On 7 October 2022, the Honorable Finance Minister, YB Senator Tengku Datuk Seri Utama Zafrul bin Tengku Abdul Aziz had tabled, what is certainly, the last national budget for this parliamentary term. Whilst many were expecting to ride the wave of recovery post Covid-19, 2022 has so far brought about numerous unforeseen challenges. Amidst the backdrop of the rising cost of living, increased geopolitical tensions from the Russia-Ukraine war, adverse effects from climate change and an energy crisis brewing in Europe, many questions have been asked as to what can businesses do to face these challenges?
We see the opportunities for businesses manifesting in the form of a post-pandemic TIDE (Taxation, Inflation, Digitalisation and Expansion). Only by unlocking the potential that the oncoming TIDE brings will businesses be able to coordinate an effective strategic response to safeguard their growth prospects.
In this sense, Budget 2023, themed Strengthening Recovery, Facilitating Reforms Towards Sustainable Socio-Economic Resilience of Keluarga Malaysia has provided businesses and ordinary Malaysians with varying levels of support to face this TIDE. Crafted on the principles of the 3R (responsive, responsible and reformist) as well as the four strategies of fiscal expansion, prioritizing the rakyat, support for businesses, and sustainable development, Budget 2023 focuses on the right economic touchpoints. The measures introduced provide Malaysians with vital economic support during one of the most challenging periods in the history of the modernized economy.
Tax measures such as the reduction in tax rates for the M40 group and small-medium enterprises, as well as the focus on sustainability in the expansion of green tax incentives make Budget 2023 highly relevant. Malaysia has also responded to the global proposals regarding a global minimum tax rate and targets to introduce such measures in 2024. Meanwhile, non-tax measures such as increased cash aid, financial support for businesses and the focus on carbon neutral goals are all welcomed. However, funding for these initiatives remains uncertain as projected government revenue of RM272.6 billion for the fiscal year 2023 remains below the revised estimates of RM285.2 billion for 2022. Hence, taxpayers can expect a heightened compliance environment and potentially more tax measures going into 2023 to sustain government revenue.
Our overall observations are that the Budget 2023 is very much a budget responding to the needs of today. However, long-term measures to address pressing needs, such as human capital shortages and levels of foreign direct investment, remain somewhat absent. Nonetheless, Budget 2023 offers enough for businesses and ordinary Malaysians to safeguard their current positions and steady the ship as we face uncertain times ahead. It is hoped that the contents of this analysis aid businesses in crafting their strategic and financial response as we face some of the most significant economic headwinds in the 21st century.
Introduction of Global Minimum Effective Tax Rate and Qualified Domestic Minimum Top-Up Tax
The Global Minimum Effective Tax Rate will be introduced as recommended under Pillar 2 of BEPS Action Plan 1. Subject to further studies, the Qualified Domestic Minimum Top-Up Tax is targeted to be implemented in the year 2024.
The definition of plant will be expanded to include intangible assets such as software
The definition of plant will be expanded to include intangible assets such as software.
Claim of Unabsorbed Business Losses for Sector with Long Gestation Period
Companies in the sectors with long gestation period such as forest plantations and hydroelectric projects are allowed to carry forward its unabsorbed business losses for a maximum period of twenty (20) consecutive years of assessment (YAs) instead of ten (10) consecutives YAs.
Tax Deduction on Cost of Rental of EVs limited to a maximum of RM300,000 per vehicle
The maximum rental amount for EVs allowed for tax deduction is limited to RM300,000 per vehicle (RM100,000 previously for vehicles that cost less than RM150,000).
Tax Deduction for Sponsoring of Smart Artificial Intelligence ("AI")-Driven Reverse Vending Machine
Tax deduction will be given to companies and individuals, partnerships, trusts and cooperatives with business income that make donations or sponsorships of AI-Driven Reverse Vending Machine and applications received by MOF from 1 January 2023 to 31 December 2024.
Tax Deduction for Contributions to NGOs involved in Sports Development
The tax deduction of up to 10% of the aggregate income will be given for contributions made to NGOs focusing on sports development at grassroot level.
Electronic Transmissions for Tax Payment
Taxpayers are required to make electronic transmissions for tax payments from YA 2024.
Tax Deduction on Issuance Cost of Sustainable and Responsible Investment Linked (SRI-linked) Sukuk
Tax deduction on issuance cost of SRI-linked Sukuk which is approved or permitted or deposited with the Securities Commission Malaysia (“SC”) will be given for a period of five (5) years starting from YAs 2023 to 2027.
Tax Incentives for Manufacturers of Electric Vehicle (EV) Charging Equipment
EV charging equipment manufacturers will be given 100% income tax exemption on statutory income for a period of ten (10) years from YAs 2023 to 2032, or Investment Tax Allowance of 100% for a period of five (5) years which can be set-off against up to 100% of the statutory income for each YA.
Payment of Stamp Duty and Sealing of Instruments by Online Stamp Assessment and Payment System
Payment of stamp duty and sealing of instruments process will be made entirely online through Stamp Assessment and Payment System by 2024.
Review of Stamp Duty Exemption for Transfer of Property by way of Love and Affection
The transfer of property by way of love and affection between husband and wife, parents and children, as well as grandparents and grandchildren will be imposed a fixed duty of RM10 for instruments executed from 1 January 2023.
Review of Excise Duty and Sales Tax Exemptions on Sale or Transfer of Individually Owned Taxis and Hired Cars
Excise duty and sales tax exemptions for the sale or transfer of individually owned taxis will be expanded to include executive taxis, Teksi 1Malaysia (“TEKS1M”) and airport taxis and the age of vehicle is reduced from 7 years to 5 years from the date of registration.
Excise Duty Exemption on Tourist Vehicles
50% excise duty exemption will be given on the purchase of new locally assembled tourism vehicles (i.e hire and drive cars for tourists and excursion buses) for applications received by MOF from 1 January 2023 to 31 December 2024.
Extension of Sales Tax Exemption for the Purchase of Locally Assembled Buses
Sales tax exemption on the purchase of locally assembled buses will be extended to 31 December 2024.
Service Tax Exemption on Digital Services Related to Banking/Financial Services
Service tax exemption will be given to recipients of digital payment services and local non-bank digital payment services provided from 1 August 2022 to 31 July 2025. The expiry date for existing service tax exemption for local financial institutions/banks and any qualified service providers is streamlined to 31 July 2025.
Grants for Micro, Small and Medium Enterprises ("MSMEs")
Grant of RM1 billion for all registered MSMEs businesses and taxi drivers.
Matching Grants for the Malaysia Co-investment Fund
Matching grants of RM30 million under the Malaysia Co-investment Fund for funding through equity crowdfunding.
Matching Grants for Tourism Sector
Matching grants of RM90 million under Geran Padanan Galakan Melancong ("GAMELAN") for companies involved in promotion and marketing campaigns on tourism activities which include international sporting events.
Funds available for youths
RM305 million of special loan facility will be made available for youths through SME Bank, TEKUN, MARA, BSN and AgroBank.
Interest Subsidy and Equity Funding through Bank Pembangunan Malaysia Berhad ("BPMB")
Various funding will be provided through BPMB as follows:
Business Financing Guarantee for SMEs
Syarikat Jaminan Pembiayaan Perniagaan ("SJPP") will provide funding guarantees of RM9 billion on loans dedicated to SMEs in the strategic sectors such as agro-food, sustainable technology, tourism and vendors of oil and gas.
Funds available for Tourism Operators
RM500 million of funding will be made available to support tourism industry operators with a funding limit of RM500,000.
Funds available for E&E Sector
RM1 billion of funding will be made available to attract more investments with high value-added as well as generating professional job opportunities.
Green Technology Financing Scheme ("GTFS")
GTFS will be enhanced by increasing the guarantee to RM3 billion by year 2025 and scope of financing is expanded to include EV sector with a guarantee limit up to 60% and remaining sectors will be increased to 80%.
Funds from BNM
Funding of RM1 billion under Green and High Technology Financing Fund and Low Carbon Transition Financing Fund will be made available to support innovative sustainable technology start-up and help SMEs companies to implement low carbon practices.
Micro Financing for Small Businesses
Funding will be provided to various small businesses as follows:
Funds for SMEs
RM10 million of funding will be made available for SMEs to encourage automation and digitisation activities as well as supporting the food security and tourism sector recovery agenda.
Bantuan Keluarga Malaysia ("BKM")
e-Pemula (M40) Programme
One-off payment of RM100 will be credited into the e-wallet for M40 group with annual income of less than RM100,000.
Subsidy for Bantuan Awal Persekolahan ("BAP")
Subsidy for BAP will be increased to RM150 and be provided to all students regardless of the household earnings.
Skim 1 OKU 1 Perniagaan
OKU businesses registered with SSM will be exempted from payment of registration fees and renewal of business license fees.
Extension of incentive for Hiring Unemployed Targeted Groups
Employers will be given incentives ranging from RM600 to RM750 per month for providing jobs to the following target groups of people:
Incentive for Hiring Unemployed Youths
Employers will be given incentive under SOCSO for hiring youth aged between 18 to 30 who have been unemployed for more than three (3) months. The hiring incentive include Technical and Vocational Education and Training’s (“TVET”) graduates. No details were provided in the Budget Speech.
Skim Keselamatan Social Pekerjaan Sendiri (“SKSPS”) under SOCSO
RM130 million will be allocated for the Government to pay for 80% SOCSO contribution of self-employed individuals (e.g. food delivery drivers, farmers, fishermen, FINAS artists and hawkers).
“Kasih Suri Keluarga Malaysia” program
Housewives who make minimum EPF contributions of RM60 per year will get an additional matching incentive from the Government worth up to RM600 per year (i.e. RM480 in EPF savings and RM120 in SOCSO Scheme Contributions).
Budget 2022 Crowe Chat Vol.6/2022