Budget 2024 a precursor to future reforms

Petaling Jaya, 13 October 2023

Malaysia’s national Budget 2024 proposals unveiled today aim to empower the rakyat through a total allocation of RM393.8 billion.

Mr. Soh Lian Seng, Head of Tax at KPMG in Malaysia, observed how the proposals are setting the scene for future tax reforms that will align to the government’s aspiration to enable inclusive and sustainable economic growth. Notable key initiatives include:

A clear approach to expand the tax revenue base with the introduction of Capital Gains Tax, which would be imposed at the rate of 10% on the net profit arising from the disposal of unlisted shares by local companies beginning 1 March 2024, and the High Value Goods Tax at the rate of between 5% to 10% on selected high value goods such as jewelry and watches based on the threshold value of the goods. It is hoped that clear regulations and guidelines with a reasonable transition plan would accompany these tax reforms in order to facilitate a successful implementation.

The same is also hoped for the Global Minimum Tax (GMT), which is now clarified to only apply to companies with a global revenue of at least 750 million Euros beginning from 2025. This clarity provides MNEs with much needed breathing room to prepare for the implementation of GMT.

The proposed increase in the service tax rate from 6% to 8% – coupled with the expansion in scope of taxable services in general to include logistics, brokerage, underwriting and karaoke services – solidifies the 2024 Budget’s intention to increase tax revenue.

Based on the Fiscal Outlook and Federal Government Revenue Estimates 2024, the estimated Service Tax revenue for 2023 is RM16.6 billion. Taking a simple and direct mathematical extrapolation, a 2% increase could result in approximately RM5.5 billion more – however, this 2% increase does not cover all taxable services, i.e. food and beverages (F&B) and telecommunication will still be subject to Service Tax at 6%. It should be noted that the F&B and telecommunication sectors are significant contributors to the Service Tax collection.

The government also has Malaysia’s business competitiveness in its sights with several incentives to spur investment. This includes extending tax incentives to individual investors who invest in local startups through the equity public funding platform (ECF) up to 31 December 2026 through the nominee Limited Liability Partnership to encourage capital funding in local tech startups. Similarly, the extension of tax incentives for angel investors until 31 December 2026 to encourage capital funding in technology start-up companies should positively enable the internationalization of Malaysia’s unicorns.

For more insights, visit www.kpmg.com.my/budget2024

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