under Green Investment Tax Allowance (“GITA”) and Green Income Tax Exemption (“GITE’) be reviewed on tiering approach, applicable for applications submitted to Malaysian Investment Development Authority (“MIDA”) from 1 January 2024 until 31 December 2025, as follows:

  • Investment tax allowance of 60 % and 100 % for solar activity and activity other than solar including Battery Energy Storage System (“BESS”), respectively; 
  • Tax incentive period be extended from three years to five years for selected projects; and
  • Application period for tax incentive be extended for two years.


Further tax incentives

  • Tax deduction be given on the cost of issuing Sustainable and Responsible Investment Linked (“SRI-linked”) sukuk that is approved or permitted or deposited with the Securities Commission Malaysia for a period of five years from YA 2023 to 2027;
  • It is proposed that tax deduction be given to persons including companies making donations to or providing sponsorships of Smart Artificial Intelligence (“AI”)-driven reverse vending machines and application received by Ministry of Finance from 1 January 2023 to 31 December 2024, aiming to foster the recycling of plastic waste;
  • It is proposed that accelerated capital allowance (“ACA”) and income tax exemption of 100 % on qualifying capital expenditure incurred from YA 2023 to 2025 be granted to businesses which adopt environmental friendly closed house systems for chicken rearing;
  • It is proposed that manufacturers of electric vehicle charging equipment, applicable for applications submitted to MIDA from 8 October 2022 until 31 December 2025, will be granted income tax exemption of 100 % on statutory income from YA 2023 to 2032 and investment tax allowance of 100 % for a period of five years to be set-off against 100 % of statutory income for each year of assessment;
  • It is proposed that preferential tax rates (0 % to 10 % for the first 10 years, and 10 % for the next 10 years) for manufacturers of pharmaceutical products will be extended for a period of three years until 31 December 2025;
  • The application period for tax incentives for aerospace companies is proposed to be extended for a period of three years, while applications now need to be received by MIDA by 31 December 2025;
  • It is proposed that the application period for 100 % tax exemption for new or expanded food production projects, planting of seeds for agrofood, and high seas fishing projects to be extended by three years, until 31 December 2025, and the scope of the incentive is to be expanded to include agricultural based projects on Controlled Environment Agriculture (“CEA”);
  • The application period for the tax incentives (i.e., Investment Tax Allowance or Pioneer Status) for ship building and ship repairing (“SBSR”) industry is proposed to be extended for five years, up until 31 December 2027;
  • It is proposed that the tax incentive for Principal Hub 3.0 (with 0 %, 5 % or 10 % income tax rate) be extended for a period of three years, for applications received by MIDA from 1 January 2023 until 31 December 2025 with the aim to attract more companies to establish their Principal Hub in Malaysia;
  • It is proposed that companies undertaking trading activities for export services be eligible for tax incentives under Global Trading Centre at 10 % income tax rate for a period of five years and renewable for another five years is to be extended for a period of three years, for applications received by MIDA from 1 January 2023 until 31 December 2025 with the aim to attract multinational companies undertaking trading activities while making Malaysia as regional distribution hub;
  • Currently, 100 % of ACA and income tax exemption is given on the cost of qualifying capital expenditure incurred on automation equipment by manufacturing and services companies. It is proposed that the ACA be enhanced to include the adaptation of Industry 4.0 elements within the automation scope and to include the agriculture sector; and the capital expenditure threshold will be aligned and increased to RM 10 million, for applications received by MIDA and the Ministry of Agriculture and Food Industries (“MAFI”) from 1 January 2023 until 31 December 2027;
  • It is proposed that charitable hospitals registered as company limited by guarantee be granted income tax exemption equivalent to the amount of charitable expenditure incurred, where donors will be given tax deduction of up to 10 % of the aggregate income on donations made to such hospitals. The effective date of such proposal has yet to be announced.
  • Tax deduction of up to 10 % from aggregate income be given to individuals or corporations for contributions made to non-profit organisaions focusing on sports development at the grassroots level. 
   

Indirect Tax

  • The import and excise duties exemption on imported Completely-Built-Up unit (“CBU”) electric vehicles (“EV”) which consist of passenger vehicles (including SUV and MPV), motorcycles and commercial vehicles to be extended for one year from 1 January 2024 to 31 December 2024;
  • Exemption of the Approved Permit (“AP”) application fee for the import of EVs will be extended until 31 December 2023;
  • It is proposed that import duty and sales tax exemptions be granted to the Nicotine Replacement Therapy (“NRT”) products, i.e., nicotine gum and nicotine patches, for a period of 5 years with effect from 1 January 2023 to 31 December 2027;
  • It is proposed that 50 % excise duty exemption will be granted on purchase of Completely-Knocked-Down (“CKD”) i.e., locally assembled tourism vehicles such as hire and drive cars for tourists and excursion bus used for tourism, for applications received by the Ministry of Finance from 1 January 2023 until 31 December 2024;
  • It is proposed that import duties and sales tax exemptions on studio and filming production equipment be granted to equipment providers and production services including post-production, studio and cinema for a period of two years from 1 January 2023 until 31 December 2024;
  • Sales tax exemption of 10 % on purchase of locally assembled buses including locally installed air conditioning given to eligible bus operators such as school bus, stage bus, express bus, excursion bus and employee bus, will be extended for another two years from 1 January 2023 until 31 December 2024;
  • It is proposed that the excise duty and sales tax exemptions on the sale, transfer, private use or disposal of individually owned taxis and hired cars be expanded to include executive taxis, TEKS1M and airport taxis to assist individual taxi owners who have been affected by the COVID-19 pandemic;
  • It is proposed that service tax exemption be granted to recipients of digital payment services and local non-bank digital payment service providers (i.e., payment instrument issuers, merchant acquirers and payment system operators) which aims to streamline tax treatment on digital services related to banking/financial services by local non-bank digital payment service providers, which will be available up until 31 July 2025.
  • It is proposed that import duty and sales tax exemptions be granted for CCS technology related equipment, for applications received by the Ministry of Finance from 1 January 2023 until 31 December 2027.
   

Individual Tax

It is proposed that with effect from YA 2023, the income tax rate for individuals will be:
  • Reduced from 13 % to 11 % for chargeable income of RM 50,001 to RM 70,000;
  • Reduced from 21 % to 19% chargeable income of RM 70,001 to RM 100,000;
  • Increase from 24.5 % to 25 % for chargeable income of RM 250,001 to RM 400,000;  
  • Scope of personal tax relief to the amount of up to RM 1,000 for medical expenses to be expanded to include dental examination and treatment from dental practitioners registered with the Malaysian Dental Council with effect from YA 2023;
  • Scope of tax relief for COVID-19 detection test to be expanded to include laboratory tests recognised by the Ministry of Health, with effect from YA 2023;
  • Scope of tax relief for life insurance premium or Takaful contribution to be expanded to include voluntary contributions to Employees Provident Fund (“EPF”) made by individuals or pensionable public servants with effect from YA 2023;
  • Personal tax relief of RM 3,000 for fees paid to a registered childcare centre and kindergartens to be extended for another one year to YA 2024;
  • Extension of period of income tax exemption to YA 2028 on employment income for women returning to work after a career break received by Talent Corporation Malaysia Berhad (Tal-entCorp ) between 1 January 2023 and 31 December 2027, and the career break must have been for at least two years on the date the application is received by TalentCorp;
  • Concessionary tax rate of 15 % for non-residents holding C suite positions or key positions in Electrical and Electronics (“E&E”) companies relocating their operations to Malaysia to be extended to YA 2024.
  

 Stamp Duty

  • It is proposed that stamp duty of RM 10 be charged on the instrument of transfer of real property between husband and wife, parents and children, parents and children by way of love and affection on the condition that the recipient of the property is a Malaysian citizen for such instruments executed from 1 January 2023;
  • It is proposed that stamp duty of RM 10 be charged on the educational loans/scholarship agreements to pursue education at all levels including certificate (education/skills/ professions) in any educational and training institutions which are executed from 1 January 2023;
  • It is proposed that stamp duty exemption for restructuring or scheduling of loan/financing agreement to be extended for another two years from 1 January 2023 to 31 December 2024;
  • It is proposed that stamp duty exemption for instruments of purchase of residential property valued between RM 500,001 and RM 1,000,000 for first time homeowners will be increased from 50 % to 75 % for sale and purchase agreements executed until 31 December 2023.

  

Others

  • It is proposed that e-Invoicing be implemented in stages beginning from year 2023 through system development and pilot projects with selected taxpayers;
  • Expansion of categories of individuals who will be assigned a Tax Identification Number (“TIN”), i.e., TIN will be given automatically to individual citizens and permanent residents aged 18 years and above. Additionally, the use of TIN will be mandatory for stamping of all documents and agreements;
  • It is proposed that with effect from YA 2024, taxpayers must remit tax payments electronically.

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