Budget 2024 – Highlights

Author

Salwa Sabidin

Budget 2024 was tabled on 13th October 2023 with the theme of “Economic Reform, Empowering People”. We highlight below the key tax proposal from Budget 2024. Further technical details on the budget proposal will only be available upon the release of the Finance Bills.

Individual Tax

Expansion of Scope of Income Tax Relief for Medical Treatment Expenses For Self, Spouse, and Child

The income tax relief limit for medical expenses is increased from RM8,000 to RM10,000 and to cover dental examination and treatment expenses from dental practitioners registered with the Malaysian Dental Council limited to RM1,000; effective from year of assessment (YA) 2024.

Expansion of Scope of Income Tax Relief for Medical Treatment, Special Needs and Carer Expenses For Parents

Current individual income tax relief of up to RM8,000 given on medical expenses, special needs, and parental care is proposed to be expanded to a full medical examination for parents limited to RM1,000 effective from YA 2024.

Review of Income Tax Relief for Lifestyle

Income tax relief for lifestyle is proposed to be restructured as follows effective from YA 2024

  • The lifestyle relief of up to RM2,500 is for the purchase of reading materials including e-books, printed/electronic daily newspapers, purchase of personal computers, smartphones or tablets, and internet subscriptions.
  • The scope be expanded to include fees for the self-skills enhancement course. Whereas the purchase of sports equipment and gymnasium membership fees are removed from the scope of lifestyle relief.
  • Specific tax relief be introduced for “Sports Equipment and Activities” limited to RM1,000.
  • The scope of relief covers the purchase of sports equipment, rental or entry fees to sports facilities, registration fees for participating in sports competitions, and gymnasium membership fees. This relief is also expanded to sports training fees imposed by associations/sports clubs/companies registered with the Sports Commissioner or Companies Commission of Malaysia and carrying out sports activities as listed under the Sports Development Act 1997.

Extension of Individual Income Tax Relief for Up-Skilling and Self-Enhancement Courses Fees

Individual income tax relief of up to RM2,000 from the total education fees relief of RM7,000 is given on fees paid for attending up-skilling or self-enhancement courses recognized by the Department of Skills Development, Ministry of Human Resources is proposed to be extended until YA 2026.

Extension of Individual Income Tax Relief for Electric Vehicle Charging Facilities

Individual income tax relief up to RM2,500 on expenses related to installation, rental, purchasing including hire-purchase equipment or subscription fees for Electric Vehicle (EV) charging facilities is proposed to be extended to YA 2027.

Review of Income Tax Exemption for Child Care Allowance Under Perquisites from Employment

Income tax exemption on perquisites received by employees related to child care allowance for children aged 12 and below; is proposed to increase from RM2,400 to RM3,000 per year; effective from YA 2024.

Review of Tax Incentive for Women Career Comeback Programme

Income tax exemption on employment income received for a maximum period of 12 consecutive months be enhanced as follows:

Income tax exemption on employment income received for a maximum period of 12 consecutive months be enhanced as follows:

  • Women returning to work after a career break at least 2 years before the date of application received by the Talent Corporation Malaysia Berhad; and
  • Employment income received from the year of assessment 2025 until the year of assessment 2028.
  • The applications must be received by the Talent Corporation Malaysia Berhad from 1 January 2024 until 31 December 2027.

Review of Tax Incentives for Returning Expert Programme

The Returning Expert Programme under the Talent Corporation Malaysia Berhad is proposed to be reviewed as follows:

  • Income tax at a fixed rate of 15% on employment income received by an individual for 5 consecutive years of assessment; and
  • Exemption on excise duty for the purchase of a CKD vehicle is subject to an exemption amount of up to RM100,000.
  • The applications must be received by the Talent Corporation Malaysia Berhad from 1 January 2024 until 31 December 2027

Corporate Tax

Deferment of Global Minimum Tax (GMT) Implementation

The government is expected to implement a global minimum tax in 2025 and only apply to companies with a global income of at least 750 million EURO. The government will also continue to monitor the development of the global minimum tax at the international level.

Tax Deduction on Environmental, Social and Governance Related Expenditures

Tax deductions on environmental, social, and governance (ESG) related expenditures are proposed up to RM50,000 for each year of assessment from YA 2024 to YA 2027 be given as follows:

  • Enhance the Sustainability Reporting Framework by companies listed on the Bursa Malaysia stock exchange.
  • Climate Risk Management and Scenario Analysis reporting by financial institutions regulated by the Bank Negara Malaysia.
  • Preparation of reports related to the Tax Corporate Governance Framework (TCGF) of Lembaga Hasil Dalam Negeri Malaysia (LHDNM) by companies.
  • Preparation of transfer pricing documentation by companies
  • Any reporting requirement related to ESG by companies to the approved regulator by the Ministry of Finance.

Review of Capital Allowance on Information and Communication Technology Equipment and Computer Software

  • Capital expenditure incurred by companies on the acquisition of information and communication technology (ICT) equipment and computer software packages are proposed to be claimed as capital allowance at the initial allowance (IA) of 40% and annual allowance (AA) of 20%, effective from YA 2024.
  • The same capital allowance rate is applicable for consultation, licensing, and incidental fees incurred related to customized computer software development.

Extension of Tax Exemption on Management Fees Income for Sustainable and Responsible Investment Funds

Companies that provide Sustainable and Responsible Investments (SRI) fund management services to investors, business trusts investors, or Real Estate Investment Trusts (REITs) investors in Malaysia approved by the Securities Commission Malaysia are given tax exemption on management fees income for managing SRI funds until YA 2027.

Extension of Tax Deduction on Issuance of Sustainable and Responsible Investments Sukuk

Tax deduction given on the issuance cost of Sustainable and Responsible Investments (SRI) sukuk approved or authorized or lodged with the Securities Commission Malaysia it is proposed to be extended to YA 2027.

Expansion of Scope of Income Tax Exemption On The Sustainable and Responsible Investments Sukuk Grant And Bond Grant Scheme

Green SRI sukuk issuers need to apply the Green Sustainable and Responsible Investments (SRI) Sukuk Grant to the Securities Commission Malaysia (SC) to finance the external review expenses, up to RM300,000. It is proposed that the income tax exemption be expanded to include SRI-Linked Sukuk Grants and bonds issued under the ASEAN Sustainability-Linked Bond Standards (ASEAN SLBS) approved by SC, for applications received by SC from 1 January 2024 until 31 December 2025.

Review of Income Tax Exemptions on Shariah- Compliant Fund Management Services

It is proposed the income tax exemption period for Shariah-compliant fund management services companies approved by the Securities Commission Malaysia be extended to YA 2027 with 60% tax exemption.

Capital Gains Tax

It is proposed that Capital Gains Tax (CGT) rate on the disposal of unlisted shares for companies be imposed as follows:

For shares acquired before 1 March 2024, the taxpayers may choose:

  • 10% on the net gain of the disposal of shares; or
  • 2% on the gross sales value.

For shares from 1 March 2024, the CGT Rate is 10% on the net gain of the disposal of shares.

It is also proposed CGT exemption be given on the disposal of shares related to the following activities:

  • Initial Public Offering (IPO) approved by Bursa Malaysia; and
  • Restructuring of shares within the same group.

Tax Incentive

Tax Incentive for Global Services Hub

  • To maintain Malaysia’s competitiveness as a key player in the global services sector in the region and to establish the country as a high-impact strategic services hub, it is proposed Global Services Hub tax incentive based on an outcome-based approach be introduced as follows:
  • New company (Tier 1 and Tier 2):
  • Exemption years 5 years + extension of 5 years (subject to approval)
  • Tax Incentive: 5% tax rate for Tier 1, 10% tax rate for Tier 2.
  • Types of income exempted:

To maintain Malaysia’s competitiveness as a key player in the global services sector in the region and to establish the country as a high-impact strategic services hub, it is proposed Global Services Hub tax incentive based on an outcome-based approach be introduced as follows:

New company (Tier 1 and Tier 2):

  • Exemption years 5 years + extension of 5 years (subject to approval)
  • Tax Incentive: 5% tax rate for Tier 1, 10% tax rate for Tier 2.
  • Types of income exempted:
  • Services income; or
  • Services and trading income.
  • Qualifying Services & Additional Services
  • Regional P&L/Business Management Unit;
  • Strategic business planning;
  • Corporate development; and
  • Any 2 qualifying activities under the services category as follows:
  • Strategic services;
  • Business services;
  • Shared services; or
  • Other services.
  • Conditions (Outcome-based)
  • Annual operating expenditure;
  • High value full-time employees;
  • C-Suite with a minimum monthly salary of RM35,000;
  • Local ancillary services;
  • Collaboration with higher education institution/TVET;
  • Training for Malaysian students/citizen;
  • Environmental, Social and Governance (ESG) elements; or
  • Other conditions as determined by the Minister of Finance.

Existing company (Tier 1 and Tier 2):

  • 5 years tax exemption
  • Tax Incentive: 5% tax rate on the value-added income
  • Types of income exempted:
  • Services income; or
  • Services and trading income.
  • Qualifying Services & Additional Services
  • Regional P&L/Business Management Unit;
  • Strategic business planning;
  • Corporate development; and
  • Any 2 qualifying activities under the services category as follows:
  • Strategic services;
  • Business services;
  • Shared services; or
  • Other services.
  • Conditions (Outcome-based)
  • Annual operating expenditure;
  • High value full-time employees;
  • C-Suite with a minimum monthly salary of RM35,000;
  • Local ancillary services;
  • Collaboration with higher education institution/TVET;
  • Training for Malaysian students/citizen;
  • Environmental, Social and Governance (ESG) elements; or
  • Other conditions as determined by the Minister of Finance.

The determination of the eligibility for the income tax rate that a company will enjoy for each year of assessment is based on the outcome-based approach.

In addition, it is proposed income tax rate of 15% be given for a period of 3 consecutive years of assessment and limited to 3 non-citizen individuals holding key/C-Suite positions with a monthly salary of at least RM35,000 appointed by a new company approved with Global Services Hub tax incentive.

For applications received by the Malaysian Investment Development Authority from 14 October 2023 until 31 December 2027.

Review of Tax Incentive for Automation in Manufacturing, Services And Agriculture Sectors

It is proposed that the current scope of Accelerated Capital Allowance (ACA) on the first RM10 million of the qualifying capital expenditure eligible for manufacturing, services and agricultural companies, be expanded to include the commodity sector under the Ministry of Plantation and Commodities (KPK).

The applications must be sent to the Malaysian Investment Development Authority and the Ministry of Agriculture and Food Security from 1 January 2023 until 31 December 2027.

Incentive For Reinvestment Under the New Industrial Master Plan 2030.

To encourage existing companies that have exhausted their RA eligibility period and to increase capacity and investment in high-value activities under the New Industrial Master Plan 2030, it is proposed tax incentives be given as follows:

  • 100% investment tax allowance on the qualifying capital expenditure incurred to be set off against 100% statutory income for Tier 1
  • 60% investment tax allowance on the qualifying capital expenditure incurred to be set off against 70% statutory income for Tier 2

The eligible investment tax allowance rate will be determined by an outcome-based approach and subject to applications received by the Malaysian Investment Development Authority from 1 January 2024 until 31 December 2028.

For shares from 1 March 2024, the CGT Rate is 10% on the net gain of the disposal of shares.

Review of Tax Incentive for Equity Crowdfunding

To attract more individual investors to invest in start-up companies through the equity crowdfunding (ECF) platform, it is proposed that the tax incentive be expanded to investments made by individual investors through Limited Liability Partnership nominee company and be extended until 31 December 2026.

Extension of Tax Incentive for Angel Investor.

It is proposed that an angel investor investing in a tech start-up company in the form of ordinary shares is eligible for tax exemption at the aggregate income level based on the amount of investment made until 31 December 2026.

Review of Green Technology Tax Incentive.

It is proposed green technology tax incentives be reviewed as follows:

1. GITA Project (Business Purposes)

For applications received by MIDA from 1 January 2024 until 31 December 2026.

Qualifying Activities and Conditions:

  • Tier 1: Green hydrogen. 100% of Green Investment Tax Allowance (GITA) to be offset against 100% or 70% of Statutory Income. Incentive period up to 10 years (5 years + extension of additional 5 years).
  • Tier 2: Integrated waste management and Electric Vehicle charging station. 100% of Green Investment Tax Allowance (GITA) to be offset against 100% of Statutory Income. Incentive period 5 years).
  • Tier 3: Biomass, Biogas, Mini hydro; Geothermal, Solar, Wind energy. 100% of Green Investment Tax Allowance (GITA) to be offset against 70% of Statutory Income. Incentive period 5 years).

2. GITA Asset (Own Consumption)

Incentive period: Qualifying capital expenditure incurred and as verified by the Malaysian Green Technology and Climate Change Corporation (MGTCCC) for the purchase of green technology assets starting from 1 January 2024 until 31 December 2026.

Qualifying Activities and Conditions:

  • Tier 1: List of qualifying assets approved by the Minister of Finance, Battery Energy Storage System, Green building. 100% of Green Investment Tax Allowance (GITA) to be offset against 70% of Statutory Income.
  • Tier 2: List of qualifying assets approved by Minister of Finance, Renewable Energy System, Energy efficiency. 60% of Green Investment Tax Allowance (GITA) to be offset against 70% of Statutory Income.

3. GITE Solar Leasing

For applications received by MIDA from 1 January 2024 until 31 December 2026.

Qualifying Activities and Conditions:

  • Tier >3MW – ≤10MW: 70% tax exemption on Statutory Income. Incentive period for 5 years.
  • >10MW – ≤30MW: 70% tax exemption on Statutory Income. Incentive period for 10 years.

Extension Of Tax Incentive for Rental of Electric Vehicle

It is proposed that companies that rent non-commercial electric vehicles (EV) are given tax deduction up to RM300,000 effective from the year of assessment 2023 until the year of assessment 2027.

Further Tax Deduction for Voluntary Carbon Market

It is proposed that further tax deductions of up to RM300,000 be given to companies for costs incurred on the Development and Measurement, Reporting, and Verification (MRV) related to the development of carbon projects. The further tax deduction is deductible from the carbon credit income traded on the Bursa Carbon Exchange (BCX).

The development of carbon projects must be registered with an international standards body recognized by Bursa Malaysia and expenditure on the development of carbon projects must be certified by the Malaysia Green Technology and Climate Change Corporation (MGTC).

For applications received by the MGTC from 1 January 2024 until 31 December 2026.

Indirect Tax

Increase in service tax rate

The rate of the services tax is proposed to increase from 6 percent to 8% under government proposals. However, the increase excludes services such as telecommunications and food & beverages. The government will also expand the scope of taxable services to include logistics, brokerage, underwriting, and karaoke services.

Luxury Goods Tax

The government will enact new legislation for the implementation of a Luxury Goods Tax at a rate of 5% to 10% on certain high-value goods such as jewelry and watches based on the threshold value of the goods price.

Import Duty and Sales Tax Exemption on Manufacturing Aids

To enhance the competitiveness of the manufacturing sector, it is proposed import duty and sales tax exemption be given to eligible manufacturers on the importation and local purchase of manufacturing aids subject to the types of industry and category of goods determined.

Effective date: From 1 January 2024

Entertainments Duty Exemption in The Federal Territories

It is proposed an exemption of the current entertainment duty rate be given to selected types of entertainment held in the Federal Territories. The entertainment duty rate after exemption will be as follows:

  • Stage performance by international artist / Light Show / Circus – 10%
  • Film screening (Cinema) / Theatre – 10%
  • Exhibition / Zoo / Aquarium – 10%
  • Sports Event / E-Sports / Bowling / Snooker / Pool / Billiard / Karaoke – 10%
  • Theme Park / Family Recreation Centre / Indoor Games Centre / Simulator – 5%
  • Stage performance by a local artist – 0%

Effective date: For applications received by the Ministry of Finance from 1 January 2024 to 31 December 2028.

Review of Excise Duty Rate on Sugar-Sweetened Beverages

It is proposed the excise duty rate for sugar-sweetened beverages be increased to RM0.50 per liter from 1 January 2024.

Imposition of Excise Duty on Chewing Tobacco

To improve the health and well-being of the rakyat as well as considering the risk of consuming chewing tobacco is the same as smoking, it is proposed excise duty at a rate of 5% + RM27/kg be imposed on chewing tobacco under the tariff code 2403.99.5000.

Effective date: From 1 January 2024.

Stamp Duty

Review Of Stamp Duty for Transfer of Property Ownership by Renunciation Of Rights

It is proposed the transfer of property ownership in which the eligible beneficiary renunciates his/her right to another eligible beneficiary by a will/faraid or the Distribution Act 1958 be subjected to a fixed duty of RM10.

For the instrument of property ownership transfer executed from 1 January 2024.

Review of Stamp Duty for Property Ownership by Non-Citizen

As part of the property price control mechanism, it is proposed a flat rate stamp duty of 4% be imposed on the instrument of transfer executed by foreign-owned companies and non-citizen individuals (except Malaysian permanent residents).

For the instrument of property ownership transfer executed from 1 January 2024.

Others

E-invoice Implementation

The Government is proceeding with the implementation of the e-invoice initiative, but in response to taxpayers’ feedback for sufficient time for the implementation, the effective date for businesses achieving an annual sales turnover of more than RM100 million will be postponed from 1 June 2024 to 1 August 2024. E-invoices for taxpayers in other income categories will be enforced in phases with a comprehensive implementation beginning 1 July 2025.

Review of tax incentives for Carbon Capture and Storage (CCS) and Hydrogen Sulphide projects under the Petroleum (Income Tax) Act 1967 (PITA)

To ensure PITA continues to remain relevant with the latest developments and needs of the upstream oil and gas industry as well as to increase the interest of foreign investors to continue to invest in Malaysia, the PITA Review Committee which comprises the MOF, IRB, and PETRONAS is currently studying and designing tax incentives for CCS and Hydrogen Sulphide projects. The study is expected to be completed by the end of 2023.

Industrial Building Allowance (IBA) for senior citizens private nursing care home

Senior Citizens Private Nursing Care Home approved by the Ministry of Health will qualify for IBA at the rate of 10% on the cost of construction or purchase of a building, including renovation costs for each YA. This allowance shall be given for qualifying expenditures incurred from 1 January 2024 to 31 December 2026.

Review of Conditions for Institutions/Organisations/Funds Approved Under Subsection 44(6) Income Tax Act 1967

To enhance tax compliance among institutions/organizations/funds approved under subsection 44(6) ITA 1967, it is proposed the approval conditions be reviewed as follows:

  • The accumulated funds’ utilization limit of not more than 25% for participation in business activities be increased up to 35% to ensure the income of the approved institutions/organizations/funds continues to be sustainable;
  • Institutions/organizations/funds may choose any of the following options to continue receiving the subsection 44(6) incentives benefits:
  • Option 1: to ensure up to 25% utilization of accumulated funds and at least reach 50% threshold of charitable activity expenditure.
  • Option 2: to ensure between 25% to 35% utilization of accumulated funds and at least reach 60% threshold of charitable activity expenditure.
  • Approval conditions have been set out in the guidelines and DGIR approval letters to institutions/organizations/funds. In the event any of the conditions are breached, DGIR will not withdraw the approval under subsection 44(6) for institutions/organizations/funds during the validity period. The approval status is upheld to ensure that donors remain eligible for tax deductions on contributions made to institutions/organizations/funds throughout the approval period; and
  • For any breach of conditions within the approval period, the institutions/organizations/funds will not be eligible for tax exemption and DGIR will raise tax assessment on all income received by the institutions/organizations/funds in the year of assessment of the breach of conditions occurred.

Effective from the year of assessment 2024.

Extension of Income Tax Exemption for Social Enterprise

To assist Social Enterprise in raising funds that create positive social or environmental impact in line with Malaysia MADANI’s pillars of sustainability, prosperity, and compassion, it is proposed the application period for tax exemption on all income of Social Enterprise be extended for 2 years.

Effective date: For applications received by the Ministry of Finance from 1 January 2024 until 31 December 2025.

Income Tax Exemption for Islamic Financial Activities Under Labuan IBFC

As an initiative to develop the Labuan International Business and Financial Centre (IBFC) as an Islamic and Shariah-compliant financial center, it is proposed full income tax exemption for 5 years be given to Labuan entity that undertakes Islamic financial-related trading activities such as Islamic digital banking, Islamic digital bourses, ummah-related companies, and Islamic digital token issuers.

Effective date: From the year of assessment 2024 until the year of assessment 2028.

Tax Deduction on Contributions for Environmental Preservation and Conservation Projects

To support the corporate social responsibility (CSR) programs implemented by FRIM, it is proposed tax deduction under subsection 34(6)(h) Income Tax Act 1967 be given to entities contributing to or sponsoring activities related to tree planting projects or environmental preservation and conservation awareness projects verified by FRIM.

For applications received by the Ministry of Finance from 1 January 2024 to 31 December 2026.

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