Revision of MSMEs’ Income Tax Rate and MSMEs’ Exclusion Requirements
| Present | Currently, Part I of Schedule 1 of the Malaysian Income Tax Act 1967 (MITA) specifies the following income tax rates for MSMEs:
Only businesses or limited liability partnerships (LLP) with paid-up ordinary share capital or total capital contributions of RM2.5 million or less and annual gross business income of not more than RM50 million are eligible for the aforementioned income tax rate. The following businesses and LLPs, however, will not be subject to the aforementioned MSME income tax rate: • An LLP with more than 50% of the capital contribution owned directly or indirectly by a company, or vice versa, or by another company. • A company with more than 50% of the compensated ordinary share capital being possessed directly or indirectly by a similar company (a company with paid-up capital of more than RM2.5 million). |
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| Proposed |
The following changes will be made to Part I of Schedule 1 of the MITA to examine the tax rate for MSMEs: Additionally, the MSME preferential income tax rate will no longer be applicable to the following corporations and limited liability partnerships (LLPs): corporations in which more than 20% of the paid-up ordinary share capital is directly or indirectly owned by corporations incorporated outside of Malaysia or by individuals who are not Malaysian citizens; and LLPs in which more than 20% of the total capital contribution is contributed directly or indirectly by corporations incorporated outside of Malaysia. |
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| Effective Date | With the exception of the extension of the MSME preferential income tax rate’s non-applicability to LLPs, which will go into effect in YA 2024, from YA 2023 | ||||||||
| Commentary | This idea was introduced in the speech for the revised 2023 budget. Currently, the Finance Bill 2023 contains a proposal to amend the law.
The goal of this proposal is to boost the competitiveness of locally-owned MSMEs and encourage economic expansion. In addition, taxpayers may take advantage of the lower income tax bracket for MSMEs as compared to individuals by conducting their businesses using a company or an LLP instead of an unincorporated enterprise. |
Modifications to the Capital Allowance Definition of Plant
| Present | With effect from YA 2021, the term “plant” will be defined as “an apparatus used by a person for carrying on his company, however, it excludes a building, an intangible asset, or indeed any asset being used that features as a place within which a business is carried on” under Paragraph 70A of Schedule 3 of the MITA. |
| Proposed | The Minister now has the authority to specify any other assets as assets that are excluded from the definition of “plant,” and the definition of “plant” will be enlarged to include intangible assets like software. |
| Effective Date | From YA 2023 |
| Commentary | The government’s goal of fostering the development of digital technology in the nation is in line with this proposal to abolish the general exclusion of intangible assets such as the plant.
The modification will, however, provide the Minister the authority to specify any other assets as assets that are not included in the definition of plant. To be able to avoid any adverse impact. It is desired that the Government will consult with stakeholders before releasing any list of assets that will be excluded from the definition of plant for the purposes of capital allowance claims in order to avoid any unfavorable effects. |
Online filing of amended tax returns
| Present | Companies may file revised tax returns online or manually, whereas taxpayers who are not corporations may only file updated tax returns manually. |
| Proposed | Companies, LLPs, trust organizations, and cooperative societies are required to submit their tax filings electronically (i.e. e-filing). |
| Effective Date | As of YA 2024. |
| Commentary | The plan is in keeping with the government’s strategy to use electronic media more frequently and to streamline the tax submission procedure.
Electronic submissions may eliminate human mistakes on the return form and hasten the completion of assessments. |
Extension of Relief Other Than Fault or Mistakes Applications
| Present | Taxpayers who do not have chargeable income for a Month may request in writing to the Director General for relief or correction in connection with an incorrect calculation in their returns under Section 97A of the MITA. This could be brought on by a deduction for withholding tax that isn’t permitted on the following payments to non-residents that weren’t expected to be made on the day the returns were filed:
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| Proposed | Payments made to certain agents, dealers, or distributors (ADD) who are liable to withholding tax under Section 107D of the MITA are now included in the list of payments that qualify for relief under Section 97A of the MITA. |
| Effective Date | January 1, 2023. |
| Commentary | This proposal will simplify the eligibility requirements for businesses seeking relief from inaccurate tax calculations caused by failure to claim a tax deduction on payments made to ADD due to failure to comply with Section 107D of the MITA’s withholding tax requirements at the time of filing their tax returns. |
Application for an Installment Payment Plan for the Remaining Tax Due from a Deemed Assessment
| Present | Regardless of whether the taxpayer has filed an appeal against the assessment, the remaining tax owed under a presumed assessment or additional assessment must be paid in full by the due date. |
| Proposed | Subject to the Director General of the Inland Revenue Board’s (DGIR) approval, taxpayers are permitted to apply for an installment payment arrangement to discharge the remaining tax due under a deemed assessment or additional assessment. |
| Effective Date | Beginning in the year 2023. |
| Commentary | This proposal would give taxpayers a way to apply for an installment plan on the remaining amount of tax due under a deemed assessment or additional assessment, which could aid them if they are having trouble making ends meet. |
Deduction of tax on payments given to agents, etc. under Section 107D of the ITA
| Present | Today, a business must deduct 2% of gross payments made to ADDs who received more than RM100,000 in commission the prior year and remit the deducted money to the MIRB within 30 days of the payment. |
| Proposed | Payouts to ADDs may be accumulated by businesses on a monthly basis, and they must submit the withholding tax to the MIRB by the end of the next month. |
| Effective Date | January 1, 2023 |
| Commentary | With this proposal, the law will be brought into line with the MIRB’s current procedure, which permits payments to ADDs that are subject to withholding tax under Section 107D of the MITA to accumulate monthly and for the withholding tax to be remitted on the last day of the next calendar month. |
Cooperative organizations and trust bodies’ returns for income taxes
| Present | Trust bodies and cooperative societies are currently urged to submit their tax returns electronically, but they are also permitted to do so manually by obtaining the appropriate form (Form TA for trust bodies or Form C1 for cooperative organizations) from the MIRB website. Upon the conclusion of their accounting period, trust bodies and cooperative societies must file their tax returns within seven (7) months. |
| Proposed | The electronic filing of tax returns by trust entities or cooperative societies is required (i.e. e-filing). |
| Effective Date | From YA 2024 |
| Commentary | The plan is in keeping with the government’s strategy to use more electronic media and enhance the filing of taxes. Electronic submissions may eliminate human mistakes on the return form and hasten the completion of assessments. |
Joint tax returns for the year
| Present | Partnerships are currently urged to submit their tax returns electronically, but they are still permitted to do so manually by obtaining the necessary form (Form P) from the MIRB website. By June 30 of the year after that YA, partnerships must file their tax filings. |
| Proposed | The electronic filing of partnership tax returns is required (i.e. e-filing). |
| Effective Date | As of YA 2024. |
| Commentary | The plan is in keeping with the government’s strategy to use more electronic media and enhance the filing of taxes.
Electronic submissions may eliminate human mistakes on the return form and hasten the completion of assessments. |
Employer’s returns(Form E) for LLPs, trust organizations, and credit unions
| Present | Now, a business must electronically submit its Employer’s returns (Form E) (i.e. e-filing). |
| Proposed | LLPs, trust organizations, and cooperative societies must electronically submit their Employers’ returns (Form E) (i.e. e-filing). |
| Effective Date | As of YA 2024. |
| Commentary | The plan is in keeping with the government’s strategy to use more electronic media and enhance the filing of taxes. Electronic submissions could lessen human mistakes on the return form. |