Introduction
Inside the Budget
Budget 2024 introduces pivotal measures aimed at establishing a sustainable foundation for driving the country’s future growth, all while targeting a reduced budget deficit of 4.3%. This is achieved even in the absence of substantial measures to significantly boost government revenues.
The latest development in Malaysia brings a significant budget announcement by Prime Minister Dato’ Seri Anwar Ibrahim. On Friday, October 13, he unveiled the nation’s most expansive budget to date, marking a departure from the previous policy of universal subsidies in favor of targeted assistance to those in greater need.
The key measures revealed in this budget include an adjustment to the Sales and Services Tax (SST), raising it from six percent to eight percent. It’s important to note that this increase will not apply to essential items like food, beverages, and telecommunications services.
Prime Minister Dato’ Seri Anwar disclosed an allocation of RM303.8 billion, which accounts for approximately 77 percent of the RM393.8 billion budget designated for the upcoming year, for operating expenses. An additional RM90 billion is allocated for developmental expenditure.
Recognizing tax incentives as a factor influencing foreign investors, the eventual implementation of the Global Minimum Tax underscores the need to enhance ease of doing business, invest in human capital development, and bolster industrial infrastructure to remain competitive.
Budget 2024 maintains a strong focus on the ESG agenda, with incentives extended for green technology until December 31, 2026. This encompasses emerging technologies such as green hydrogen. Extensions of personal tax relief for electric vehicle (EV) charging expenses and tax deductions for EV rentals are expected to drive EV adoption in Malaysia.
Budget 2024 operates within the confines of a relatively stable government revenue. It leans toward expansion, aims to reduce the deficit, and addresses the needs of the people (Rakyat).
For your convenience, our legal team has compiled the key highlights related to Corporate & Tax in this budget. If you have any inquiries, feedback, or comments, please don’t hesitate to reach out to us at hhqkl@hhq.com.my. Happy reading!
Budget Highlight
Corporate & Tax
Capital Gains Tax
- • Implementation of 10% capital gains tax (CGT) on the net gain of the disposal of unlisted shares by companies, effective from 1.3.2024.
- • For the shares acquisition before 1.3.2024, CGT of 10% will be imposed on the net gain of the disposal of unlisted shares; or, 2% on the gross sales value.
- • The Government is considering exempting CGT for disposal of shares relating to activities such as approved initial public offering (IPO), internal restructuring and venture capital with conditions.
Service Tax
- • An increase of service tax from 6% to 8% on all prescribed taxable services (excluding food and beverages and telecommunication services). Scope of prescribed taxable services will be extended to services of logistics, brokerage, underwriting and karaoke.
Luxury Goods Tax
- • New legislation would be tabled to introduce and implement luxury goods tax on high value items (such as jewellery and watches) at the rate of 5% to 10% based on the threshold of price.
Global Minimum Tax
- • Global minimum tax is expected to be implemented in year 2025 and is applicable to multinational companies which have global income of at least EUR 750 million.
Implementation of e-invoice
- • Mandatory implementation of e-invoice amongst taxpayers with income or annual sales with value exceeding RM100 million, effective from 1.8.2024.
- • For taxpayers of other categories, e-invoice implementation by stages effective from 1.7.2025.
Import Duty and Sales Tax Exemption on Manufacturing Aids
- • Effective from 1.1.2024, import duty and sales tax exemption to be given to eligible manufacturers on the importation and locally purchased of manufacturing aids (for selected industry and goods).
Section 44(6) of the Income Tax Act 1967
- • The institutions, organisations or funds approved under section 44(6) of the Income Tax Act 1967 may choose to increase its accumulated funds utilisation limit from 25% to 35% with the condition to increase its charitable activity expenditure threshold from at least 50% to 60%; or, to maintain status quo (i.e. accumulated funds utilisation limit at 25% with the condition to spend at least 50% of its charitable activity expenditure).
Women Career Comeback Programme
- • Enhancement of tax incentive with income tax exemption on employment income received from year of assessment (YA) 2025 to 2028 for women who are returning to work after a career break of at least 2 years. Application to submit to Talent Corporation Malaysia Berhad from 1.1.2024 to 31.12.2027.
New Industrial Master Plan (NIMP)
- • Establishment of Investment and Trade Coordination Action Committe
Investment and Trade Coordination Action Committee (JTPPP) is established with the responsibility to report directly to National Investment Council (MPN) chaired by the Minister of Finance. - • NIMP Fund
Up to 10% of the total NIMP will be utilised to drive the NIMP mission with an initial fund of RM200 million from year 2024. - • New High Tech Industrial Area
A high-tech industrial area will be established in Kerian, North Perak to build a wider ecosystem for the E&E cluster in the Northern Region. - • Reinvestment Incentive by tier under NIMP
Existing companies which would like to increase their capacity and invest in high-value activities but have exhausted their reinvestment allowance can apply to MIDA for the tiered Investment Tax Allowance from 1.1.2024 to 31.12.2028 – Tier 1: 100% Qualifying Capital Expenditure (QCE) to set off against 100% Statutory Income (SI); and Tier 2: 60% QCE to set off against 70% SI.
Tax Measures for Zero Carbon Initiatives
- • Further tax deduction for voluntary carbon market
Further tax deduction up to RM300,000 to be given to companies which incur expenses for measurement, reporting, and verification (MRV) in relation to carbon project development. - • Rental of Electric Vehicle (EV)
Tax deduction for companies which incur on EV rental cost (up to RM300,000) extended until YA 2027. - • EV charging facilities
Individual income tax relief up to RM2,500 for individuals on cost of installation, rental, purchasing or subscription for the use of EV charging facility expenses to be extended for another 4 years until YA 2027. - • Tax deduction on ESG compliance costs
Corporates which incur costs on ESG compliance are allowed to claim tax deduction on ESG related expenditure up to RM50,000 for each YA effective from YA 2024 to 2027. - • Tax deduction on FRIM’s verified projects
Tax deduction under Section 34(4)(6) of the Income Tax Act 1967 be given to entities which contribute or sponsor towards tree planting projects or environment preservation and conservation awareness projects verified by FRIM. Application to be submitted to Ministry of Finance from 1.1.2024 to 31.12.2026.
Tax Measures for Other Industries - • Pengerang Integrated Petroleum Complex (PIPC)
Special tax rate or investment tax allowance would be granted to promote development hub for chemical and petrochemical section under PIPC. - • Islamic Banking & Finance
(i) Effective from YA 2024, tax exemption on income arising from Islamic Securities Selling and Buying (ISSB).(ii) Effective from YA 2024, full income tax exemption for 5 years given to the Labuan entities that engage in the business activities relating to Islamic financial-related trading activities, such as Islamic digital banking, Islamic digital exchange, ummah-related companies and issuers of Islamic digital tokens. - • Global services hub tax incentive
Introduction of Global Services Hub tax incentive on services income or services and trading income following outcome based (e.g. to achieve annual operating expenditure, high value full-time employees, ESG elements etc.) with income tax rate at 5% or 10% (for the new company); or, 5% or
10% on the value-added income (for the existing company). Application to be submitted to MIDA from 14.10.2023 to 31.12.2027. - • Tax incentive for equity crowdfunding (ECF)
Extension of income tax exemption for another 3 years for the qualifying individual investors and qualifying individual investor through Limited Liability Partnership who invest in startups via ECF platform between the period of 1.1.2024 to 31.12.2026. - • Tax incentive for angel investor
Tax exemption at the aggregate income level for the angel investor who, between the period of 1.1.2024 to 31.12.2026, invest in a qualified investee company which is in the early stage of a technology-based start-up extended for another 3 years. - • Capital Allowance for ICT equipment
Effective from YA 2024, eligibility to claim Accelerated Capital Allowance (ACA) for capital expenditure incurred on purchasing Information and Communications Technology (ICT) equipment and computer software is reduced to from 4 years to 3 years. - • Imposition of excise duty
Effective from 1.1.2024, excise duty will be imposed on chewing tobacco products at a rate of 5% plus RM27 per kg.Effective from 1.1.2024, excise duty on sweetened beverages increases from RM0.40 per litre to RM0.50 per litre.
Tax measures for Entertainment Industry
- • Special income tax rates between 0% to 10% for film production companies, foreign actor or actress and film crew who carry out filming in Malaysia.
- • Entertainments duty exemption for the Federal Territories:
(i) full entertainment duty exemption for stage performances by local artists;(ii) entertainment duty for theme parks, family recreation centre, indoor game centre and simulators will be 5% after the 20% exemption; and(iii) entertainment tax for stage performances by international artists and events or other entertainments such as movie screening and sports events and games will be 10% after the 15% exemption.
Sustainable and Responsible Investment (SRI) Tax Measures
- • Extension of income tax exemption period for another 4 years until YA 2027 for the companies that provide SRI fund management services.
- • Extension of tax deduction on the issuance cost of SRI Sukuk that is approved or authorised or lodged with the Securities Commission for another 4 years until YA 2027.
- • Expansion of income tax exemption to include SRI Linked Sukuk Grants and bonds issued under the ASEAN Sustainability-Linked Bond Standards approved by Securities Commission. Application to be submitted to Securities Commission from 1.1.2024 until 31.12.2025.
Income Tax Exemption on Shariah-compliant Fund Management Services
- • Investors (i.e. Foreign investors in Malaysia, Local investors, Business Trust investors or REITs investors in Malaysia) that are involved in Shariah-compliant fund management services to enjoy extension of income tax exemption for 4 years (until YA 2027) with 60% tax exemption.
SMEs Facilities & Government Guarantee Scheme
- • RM28 million will be allocated to develop MYStartup as a platform which gathers new startups.
- • RM1.5 billion will be allocated to encourage startups, including Bumiputera small and medium enterprises (“SMEs”) owners to enter High Growth, High-Value (HGHV) sectors such as the digital economy, the aerospace technology and the electronics and electrical (E&E) fields.
- • RM20 million will be allocated for Digital Economic Centre in each DUN to promote online selling amongst SMEs.
- • An aggregate of up to RM44 billion business loans and guarantees will be allocated for SMEs.
- • RM8 billion will be allocated by Bank Negara Malaysia (“BNM”) for SMEs, of which RM600 million would be allocated for sustainability and food security related entities.
- • Syarikat Jaminan Pembiayaan Perniagaan (SJPP) will be guaranteeing up to RM20 billion of the total loans granted to SMEs, and in the focused sectors, such as green economy, technology and halal business, up to 80% of the total loans granted to such SMEs starting from year 2024.
- • Digitalisation grant of RM100 million will be allocated to benefit 20 million SMEs entrepreneurs with up to RM5,000 entitlements each.
- • RM900 million will be allocated by BNM for SMEs to improve efficiency in automation and digitalisation sectors.
- • RM40 million will be allocated for ‘Shop Malaysia Online’ to promote online business amongst SMEs in food and beverage sectors.
- • RM30 million will be allocated specifically for finance businesses run by the Indian community.
Co-operative Financing
- • RM100 million financing fund will be allocated to the co-operative movement via the capital fund round (CFR) starting from year 2024.
Prepared by:
Desmond Liew Zhi Hong
Partner
Tax Litigation, Tax Advisory & Planning and Tax Audit & Investigation
desmond.liew@hhq.com.my
Yap Han Xin
Associate
Corporate/M&A and Regulatory & Compliance
hxyap@hhq.com.my
Ong Wen Nee
Associate
Capital Markets, Corporate/M&A and Regulatory & Compliance
wnong@hhq.com.my
Loong Shi Yi
Pupil in Chambers
Real Estate and Corporate/M&A
syloong@hhq.com.my
