Spotlight on the Government’s 2022 Pre-Budget Statement

What are the highlights?

On Tuesday, 31 August 2021, the Government issued its first-ever Pre-Budget Statement in an effort to increase transparency in drafting Malaysia’s annual budget. The salient tax issues are as follows:

1. Budget Deficit
The budget deficit of the government for 2021 is estimated at 5.4% of GDP in the previous government budget. However, due to larger aid packages provided by the government because of the pandemic, the deficit target is estimated to increase to between 6.5% to 7.0% of GDP in 2021.

2. Revenue and Expenditure
The government revenue for 2021 is estimated at RM162.1 billion, of which RM120.0 billion is from Direct Taxes and RM42.1 billion is from Indirect Taxes. However, the revenue recorded as of July 2021 was only RM92.2 billion (56.8% of estimated revenue) which is below expectations. The government expenditure for 2021 is estimated at RM322.5 billion of which RM185.9 billion had been spent by July 2021 (59.1%).

3. Strategies to Increase Tax Revenue
The government is considering the following tax measures:

Implementation of the Special Voluntary Disclosure Program (SVDP) for indirect taxes which is to be administered by the Customs. This SVDP should allow taxpayers to voluntarily disclose any under-declaration of indirect taxes such as import duties, Sales Tax, Service Tax, export duty, excise duty, etc.
Introduction of a Tax Compliance Certificate as a pre-condition for tenderers to participate in Government procurement exercises to ensure that the tenderers have complied with their tax obligations.
Implementation of the Tax Identification Number (TIN) as well as reviewing tax treatments that are identified as having elements of revenue leakage or harmful practices. The TIN is likely to be implemented for all individuals and entities in Malaysia.

4. Other tax strategies

The government has begun a comprehensive review of the tax incentive framework.
Malaysia continues to support the OECD Base Erosion and Profit Shifting (BEPS) initiative to address the issue of cross-border tax evasion. Pillar One of the BEPS allows a country to tax digital economy activities whilst Pillar Two will introduce a minimum effective tax rate globally to address the possibility of aggressive tax planning by multinational enterprises (MNEs).

Read the 2022 Pre-Budget Statement by the Ministry of Finance here >>>