Recently, Malaysian government has introduced a wide range of tax measures. The information regarding such measures was released on October 29, 2021. Being part of a new budget, these tax measures are going to affect the businesses and individual taxpayers in the year 2022.
Taking into account the volume) of this budget (333.2 billion ringgit, it is considered as the largest ever budget. The reason for such a huge budget is the government’s aim to boost economic growth after the pandemic.
In addition, it is the first budget that the administration of PM Ismail Sabri Yaakob is launching. He is the third prime minister of Malaysia for the past two years. Sabri came into power after the resignation of Muhyiddin Yassin.
According to government spokespersons, this budget is created in a way to enhance resilience against the impacts of pandemic. As a result, it is going to help fast recovery of Malaysian economy. The tax measures associated with the new budget include industrial incentives and one-time tax (for high-income businesses).
Zafrul Aziz, the Finance Minister is expecting the economy to stay between 5.5 to 6.5 percent in the coming year. Previously, this figure was contracted to 5.6% in 2020.
Major Tax Measures Affecting Businesses
Prosperity Tax Imposition
Also referred to as the Cukai Makmur, businesses earning over 100 million ringgit (US$24 million) are bound to pay an additional 9% corporate income tax (CIT) during 2022. Hence, such businesses are going to pay 33% in lieu of CIT.
According to the government, this “Windfall Tax” is an initiative to support additional expenditure requirements linked with the fight against pandemic.
Imposition of Tax on the Foreign-Sourced Income
Malaysian residents would pay tax on an income that comes from outside of Malaysia. This rule will be effective from January 1, 2022. This measure is going to help Malaysian government to comply with the guidelines of the OECD Forum related to “Harmful Tax Practices”. Measures like these can assist Malaysia from leaving the “Grey List” European Union.
Furthermore, the taxpayer is eligible to claim tax relief with reference to the royalty, interest, and technical fees. However, this facility is available to those countries that have entered into a double taxation avoidance agreement with Malaysian government.
Deferring of the Income Tax Installment
This particular tax measure is linked to Micro, small, and medium-sized enterprises (MSMEs). Such enterprises can now defer the monthly income tax installments for six months. This facility is available till 30th June 2022.
Introduction of Tax Identification Number
With a view to enhance the tax base, Malaysian government is planning to introduce a tax identification number(TIN). The TIN will be automatically issued to identify the total number of taxpayers in 2022.
Carrying forward Unabsorbed Business Loans
The unabsorbed business losses for the year 2019 will be carried forward for up to 10 years. Previously, this relaxation was curtailed to 7 years. Besides, the unutilized losses for the year 2018 can also be carried forward up to 2028.
Extending the Tax Deduction on Rental Reduction
Malaysian government is going to extend the tax deduction on rental reduction. This relaxation applies to business premises. Now the tax deduction on rental reduction is available for another 6 months (Starting from January to June 2022). However, taxpayers with a rental reduction of a minimum of 30% can seek this incentive.
Extending the Tax Rebates for Newly Established MSMEs
This extension of income tax rebate up to 30,000 ringgit is available to new MSMEs that are going to start their operations by 31st December 2022. In addition to this, the rebate can be obtained for the first three years of such SMEs.
Tax Compliance Certificate
The Inland Revenue Board of Malaysia has made it obligatory for businesses to obtain their “Tax Compliance Certificate” (TCC). This is a prerequisite if a business is willing to participate in government procurement. This rule will be effective from 1st January 2023.
Introduction of Tax Incentives regarding Digital Ecosystem Acceleration Scheme (DESAC)
This scheme is for digital infrastructure providers or digital technology providers. These businesses can enjoy tax incentives through the “Digital Ecosystem Acceleration Scheme” (DESAC).
The digital technology providers who have recently started their businesses can take advantage of a lucrative income tax rate (0% to 10%) for 10 years. On the contrary, existing digital tech providers can also pay income tax at a rate of 10% for a period of 10 years.
Furthermore, the digital infrastructure providers are also eligible for a 100% investment tax allowance. This allowance is available for 10 years on the capital expenditure (only for qualifying activities). Eligible applicants can submit their applications from 30th October 2021. The last date of such submission is 31st December 2025.
Exemption on Stamp Duty for Peer-to-Peer Financing
Malaysian government is offering a 100% Stamp Duty exemption to specific businesses. This relates to those financing or loan agreements being executed between MSMEs and investors who are involved in raising funds for P2P platforms (registered). This exemption is available from 1st January 2022 and goes up to 31st December 2026.
Exemption on Stamp Duty for Mergers & Acquisitions (M&A)
Malaysian government is going to extend the exemption on stamp duty for instruments associated with mergers and acquisitions (M&A). This exemption is extended for another year.
Exemption on Stamp Duty for Loan Restructuring
The exemption on stamp duty for loan restructuring or rescheduling is extended up to 31st December 2022.
Reviewing of the Stamp Duty for Transfer of Listed Shares
There is a proposal to increase the stamp duty on the contract notes associated with the sale of listed shares. The proposed increase is up to 0.15%. Besides, it also includes the removal of stamp duty cap of 200 ringgit.
Sales Tax and Import Duty Exemption for Electric Vehicles
A full exemption on import duty of electric vehicles is under consideration by Malaysian government. This exemption is also applicable to sales tax and excise duty.
Introducing the “Special Voluntary Disclosure Program” (SVDP)
The SVDP program is a way to encourage taxpayers to voluntarily disclose their unreported income and settle their tax arrears. Following are the phases in which the SVDP program for indirect taxes is going to be introduced:
First Phase: It relates to the remission on 100% penalties
Second Phase: This phase relates to the remission of 50% penalties
Service Tax Imposition on Delivery Services
Delivery services won’t be exempted from the service tax in 2022. A service tax will also be imposed on e-commerce platforms. However, this imposition doesn’t applicable to logistics, food, and beverage delivery services.
Sales Tax Imposition on Low-value Goods
Sales tax will be imposed on low-value goods. This is done with a view to ensure fair tax treatment for imported as well as locally manufactured goods.
Extension of the Exemption on Sales Tax for Passenger Vehicles
Malaysian government is planning to introduce a sales tax exemption for passenger motor vehicles for six months (from 1st January 2022 to 30th June 2022).
Here are the two incentives being offered through this scheme:
- 100% sales tax exemption on sale of locally assembled passenger vehicles
- 50% sales tax exemption on the imported passenger vehicles
Major Tax Measures affecting Individuals
Extending the Special Income Tax Rate to Non-Malaysian Persons who are Holding Key Positions
According to this particular tax incentive, a flat rate of 15% income tax rate will be offered to non-Malaysian individuals. However, these individuals must hold C-suite positions in those companies who have made strategic investments in Malaysia.
The requirements for such incentive are as follows:
- The basic monthly salary of a non-Malaysian individual shouldn’t be less than 25,000 ringgit or US$6,018
- Such a person should hold a C-suite or any other key position in a company. Besides, the individuals should have a responsibility of managing business operations and implementing new strategies
- Should have received approval from the “Malaysian Investment Development Authority” (MIDA)
- Should have been a Malaysian tax resident for every financial year under a flat rate treatment
Expanding the Tax Relief regarding Medical Expenses
This tax relief also involves the costs that have been incurred during the consultation or examination of mental health.
Expanding the Number of EPF Contributions
The lowest monthly contribution to the Employees’ Provident Fund (EPF) is reduced to a rate of 9% (Previously 11 %). This incentive will be available throughout June 2022. The basic reason for such expansion is to attract voluntary contributors or self-employed.
Expanding the Tax Relief regarding SOCSO Payments
The tax relief for the individual contribution to Social Security Organization (SOCSO) will be increased from 250 ringgit to 350 ringgit. It will also include the contributions that fall under the Employment Insurance System Act 2017.
Reviewing the Real Property Gains Tax
At present, the disposal of real property is subject to 5% real property gain tax. This tax is applicable after the sixth year of acquisition. However, the government is planning to keep this tax between 5% and 0%.
Extending the Tax Relief for Domestic Tourism
The travel expenses incurred during domestic tourism are currently exempted from tax. This exemption is extended to 31st December 2022. The taxpayers can enjoy a tax relief of up to 1,000 ringgit under this incentive.
Expanding the Tax Relief related to the payment of Upskilling Course Fees
This particular tax relief is for an individual who has paid a fee to take part in a self-enhancement or upskilling course. Previously, this fee was limited to 1,000 ringgit per annum. However, the government is making an increase up to 2,000 ringgit per annum until 2023.
Extending the Tax Relief related to Deferred Annuity Premium Payments
Under Budget 2022, a person who deferred his/her annuity premium payments until 2025 can get a relief of up to 3,000 ringgit.
Provision of Tax Relief on Expenses associated with Electric Vehicle Charging Facilities
Tax relief of up to 2,500 ringgit will be available on expenses associated with the installation or purchase of electric vehicle charging facilities. This incentive will be available for YA 2022 until 2023.