Key Highlights of Malaysia Budget 2023
Crowe Chat Vol.6/2022 (Special Edition)
On 7 October 2022, the Honorable Finance Minister, YB Senator Tengku Datuk Seri Utama Zafrul bin Tengku Abdul Aziz had tabled, what is certainly, the last national budget for this parliamentary term. Whilst many were expecting to ride the wave of recovery post Covid-19, 2022 has so far brought about numerous unforeseen challenges. Amidst the backdrop of the rising cost of living, increased geopolitical tensions from the Russia-Ukraine war, adverse effects from climate change and an energy crisis brewing in Europe, many questions have been asked as to what can businesses do to face these challenges?
We see the opportunities for businesses manifesting in the form of a post-pandemic TIDE (Taxation, Inflation, Digitalisation and Expansion). Only by unlocking the potential that the oncoming TIDE brings will businesses be able to coordinate an effective strategic response to safeguard their growth prospects.
In this sense, Budget 2023, themed Strengthening Recovery, Facilitating Reforms Towards Sustainable Socio-Economic Resilience of Keluarga Malaysia has provided businesses and ordinary Malaysians with varying levels of support to face this TIDE. Crafted on the principles of the 3R (responsive, responsible and reformist) as well as the four strategies of fiscal expansion, prioritizing the rakyat, support for businesses, and sustainable development, Budget 2023 focuses on the right economic touchpoints. The measures introduced provide Malaysians with vital economic support during one of the most challenging periods in the history of the modernized economy.
Tax measures such as the reduction in tax rates for the M40 group and small-medium enterprises, as well as the focus on sustainability in the expansion of green tax incentives make Budget 2023 highly relevant. Malaysia has also responded to the global proposals regarding a global minimum tax rate and targets to introduce such measures in 2024. Meanwhile, non-tax measures such as increased cash aid, financial support for businesses and the focus on carbon neutral goals are all welcomed. However, funding for these initiatives remains uncertain as projected government revenue of RM272.6 billion for the fiscal year 2023 remains below the revised estimates of RM285.2 billion for 2022. Hence, taxpayers can expect a heightened compliance environment and potentially more tax measures going into 2023 to sustain government revenue.
Our overall observations are that the Budget 2023 is very much a budget responding to the needs of today. However, long-term measures to address pressing needs, such as human capital shortages and levels of foreign direct investment, remain somewhat absent. Nonetheless, Budget 2023 offers enough for businesses and ordinary Malaysians to safeguard their current positions and steady the ship as we face uncertain times ahead. It is hoped that the contents of this analysis aid businesses in crafting their strategic and financial response as we face some of the most significant economic headwinds in the 21st century.
Highlights at a Glance
Corporate income tax rate for SMEs will be reduced from 17% to 15% on the first chargeable income of RM100,000.
Introduction of Global Minimum Effective Tax Rate and Qualified Domestic Minimum Top-Up Tax
The Global Minimum Effective Tax Rate will be introduced as recommended under Pillar 2 of BEPS Action Plan 1. Subject to further studies, the Qualified Domestic Minimum Top-Up Tax is targeted to be implemented in the year 2024.
The definition of plant will be expanded to include intangible assets such as software
The definition of plant will be expanded to include intangible assets such as software.
Claim of Unabsorbed Business Losses for Sector with Long Gestation Period
Companies in the sectors with long gestation period such as forest plantations and hydroelectric projects are allowed to carry forward its unabsorbed business losses for a maximum period of twenty (20) consecutive years of assessment (YAs) instead of ten (10) consecutives YAs.
Tax Deduction on Cost of Rental of EVs limited to a maximum of RM300,000 per vehicle
The maximum rental amount for EVs allowed for tax deduction is limited to RM300,000 per vehicle (RM100,000 previously for vehicles that cost less than RM150,000).
Hoteliers will be given a special tax deduction of up to RM500,000 for the purchase of qualified Malaysian-made handicraft products from 1 January 2023 to 31 December 2023.
Tax Deduction for Sponsoring of Smart Artificial Intelligence ("AI")-Driven Reverse Vending Machine
Tax deduction will be given to companies and individuals, partnerships, trusts and cooperatives with business income that make donations or sponsorships of AI-Driven Reverse Vending Machine and applications received by MOF from 1 January 2023 to 31 December 2024.
Tax Deduction for Contributions to NGOs involved in Sports Development
The tax deduction of up to 10% of the aggregate income will be given for contributions made to NGOs focusing on sports development at grassroot level.
Electronic Transmissions for Tax Payment
Taxpayers are required to make electronic transmissions for tax payments from YA 2024.
Tax Deduction on Issuance Cost of Sustainable and Responsible Investment Linked (SRI-linked) Sukuk
Tax deduction on issuance cost of SRI-linked Sukuk which is approved or permitted or deposited with the Securities Commission Malaysia (“SC”) will be given for a period of five (5) years starting from YAs 2023 to 2027.
Extension of GITA and GITE applications received by Malaysian Investment Development Authority (“MIDA”) until 31 December 2025 and the incentive period will be increased from three (3) years to five (5) years, for selected qualifying green activities.
Tax Incentives for Manufacturers of Electric Vehicle (EV) Charging Equipment
EV charging equipment manufacturers will be given 100% income tax exemption on statutory income for a period of ten (10) years from YAs 2023 to 2032, or Investment Tax Allowance of 100% for a period of five (5) years which can be set-off against up to 100% of the statutory income for each YA.
The income tax exemption of 100% for a period of up to ten (10) years for companies that undertake research and development for promoted products and develop IP in Malaysia will be extended until 31 December 2025.
The income tax exemption on statutory income of BioNexus Companies will be increased from 70% to 100% and the application period will be extended for applications received by Malaysian Bioeconomy Development Corporation until 31 December 2024.
The tax incentive for Global Trading Centres will be extended until 31 December 2025.
The application period for tax incentive under Principal Hub 3.0 will be extended to 31 December 2025.
Tax incentives such as investment tax allowance, import duty exemption, sales tax exemption and tax deduction will be given to companies using Carbon Capture and Storage (“CCS”) technology. Companies will need to apply to the MOF from 1 January 2023 to 31 December 2027.
The tax incentives for certain investors or companies engaging in food production projects will be expanded to include modern agriculture projects based on Controlled Environment Agriculture, and the tax incentive period will be extended until 31 December 2025.
The tax incentives for pharmaceutical manufacturers in the form of reduced income tax rates (0% to 10%) will be extended for another three (3) years until 31 December 2025.
The tax incentive for medical tourism will be extended for a period of three (3) years until 31 December 2025.
The income tax exemption for export of private healthcare services will be extended for another three (3) years until YA 2025.
Charitable hospitals registered as Company Limited by Guarantee will be given income tax exemption equivalent to the amount of charitable expenditure incurred. Donors will also be given tax deduction of up to 10% of aggregate income under subsection 44(11C) of the ITA.
Tax incentives for aerospace companies of either income tax exemption or Investment Tax Allowance will be extended for a period of three (3) years until 31 December 2025.
Accelerated Capital Allowance ("ACA") and income tax exemption of 100% will be given on qualifying capital expenditure incurred for closed house system. These tax incentives are given on qualifying capital expenditure incurred from YA 2023 to 2025 and to be fully absorbed within a year.
The tax incentive and bona fide status for companies undertaking SBSR activities in Malaysia will be extended until 31 December 2027.
Tax exemption on the amount of investment made by angel investors will be extended until 31 December 2026.
The tax exemption equal to 50% of the investment amount will be expanded to include investments made by individual investors through Limited Liability Partnership Nominee Companies and the investment period will be extended until 31 December 2026.
The fixed duty of RM10 on educational loan and scholarship agreements will be expanded to include education at all levels including certificate (education/skills/professional) level in any educational and training institutions for agreements executed from 1 January 2023.
Stamp duty exemption for loan restructuring or rescheduling will be extended for agreements executed from 1 January 2023 to 31 December 2024.
The Stamp Duty exemption will be increased from 50% to 75% for the first residential home that is worth RM500,000 to RM1,000,000 until 31 December 2023.
Payment of Stamp Duty and Sealing of Instruments by Online Stamp Assessment and Payment System
Payment of stamp duty and sealing of instruments process will be made entirely online through Stamp Assessment and Payment System by 2024.
Review of Stamp Duty Exemption for Transfer of Property by way of Love and Affection
The transfer of property by way of love and affection between husband and wife, parents and children, as well as grandparents and grandchildren will be imposed a fixed duty of RM10 for instruments executed from 1 January 2023.
Import duty and sales tax exemptions will be given for the purchase of studio and photograph production equipment for applications received by MOF from 1 January 2023 to 31 December 2024.
Review of Excise Duty and Sales Tax Exemptions on Sale or Transfer of Individually Owned Taxis and Hired Cars
Excise duty and sales tax exemptions for the sale or transfer of individually owned taxis will be expanded to include executive taxis, Teksi 1Malaysia (“TEKS1M”) and airport taxis and the age of vehicle is reduced from 7 years to 5 years from the date of registration.
The full import duty and excise duty exemptions for imported CBU electric vehicles will be extended to 31 December 2024.
Excise Duty Exemption on Tourist Vehicles
50% excise duty exemption will be given on the purchase of new locally assembled tourism vehicles (i.e hire and drive cars for tourists and excursion buses) for applications received by MOF from 1 January 2023 to 31 December 2024.
Extension of Sales Tax Exemption for the Purchase of Locally Assembled Buses
Sales tax exemption on the purchase of locally assembled buses will be extended to 31 December 2024.
Service Tax Exemption on Digital Services Related to Banking/Financial Services
Service tax exemption will be given to recipients of digital payment services and local non-bank digital payment services provided from 1 August 2022 to 31 July 2025. The expiry date for existing service tax exemption for local financial institutions/banks and any qualified service providers is streamlined to 31 July 2025.
- The tax rate of resident individuals for each chargeable income band between RM50,001 to RM100,000 will be reduced by 2%; and
- The tax rate of resident individuals for chargeable income band between RM250,001 to RM400,000 will be increased by 0.5%.
Tax relief of up to RM8,000 on the net annual savings in the SSPN will be extended for another two (2) years until YA 2024.
Grants for Micro, Small and Medium Enterprises ("MSMEs")
Grant of RM1 billion for all registered MSMEs businesses and taxi drivers.
Matching Grants for the Malaysia Co-investment Fund
Matching grants of RM30 million under the Malaysia Co-investment Fund for funding through equity crowdfunding.
Matching Grants for Tourism Sector
Matching grants of RM90 million under Geran Padanan Galakan Melancong ("GAMELAN") for companies involved in promotion and marketing campaigns on tourism activities which include international sporting events.
Grant of RM20 million for 2,000 associations that undertake volunteer activities such as floods and fires at the community level.
Matching grants of RM20 million for supporting of product development and creation of local talent in medical device industry.
Funding of RM100 million for the support of local technology-based companies to expand their businesses.
Funding of RM10 million through equity investment in high-technology companies in the electrical and electronics ("E&E") and renewable energy sectors.
Funds available for youths
RM305 million of special loan facility will be made available for youths through SME Bank, TEKUN, MARA, BSN and AgroBank.
Interest Subsidy and Equity Funding through Bank Pembangunan Malaysia Berhad ("BPMB")
Various funding will be provided through BPMB as follows:
- Interest subsidy for financing at 1.5 percent per year
- RM1.5 billion available under Sustainable Development Financing Fund;
- RM1 billion available for Tourism Infrastructure Financing Fund; and
- RM1 billion available under Maritime and logistics Financing Fund
- RM1 billion of Recovery and Support Through Equity Scheme and Working Capital Scheme.
Business Financing Guarantee for SMEs
Syarikat Jaminan Pembiayaan Perniagaan ("SJPP") will provide funding guarantees of RM9 billion on loans dedicated to SMEs in the strategic sectors such as agro-food, sustainable technology, tourism and vendors of oil and gas.
Funds available for Tourism Operators
RM500 million of funding will be made available to support tourism industry operators with a funding limit of RM500,000.
Funds available for E&E Sector
RM1 billion of funding will be made available to attract more investments with high value-added as well as generating professional job opportunities.
Green Technology Financing Scheme ("GTFS")
GTFS will be enhanced by increasing the guarantee to RM3 billion by year 2025 and scope of financing is expanded to include EV sector with a guarantee limit up to 60% and remaining sectors will be increased to 80%.
Funds from BNM
Funding of RM1 billion under Green and High Technology Financing Fund and Low Carbon Transition Financing Fund will be made available to support innovative sustainable technology start-up and help SMEs companies to implement low carbon practices.
Micro Financing for Small Businesses
Funding will be provided to various small businesses as follows:
- BSN Micro Loan – RM950 million including RM350 million under Skim Penjaja Kecil Keluarga Malaysia;
- TEKUN – RM300 million for Bumiputera, woman, youth and informal sector;
- Chinese – RM200 million with an interest rate of 4% per annum;
- Indian – RM25 million under Skim Pembiayaan Usahawan Masyarakat India and RM100 million under MITRA; and
- iTEKAD – RM10 million with funding through zakat and wakaf contribution.
Funds for SMEs
RM10 million of funding will be made available for SMEs to encourage automation and digitisation activities as well as supporting the food security and tourism sector recovery agenda.
Bantuan Keluarga Malaysia ("BKM")
- Assistance to families:
- RM2,500 – households earning less than RM2,500/month with five (5) or more children.
- RM1,000 to RM2,000 – households earning less than RM2,500/month with not more than four (4) children.
- RM500 to RM1,250 - household earning between RM2,500 to RM5,000/month.
- Assistance of between RM300 to RM600 for senior citizens without spouses and singles.
- Additional RM500 for single parent with dependent children.
e-Pemula (M40) Programme
One-off payment of RM100 will be credited into the e-wallet for M40 group with annual income of less than RM100,000.
Subsidy for Bantuan Awal Persekolahan ("BAP")
Subsidy for BAP will be increased to RM150 and be provided to all students regardless of the household earnings.
Skim 1 OKU 1 Perniagaan
OKU businesses registered with SSM will be exempted from payment of registration fees and renewal of business license fees.
Extension of incentive for Hiring Unemployed Targeted Groups
Employers will be given incentives ranging from RM600 to RM750 per month for providing jobs to the following target groups of people:
- disabled persons;
- Orang Asli;
- ex-convicts;
- women returning to workforce;
- veterans; and
- Replacement of foreign workers with local workers.
Special status will be given to Pengerang Petroleum Complex as an incentive for investment in chemical and petrochemical industry. Under this status, highway network facilities will be improved.
Incentive for Hiring Unemployed Youths
Employers will be given incentive under SOCSO for hiring youth aged between 18 to 30 who have been unemployed for more than three (3) months. The hiring incentive include Technical and Vocational Education and Training’s (“TVET”) graduates. No details were provided in the Budget Speech.
Skim Keselamatan Social Pekerjaan Sendiri (“SKSPS”) under SOCSO
RM130 million will be allocated for the Government to pay for 80% SOCSO contribution of self-employed individuals (e.g. food delivery drivers, farmers, fishermen, FINAS artists and hawkers).
SOCSO will be providing the following mobility assistance to job seekers:
- RM500 – for seeking employment outside their state of residence; and
- RM1,000 - for those involved in long-distance migration from Sabah or Sarawak to the Peninsula or vice versa.
“Kasih Suri Keluarga Malaysia” program
Housewives who make minimum EPF contributions of RM60 per year will get an additional matching incentive from the Government worth up to RM600 per year (i.e. RM480 in EPF savings and RM120 in SOCSO Scheme Contributions).
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