Below, please find comments by Farah Rosley, Malaysia Tax Markets Leader, Ernst & Young Tax Consultants Sdn Bhd (“EY”) on Malaysia’s 2022 Budget proposals tabled this afternoon.
With Malaysia moving into post-pandemic economic recovery mode, the RM332.1 billion Budget 2022 is the largest ever Malaysian Budget. Budget 2022 is comprehensive and inclusive. In line with the “Keluarga Malaysia” spirit, Budget 2022 ensures that no person or business is left behind or neglected in Malaysia’s development. The focus on education, healthcare and the B40 group is commendable. Malaysia has shown her resilience during the pandemic; and with the proposals included in the Budget 2022, Malaysia should remain a competitive trading and exporting nation. We would also hope that the implementation of revenue-raising measures will be balanced against maintaining Malaysia’s attractiveness as an investment destination of choice. Where relevant, appropriate transitional rules should be developed to ensure businesses have adequate time to prepare.
In formulating Budget 2022, we note a continuing trend of consultation, focus group discussions and engagement by the Ministry of Finance, including the publication of a Pre-Budget Statement and four Public Consultation Papers prior to the announcement of Budget 2022. Such initiatives are consistent with international best practices and would help ensure that the budget proposals have taken into account the views of a diverse range of stakeholders. Always key is implementation. We welcome the Government’s commitment to seeing through the proposed measures, with the announcement that the Prime Minister will chair a monitoring committee coordinated by the Ministry of Finance to ensure all the Budget 2022 initiatives achieve the targeted objectives.
Budget 2022 was unveiled against the backdrop of a projected economic growth of 3% to 4% this year, and 5.5% to 6.5% in 2022, which is encouraging and presents a return to pre-pandemic annual GDP growth trend.
Key tax measures for businesses
The most significant impact to large corporates is the announcement of the “Cukai Makmur”, which proposes a higher income tax rate of 33% on chargeable income in excess of RM100 million, for the Year of Assessment 2022 only. Chargeable income of up to RM100 million will continue to be taxed at 24%. This is in line with recent international trends such as the Organisation for Economic Cooperation and Development’s (OECD) move to impose higher taxes on larger and more profitable companies from the year 2023.
Other notable corporate income tax proposals were the extension of the carry-forward period for unabsorbed business losses, from seven years to 10 years, and the extension of the reinvestment allowance tax incentive for a further two years to 2024 for companies that have exhausted their existing reinvestment allowance period. These proposals will be welcomed by companies suffering from the pandemic as well as companies looking to reinvest as the business climate improves.
It was proposed that starting from 1 January 2022, foreign-sourced income earned by Malaysian tax residents and received in Malaysia will no longer be tax exempt. This is a revenue-raising measure and would also help remove Malaysia from the European Union’s list of non-cooperative jurisdictions (the so called “grey list”). However, care should be taken to ensure that this move does not discourage the remittance of funds back into Malaysia. It is hoped that a transitional period will be provided and the Government should consider directing this proposal to corporates and not individuals.
Transfer of listed shares
Budget 2022 proposed that stamp duty on contract notes be increased from 0.1% to 0.15% starting from 1 January 2022. The existing RM200 cap for each contract note would also be removed. The proposed change would impact larger share transactions.
Key indirect tax measures
Budget 2022 proposed various measures to enhance tax compliance and increase tax revenue. One of the important proposals is the implementation of the Special Voluntary Disclosure Program (SVDP) for indirect taxes, that will be administered by the Royal Malaysian Customs Department (RMCD). The SVDP will be implemented in phases, with penalty remissions of 100% in Phase 1 and 50% in Phase 2. The remission of taxes may also be considered on a case-to-case basis. The SVDP represents a unique opportunity for taxpayers to regularize their indirect tax positions, pay reduced or no penalties, and move forward with a clean slate.
Following Malaysia’s commitment to becoming a carbon-neutral nation by 2050, various measures on decarbonization were announced, including:
- full import duty, excise duty and sales tax exemption on electric vehicles,
- individual tax relief of up to RM2,500 for various costs relating to the charging equipment for electric vehicles,
- establishment of a platform by Bursa Malaysia under the Voluntary Carbon Market to facilitate the trading of carbon credits among the owners of green assets embracing low-carbon practices, and
- provision of a Transition to Low-Carbon Facility by Bank Negara Malaysia (BNM), for micro, small and medium enterprises (MSMEs) to adopt sustainable and low-carbon practices.
With the 26th United Nations Climate Change Conference (COP26) taking place in Glasgow from 31 October 2021 to 12 November 2021, we hope to see more specific measures being announced in line with Malaysia’s commitment to achieve its Sustainable Development Goals, addressing various environmental, social and governance (ESG) aspects. We expect this would include further development on the proposed carbon tax and domestic emissions trading scheme announced by the Ministry of Water and Environment recently.
Diversity and inclusiveness
The Government recognizes the role women play in our economy. To encourage diversity and inclusiveness, it was proposed that all public listed companies on Bursa Malaysia be mandated to appoint at least one woman to the Board of Directors. Studies have shown that companies with mixed gender boards tend to perform better.
Attracting foreign investments
To attract strategic foreign investments, a special strategic investment fund of up to RM2 billion will be established to attract foreign investments from multinational enterprises, especially those which would complement the existing industry value chains, create knowledge-based jobs, and enhance growth opportunities for small and medium enterprises (SMEs).
During the pandemic period, MSMEs were severely impacted due to the lockdown restrictions. To help MSMEs recover and build resilience, various measures were introduced in Budget 2022 including:
- Benefit of up to RM 2,000 for marketing-related training costs and the adoption of e-commerce and digital payments;
- To increase digital adoption among SMEs, funding for the SME Business Digitalization Grant will be enhanced to RM 200 million, with RM 50 million specifically reserved for Bumiputera micro-entrepreneurs in rural areas;
- A six-month deferment of income tax installment payments for MSMEs, until 30 June 2022;
- Extension of stamp duty exemption for various instruments relating to mergers and acquisitions of MSMEs
We would expect to see a continuous focus on the MSME sector given their significant contribution to GDP.
Enhancing tax compliance and increasing tax revenue collection
On the tax revenue collection front, 2021 marks a challenging year with lower-than-expected collections. As such, Budget 2022 proposed various measures to enhance tax compliance and increase tax revenue, including the earlier mentioned SVDP for indirect taxes. The introduction of a Tax Compliance Certificate as a pre-condition for tenderers to participate in Government procurement will be a further motivation for taxpayers to fulfill all tax compliance requirements and help ensure that taxes are up-to-date.
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