Malaysia: Pre-Budget Statement June 2022

veröffentlicht am 5 July 2022 | reading time approx. 4 minutes

On June 3, 2022, the Ministry of Finance issued a pre-budget statement (“PBS”) to share the direction and focus of the upcoming 2023 Budget in October. This is the second PBS issued by the Ministry of Finance (“MOF”) as part of its effort to encourage public awareness, to enhance transparency and accountability in the formulation of the Budget 2023.

The PBS provides a proposed outlook of, amongst others, Malaysia’s current economic and fiscal position, tax revenue and expenditure strategy and macroeconomic outlook for 2023. The Budget 2023 focusses on the people’s wellbeing, on business competitiveness, the strengthening of the Malaysian economy and on balancing growth and fiscal consolidation.

The PBS reported that the tax revenue collection is estimated to be RM171.4 billion or 10.5 percent of GDP in the year 2022. The revenue collection in April 2022 was higher than expected due to the introduction of ‘Cukai Makmur’ (a one-off Corporate Income Tax of 33 percent applicable to chargeable income above RM 100 million for the Year of Assessment (“YA”) 2022), and the recovery of businesses and economy in Malaysia.

From a tax perspective, the PBS addressed the following salient points.

1. Implementation of the Two-Pillar Approach

The Malaysian Government and the Organization for Economic Cooperation and Development (“OECD”) have agreed to implement the Two-Pillar Approach (i.e., Pillar 1 and Pillar 2) starting 2023. In this regard, the Malaysian Government and the OECD are currently in discussion regarding the technical details on the implementation of taxation on digital economy under the BEPS Action Plan 1.

To recapitulate:

Pillar 1, which applies to large multinationals (“MNEs”) with a turnover above Euro 20 billion (approximately RM 93 billion) and profitability above 10 percent, aims at reallocating certain amounts of taxable income to market jurisdictions, resulting in a change in effective tax rate and cash tax obligations, as well as in an impact on current transfer pricing arrangements.
Pillar 2, which applies to MNEs with an annual global turnover of at least Euro 750 million (approximately RM 3.5 billion) aims to ensure that income is taxed at an appropriate rate and has a number of mechanisms to ensure this tax is paid by introducing a minimum effective tax rate (“ETR”) at 15 percent by each jurisdiction. This will be implemented by imposing a top-up tax on profits arising in a jurisdiction wherever the ETR is below 15 percent at the particular jurisdiction’s level.

Based on the revenue threshold above, Malaysian businesses should pay more attention to Pillar 2 as it will be more likely to be applicable to the majority of them. In particular considering the following:

Sound working knowledge of the Global Anti-Base Erosion (“GloBE”) Rules;
The ability to extract relevant information and the availability of internal controls to monitor the GloBE rules and to determine whether the thresholds under the GloBE rules are exceeded;
Collation of financial information to compute the top-up tax including the capability of accounting systems to do so;
Capability of running simulations as and when required to determine the impact of any top-up tax.

2. Expansion of the income tax net

The Malaysian Government plans to implement e-invoicing by stages as part of the efforts to enhance the efficiency of Malaysia’s management of the tax administration in the digital economy. With e-Invoicing, corporations can improve the quality of services, reduce penalty and compliance cost and increase efficiency for day-to-day operation. As the e-Invoicing is part of the measures to expand the income tax net, it will use the Tax Identification Number which is expected to be implemented in year 2022.

3. Improving tax system

The Malaysian Government is committed to continue implementing the various proposals from the Tax Reform Committee, ranging from tax technical aspects, incentives and reliefs, tax administration and process matters, to providing enhanced legal certainty to taxpayers.

Tax Incentives Updates

Incentives for Venture Capital Industry

In the previous Income Tax (Exemption) Order, the share of profits received on venture capital investments are exempted from tax. The new Exemption Order has expanded the scope of the income tax exemption to include the management and performance fees received from YA 2018 until YA 2026.

Incentives for investment in equity crowdfunding

Resident individuals that made an investment in an investee company will be given a 50 percent exemption on the amount of investment made capped at RM50,000 per YA. The exemption will be given in the following YA from the year the investment is made.

Incentives for implementing Industry4WRD Vendor Development Program

A double deduction will be given to the anchor company that incurs the expenses for the program. The expenses will be capped at RM1 million per YA and can be claimed for 3 consecutive YAs from the YA they have been incurred.

Detection of more than 30,000 entities not registered nor declared income

Via a press release dated 14 June 2022, the Malaysia Inland Revenue Board (“MIRB”) reported that there are more than 30,000 entities which have neither registered nor declared their income to the MIRB.

In order to develop a better voluntary compliance of tax, the MIRB is focusing on creating awareness, giving education and services, known as AES. The MIRB thus encourages these entities to voluntarily register and perform their tax obligations. In this regard, the MIRB has announced a 1 month grace period ending 15 July 2022 to complete the necessary tax obligations.

The MIRB has expressed its intention to undertake detailed tax audits on the entities identified and to raise tax queries with closer scrutiny.