Executive summary
The Malaysian Ministry of Finance issued its maiden Pre-Budget Statement (Statement) on 31 August 2021, ahead of the Government’s 2022 federal budget (Budget 2022) announcement to take place on 29 October 2021.
This Alert summarizes the key tax-related aspects of the Statement.
Detailed discussion
Overview of the Statement
Malaysia’s tax revenue collections for the first half of 2021 were revealed to be lower than expected and are set to decline further due to the COVID-19 pandemic. The Statement outlines, in limited detail, the Government’s commitment to the OECD BEPS 2.0 initiative,1 its plans to improve the country’s tax incentive framework and the following measures that the Government is exploring to enhance tax compliance and increase tax revenues.
Indirect Tax Special Voluntary Disclosure Program (SVDP)
Under the proposed indirect tax amnesty program, taxpayers will be encouraged to voluntarily disclose underpaid or unpaid indirect taxes arising from errors or mistakes made in indirect tax filings or submissions, in exchange for reduced penalties. Taxpayers who have failed to register and comply with indirect tax filing requirements are also expected to be eligible for the SVDP.
Taxpayers participating in the SVDP may also face reduced Royal Malaysia Customs Department (RMCD) audit scrutiny on periods for which a voluntary disclosure is made. Consistent with previous tax amnesty programs, taxpayers can expect increased indirect tax enforcement activity and noncompliance penalties after the SVDP expires.
Further announcements and guidance on the duration of the program and scope of indirect taxes covered under the SVDP are expected in the Budget 2022 announcement.
Tax Compliance Certificate (TCC) requirement for government tenders
Although no details have been announced beyond needing a tax compliance certificate, taxpayers who are undertaking Government contracts or who are planning to bid for such contracts can at the very least be expected to demonstrate that their tax payments and submissions are current. Taxpayers may also be required to have a tax governance framework in place.
Implications
The Statement signals the Government’s focus on improving tax compliance. While details of the proposals are not yet available, it is expected that the indirect tax SVDP, when launched, will allow taxpayers to rectify errors and omissions, submit underpaid indirect taxes with reduced penalties, and move forward with a clean slate.
All multinationals with operations in Malaysia should consider this opportunity to regularize their indirect tax positions and make voluntary disclosures where relevant. Taxpayers that are exposed to a higher degree of indirect tax audit scrutiny, including beneficiaries of indirect tax exemptions and facilities or taxpayers who have been subject to an indirect tax audit in the past which had resulted in findings or issues stand to benefit the most from the SVDP.2 Taxpayers should act in a timely manner to:
- Undertake a “health check” to identify controversial issues, errors in indirect tax submissions or underpaid or unpaid taxes. Service providers that are not service tax registered should also revisit their registration position as service tax rules have evolved significantly since first reintroduced in Malaysia on 1 September 2018.
- Secure rulings from the RMCD or obtain tax advice on uncertain positions adopted.
- Consider the overall approach to the SVDP submission.
Businesses undertaking government contracts should take action now and undertake “health check” exercises across all taxes to allow sufficient time to develop appropriate tax governance processes and rectify errors, if any, prior to the introduction of the TCC requirement.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Tax Consultants Sdn Bhd, Kuala Lumpur
- Amarjeet Singh
- Anil Kumar Puri
- Chua Meng Hui
- Yeoh Cheng Guan
- Jalbir Singh Riar
Ernst & Young LLP (United States), Malaysia Tax Desk, New York
- Andrew Loh
Ernst & Young LLP (United States), Asia Pacific Business Group, New York
- Chris Finnerty
- Gagan Malik
- Bee Khun Yap
- Dhara Sampat
Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago
- Pongpat Kitsanayothin
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
