Budget 2023 – Highlights

By Salwa Sabidin

“Developing Malaysia MADANI” was chosen as the theme of Budget 2023 and was re-tabled on 24 February 2023 by the Prime Minister and Finance Minister, YAB Dato’ Seri Anwar bin Ibrahim. We highlight the most important tax proposal from Budget 2023 and include some tax measures from the previous tabling of Budget 2023 in October 2022.

Individual Tax

• Change in income tax rates for resident individuals for YA 2023
  • Tax rates for tax resident individuals for the following chargeable income bands will be reduced by two percentage points:
    • RM35,001 to RM50,000
    • RM50,001 to RM70,000
    • RM70,001 to RM100,000
  • Tax rates for tax resident individuals for the following chargeable income bands will be increased by between 0.5 to two percentage points:
    • RM100,001 to RM250,000 (1%)
    • RM250,001 to RM400,000 (0.5%)
    • RM400,001 to RM600,000 (1%)
    • RM600,001 to RM1,000,000 (2%)
• Life insurance premium relief
  • The existing relief of RM3,000 on life insurance premium is expanded to cover voluntary EPF contributions, effective YA 2023.
• Fees paid to child-care centre and kindergarten relief
  • The existing relief of RM3,000 for fees paid to a registered child-care centre and kindergarten is extended up to YA 2024.
• Expansion of scope of tax relief for medical treatment expenses for taxpayer, spouse and child
  • The existing relief of RM8,000 for medical treatment expenses will be increased to RM10,000, effective YA 2023.
  • Additionally, the scope of relief will be expanded to include intervention expenditure for Autism, Attention Deficit Hyperactivity Disorder (ADHD), Global Developmental Delay (GDD), Intellectual Disability, Down Syndrome and Specific Learning Disabilities, of up to RM4,000.
• Special tax rate for individuals holding C-suite positions
  • Individuals resident in Malaysia and holding C-suite positions in certain manufacturing companies which relocate their operations to Malaysia, will be taxed at special flat rate of 15% for 5 consecutive years and it will be extended until YA 2024 (Application received by MIDA until 31 December 2024).

Corporate Tax

• Reduction of Income Tax Rate for Micro, Small and Medium Enterprises (MSME)
  • The tax rate for MSME will be reduced from 17% to 15% for the first RM150,000 of chargeable income from YA 2023, as follows:
    • RM150,000 and below = 15%
    • RM150,001 to RM600,000 = 17%
    • RM600,001 and above = 24%
  • MSME refers to:
    • a company with paid up capital in respect of ordinary shares of not more than RM2.5 million and with gross business income of not more than RM50 million, or
    • a LLP with total contribution of capital of not more than RM2.5 million, and with gross business income of not more than RM50 million.
• Deduction for rental of non-commercial EV
  • Company that rents non- commercial EV be given tax deduction on the rental amount up to RM300,000 for YA 2023 to YA 2025. This is to encourage the use of low-carbon vehicles.
• Tax deduction for contribution to non-profit organisations conducting sports development programmes
  • Tax deduction of up to 10% of aggregate income be given to companies that contribute to non-profit organisations conducting sports development programmes at grassroots level
• Tax deduction for expenditure on malaysian-made handicraft
  • Tax deduction of up to RM150,000 be given on qualified Malaysian-made handicraft purchased from local handicraft entrepreneurs registered with the Malaysian Handicraft Development Corporation on expenditure incurred from 1 January 2023 to 31 December 2025.  This deduction does not apply to an expenditure where a claim has been made under Section 33 or Schedule 3 of the ITA
• Deduction for employment of former national athletes and contributions made to FINAS
  • Tax deduction be given to employers for the employment of these athletes.
  • Tax deduction be given to contribution made to the Tabung Komuniti Filem dan Pembangunan Filem Kenegaraan under the National Film Development Corporation Malaysia (FINAS).
• Double deduction for childcare
  • Double deduction on expenses incurred maintenance of child care centres and child care allowances paid to the employees were given to employers with effect from YA 2013 and was extended until further notice.
• Other deduction:
  • Tax deduction on cost of listing in bursa Malaysia by technology-based companies for listing in the Access, Certainty, Efficiency (ACE) Market and by Micro, Small and Medium Enterprises in the Leading Entrepreneur Accelerator Platform (LEAP) be extended period for 3 years (YA 2023 to YA 2025).
  • Tax deduction for sponsorship or donation of smart artificial intelligence (ai)–driven reverse vending machine be given under Section 34(6)(h) of the ITA to companies and other than companies, subject to application received by the Ministry of Finance from 1 April 2023 to 31 December 2024.
  • Tax deduction on issuance cost of sustainable and responsible investment (SRI) linked sukuk be given for a period of 5 years, from YA 2023 to YA 2027.

Tax Incentive

• Tax Incentive for Manufacturers of Electric Vehicle (EV) Charging Equipment
  • It is proposed that 100% tax exemption on statutory income from the YA 2023 to the YA 2032 be given to Companies that make early investments to be eligible for up to 10 years tax exemption. Companies that invest after the YA 2023, they are only eligible to benefit from the incentive for the remaining exemption period; or
  • Companies may be opted for Investment Tax Allowance of 100% for a period of 5 years and set-off against 100% of the statutory income for each YA.
  • The application must be received by the Malaysian Investment Development Authority (MIDA) from 25 February 2023 to 31 December 2025.

• Tax Incentives for Carbon Capture and Storage (CCS)
  • It is proposed that companies undertaking CCS in-house activity to be eligible for Investment Tax Allowance (ITA) of 100% of qualifying capital expenditure for a period of 10 years and set-off against 100% of business statutory income; and tax deduction for allowable pre-commencement expenses within 5 years prior to the date of commencement of operation.
  • Companies undertaking CCS services will be eligible for ITA of 100% of qualifying capital expenditure for a period of 10 years and set-off against 100% of statutory income; or tax exemption of 70% on statutory income for a period of 10 years.
  • Companies using CCS services will be allowed a tax deduction on fees incurred for use of the services.
  • The application must be received by the Ministry of Finance from 25 February 2023 to 31 December 2027, whereas tax deduction will be eligible for the YA 2023 to YA 2027.

• Tax Incentive for Chicken Rearing in Closed House System
  • It is proposed that tax incentives on Accelerated Capital Allowance (ACA) of 100% on the qualifying capital expenditure; and Income tax exemption of 100% equivalent to the qualifying capital expenditure be given to Companies of chicken rearers that adopt environmental-friendly closed  house system  as well as increasing its productivity.
  • This incentive will be given from YA 2023 to YA 2025.

• Tax Incentives for Ship Building and Ship Repairing Industry
  • It is proposed that new companies undertaking ship building and ship repairing (SBSR) activities in Malaysia to be eligible for Pioneer Status with income tax exemption of 70% of statutory income for a period of 5 years; or Investment Tax Allowance (ITA) of 60% on qualifying capital expenditure incurred within 5 years and set-off against 70% of the statutory income for each YA.
  • While existing companies operating SBSR activities are eligible for ITA of 60% on qualifying capital expenditure incurred within 5 years and set-off against 70% of the statutory income for each YA.
  • The SBSR application must be received by MIDA from 1 January 2023 to 31 December 2027.

• Review Of Automation Capital Allowance
  • It is proposed that the Automation Capital Allowance for automation equipment be enhanced by including the adaptation of Industry 4.0 elements in the scope of automation; expanding the scope of tax incentive to include agriculture sector; and capital expenditure threshold for Categories 1, Categories 2 and agriculture be aligned and increased up to RM10 million.
  • Categories 1 is the labour-intensive Industry i.e., rubber, plastic, wood, and textile products which currently eligible for 200% automation allowance on the first RM4 million qualifying capital expenditure incurred), while Categories 2 is the industries other than Category 1 including the services sector which is currently eligible for 200% automation allowance on the first RM2 million qualifying capital expenditure incurred.
  • The application must be received by MIDA and Ministry of Agriculture and Food Security (MAFS) from 1 January 2023 to 31 December 2027

• Tax Incentives for Aerospace Industry
  • The new and existing aerospace companies in Malaysia undertaking high-value activities such as manufacturing or assemble of systems, devices, parts or components and maintenance, repair and overhaul for aircraft (MRO), systems, devices, parts or components and engineering & design/services related are given tax incentives as follows:
    • New Company
      • income tax exemption of 70% to 100% for a period between 5 to 10 years; or
      • Investment Tax Allowance of 60% to 100% for a period of 5 years and set-off against 70% to 100% of statutory income for each YA.
    • Existing company
      • Investment Tax Allowance of 60% for a period of 5 years and set-off against 70% of statutory income for each YA.
  • Effective date: Application received by MIDA from 1 January 2023 to 31 December 2025

Indirect Tax

• Import Duty and Sales Tax Exemption on Studio and Filming Production Equipment
  • It is proposed that full import duty and sales tax exemption on studio and filming production equipment be given to providers of studio equipment, production and post- production services for a period of 3 years.
  • Effective date: Application received by the Ministry of Finance from 1 April 2023 to 31 March 2026

• Import Duty and Sales Tax Exemption on Equipment For Carbon Capture And Storage (CCS) Technology
  • it is proposed that full import duty and sales tax exemption be given on equipment used for CCS technology commencing from 1 January 2023 to 31 December 2027 for companies undertaking either CCS in-house activity or CCS services.
  • Effective date: Application received by the Ministry of Finance from 25 February 2023 to 31 December 2027

• Import Duty and Sales Tax Exemption on Nicotine Replacement Therapy (NRT)
  • It is proposed that import duty and sales tax exemption be given on the above NRT products for a period of 3 years.
  • Effective date: Application received by the Ministry of Finance from 1 April 2023 to 31 March 2026

Stamp Duty

• Stamp Duty for Transfer of Property By Way Of Love And Affection
  • It is proposed that stamp duty on the instruments of transfer of property be fully exempted, limited to the first RM1 million of the property’s value. The remaining balance of the property’s value is subject to ad valorem duty rate and 50% remission is given on the stamp duty imposed. This stamp duty treatment applies to recipients who are Malaysian citizens.
  • Effective date: Instrument of transfer of property executed from 1 April 2023

• Stamp Duty for Educational Loan/Scholarship Agreement
  • It is proposed the imposition of a fixed duty of RM10 be expanded to include educational loan/scholarship agreement to pursue education at all levels including certificate (education/skills/professionals) in any educational and training institutions.
  • Effective date: Educational loan/scholarship agreement executed from 1 June 2023

Others

• Luxury Tax on Branded Goods
  • It is proposed that luxury tax for items such as luxury branded watches and fashion goods (with a minimum value depending on the item) be introduced from year 2023.

• Capital Gains Tax on Unquoted Shares
  • It is proposed that introduction of capital gains tax at a low rate for the disposal of unquoted shares by companies from year 2024.

• Special Voluntary Disclosure Program (SVDP)
  • It is proposed that a voluntary disclosure programme be re-implemented by both LHDN and RMCD.  Penalty remission of 100% will be granted under this voluntary disclosure programme.
  • Effective date: From 1 June 2023 to 31 May 2024

• Charitable Hospital Registered as Company Limited by Guarantee
  • It is proposed that charitable hospital registered as company limited by guarantee be given income tax exemption equivalent to the amount of expenses incurred for charitable purposes.
  • In addition, it is proposed that a tax deduction of up to 10% of aggregate income be given to the donor for donations made to charitable hospitals.
  • Effective date: Further clarification is required on the tax exemption.