Key Highlights of the Revised Malaysia Budget 2023
Crowe Chat Vol.1/2023 (Special Edition)
Unity Government Budget
The Revised Budget 2023 is significant as it is the first budget tabled by the new Unity Government after the 15th General Election. The revised budget sets a new vision for the future and aims to reset Malaysia as the country faces economic challenges. The Prime Minister and Finance Minister, YAB Dato' Seri Anwar bin Ibrahim presented a realistic picture of Malaysia's economy, emphasizing the need to restore fiscal discipline and address the country's high national debt.
3 Key Areas
Introducing the budget under the theme, Belanjawan Madani, the revised Budget 2023 reflects the principles of responsibility and having greater values to face imminent economic challenges in a globally uncertain environment. The revised budget has placed emphasis on three (3) key areas i.e., promoting a comprehensive and sustainable economy, reformation of institutions and good governance, and upholding social justice.
Government Revenue Gap
In this revised budget, taxation takes center stage to act as a driving force behind these three (3) key areas and ensure that the government is able to fund the projected expenditure of RM388.1 billion. This is especially so as we take note of the ambitious target to reduce the fiscal deficit in the medium term from the current level of 5.6% of Gross Domestic Product (GDP) in 2022 to 3.2% of GDP by the year 2025. As a result, taxpayers can expect a challenging compliance environment ahead as the government looks to fill the gaps in government revenue going forward.
Changes to the Tax System
The revised Budget 2023 proposes structural changes to the tax system in Malaysia, including the introduction of a Luxury Goods Tax, a Capital Gains Tax, and an excise duty on electronic cigarettes and vape products. The top 20% of Malaysian households will also face increased tax rates for income over RM100,000 to fuel government expenditure.
Diversifying Revenue Stream
The changes proposed in the revised Budget 2023 for diversifying government revenue streams are viewed positively, as Malaysia needs to meet the challenges of the future. Tax incentives for food security, technology development, and sustainable industries, such as electrical vehicles and carbon capture, are introduced and extended, providing opportunities for businesses in the Malaysian market.
Conclusion
Overall, the revised Budget 2023 introduces timely measures to restore confidence in the Malaysian economy and set the stage for growth in the years to come. It is hoped that the analysis contained herein would aid finance and business leaders in determining the best course of action ahead as we navigate through a 2023 filled with cautious optimism.
Highlights at a Glance
Corporate income tax rate for MSMEs will be reduced from 17% to 15% on the first chargeable income of RM150,000.
Tax Deduction on Cost of Rental of Electric Vehicles (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 Incentives for Manufacturers of 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 Years of Assessment (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.
Tax Deduction for Sponsorship 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 Machines and applications received by Ministry of Finance (MOF) from 1 April 2023 to 31 December 2024.
Review of Accelerated Capital Allowance (ACA) in Manufacturing, Services and Agriculture Sector
The tax incentives are expanded to include the agriculture sector, adaption of Industry 4.0 elements and the capital expenditure threshold for all three (3) sectors are aligned and increased up to RM10 million.
Tax deduction on issuance cost of SRI-linked Sukuk which is approved or permitted or deposited with the Securities Commission of Malaysia will be given for a period of five (5) years starting from YAs 2023 to 2027.
Review of Tax Incentives for BioNexus Companies
The income tax exemption on statutory income of BioNexus Companies will be increased from 70% to 100% and the application period will be extended for applications received by Malaysian Bioeconomy Development Corporation until 31 December 2024.
Tax Incentives for Carbon Capture and Storage
Tax incentives such as investment tax allowance, import duty exemption, sales tax exemption and tax deduction will be given to companies using Carbon Capture and Storage (CCS) technology. Companies will need to apply to the MOF from 25 February 2023 to 31 December 2027.
Introduction of Capital Gains Tax for Disposal of Unlisted Shares by Companies
The Government will study the introduction of capital gains tax for the disposal of unlisted shares by companies from YA 2024 onwards at a low tax rate.
Extension of Tax Incentives for Aerospace Industry
Tax incentives for aerospace companies of either income tax exemption or Investment Tax Allowance will be extended for a period of three (3) years until 31 December 2025.
Hoteliers will be given a special tax deduction of up to RM150,000 for the purchase of Malaysian-made handicraft products from 1 January 2023 to 31 December 2025.
Expansion of Scope of Tax Deduction for the Employment of Ex-Convicts
The additional tax deduction for employment of ex-convicts will be extended to include the employment of inmates and ex-inmates of Henry Gurney School under the Malaysian Prison Department, protection and rehabilitation institutions and registered care centres under the Social Welfare Department from YAs 2023 to 2025.
The fixed duty of RM10 on educational loan and scholarship agreements will be expanded to include education at all levels including certificate (education/skills/professional) in any educational and training institutions for agreements executed from 1 June 2023.
Full stamp duty exemption on loan restructuring or rescheduling will be extended for a period of two (2) years for loan/financing agreements executed from 1 January 2023 to 31 December 2024.
Sales tax exemption on the purchase of locally assembled buses will be extended to 31 December 2024.
The stamp duty exemption will be increased from 50% to 75% for the first residential home that is worth RM500,000 to RM1,000,000.
Import duty and sales tax exemptions will be given for the purchase of studio and filming production equipment for applications received by MOF from 1 April 2023 to 31 March 2026.
The full import duty exemption on components for locally assembled electric vehicles and the full excise duty and sales tax exemptions for Completely Knocked-Down (CKD) electric vehicles will be extended to 31 December 2027. The full import duty and excise duty exemptions for imported Completely Built-Up (CBU) electric vehicles will be extended to 31 December 2025.
The existing tax deduction is extended for a period of three (3) years, i.e. up to YA 2025 and expanded to cover the cost of listing technology-based companies on BURSA Main Market.
Companies will be given tax deduction on employment of former athletes.
- The tax rate of resident individuals in each chargeable income band between RM35,001 to RM100,000 will be reduced by 2%; and
- The tax rate of resident individuals in the chargeable income band over RM100,000 to RM1,000,000 will be increased by between 0.5% to 2%.
- Mandatory contribution to approved schemes or voluntary contribution to EPF (not including private retirement scheme) or contribution under any written law up to RM4,000.
- Tax relief on Life Insurance or Takaful Contributions will be expanded to include voluntary contributions to EPF up to RM3,000.
- These new measures will be applicable to civil servants under the pension scheme from YA2023.
- The tax relief for medical treatment expenses for self, spouse and child will be increased from RM8,000 to RM10,000.
- The scope of income tax relief for medical treatment will be expanded to include the intervention expenditure for Autism, Attention Deficit Hyperactivity Disorder (ADHD), Global Developmental Delay (GDD), Intellectual Disability, Down Syndrome and Specific Learning Disabilities limited to RM4,000. These changes will be effective from YA2023.
- Tax relief for childcare centres and kindergarten fees up to RM3,000, will be extended for another year until YA 2024.
- This proposal was tabled previously and is now being re-tabled without any changes.
Luxury goods tax will be imposed on certain types of luxury goods from Year 2023, subject to specific value limits based on their category.
Grants for Community Care Organisation
Grants of RM20 million under the Community Care Organisation for the benefit of 2,000 residents' associations.
Operation Grants for National Scam Response Centre (NSRC)
Operation grants of RM10 million to strengthen the role of NSRC.
Matching Grants for Agriculture Sector
Matching grants of RM50 million to encourage automation in the agriculture sector through the use of robotics and artificial intelligence (AI).
In an effort to encourage the re-entry of women into the workforce, PERKESO will amend the Employees' Social Security Act 1969 to provide a grant of up to 80% of the insured salary value of the employees.
Matching grants of RM100 million for supporting business automation and digitalisation activities. SMEs can apply for a maximum of RM5,000 grant for the subscription to digital business applications such as point-of-sales systems, accounting or inventory management systems.
Matching grants of RM50 million to encourage private sector sponsorship for sports programs, particularly sports based on unity, national-level competitions and sports reality programs.
Funding of RM324 million to improve training programs and sport facilities for the benefit of all athletes, including para-athletes.
Micro Financing for Small Businesses
Funding will be provided to various small businesses as follows:
- BNM, BSN and TEKUN – RM300 million for woman and youth;
- BSN Micro Loan – RM1 billion for MSMEs and hawker;
- TEKUN – RM330 million including RM10 million to help underprivileged youth earn income though entrepreneurship such as motorcycle delivery service;
- The government also agreed to bear cost of driving tests for Class B2 motorcycle licences, taxi, bus and e-hailing licences.
Funds available for Ecological Fiscal Transfer for Biodiversity Conservation (EFT)
The allocation of the EFT to state governments will be raised to RM150 million per year, taking into account the establishment of new protected areas, including tiger habitats, and accelerating reforestation efforts in degraded areas.
Funds from BNM
Funding of RM2 billion under Green and High Technology Financing Fund and Low Carbon Transition Financing Fund will be made available to support innovative sustainable technology start-ups and help SMEs companies to implement low carbon practices.
Funds from Khazanah Nasional Berhad
Funding of RM150 million will be allocated to accelerate the development of environmentally friendly projects including supporting carbon markets and reforestation.
Green Technology Financing Scheme (GTFS)
GTFS will be enhanced by increasing the guarantee to RM3 billion by year 2025.
Funds available for Tourism Operators
Funding of RM250 million will be made available to support tourism industry operators, including matching grant of RM115 million for industry collaboration.
Funds available for JENDELA Project
Funding of RM725 million will be located to achieve digital connectivity in 47 industrial areas and 3,700 nearly schools.
Funds for SMEs
Funding of RM1 billion under BNM will be made available for SMEs in automating their business processes and digitizing their operations.
Fund available for Sustainable Development Goals (SDG)
Funding of RM30 million will be made available to support the efforts made by the United Nations Development Programme and Kumpulan Rentas Parti Parliament Malaysia to increase activities related to SDG. This includes RM10 million to drive community garden programs at the parliamentary level to support the food security agenda.
Funds and tax benefits available for Food Security
Funding will be provided to the agro-food sector as follows:
- BNM – RM1 billion under the Agro-Food Financing Scheme to help agro-food entrepreneurs increase production capacity;
- MDEC – RM10 million to expand the Digital AgTech program to reach and train more small-scale farmers to adapt to technology;
- Introduction of ACA and 100% income tax exemption on capital expenditures to encourage the use of technology;
- Extension of tax incentive for food production projects to year 2025, with the incentive scope also expanded to include modern environmentally controlled agriculture project.
Funds available for Agro-food projects
Funding of RM30 million will be made available to implement agro-food projects through collaboration with several state governments.
Micro Credentials Skills Improvement Program for Gig Workers
- The government will support training fees up to RM4,000 for the program.
- SOCSO will provide an allowance of RM300 for three (3) months for gig workers who are active and undergoing a training program.
Skim Keselamatan Social Pekerjaan Sendiri (SKSPS) under SOCSO
- The government is determined to improve the social security system by obliging all self-employed individual to contribute under SKSPS gradually.
- RM100 million will be allocated for the government to pay for 80% of the SOCSO contribution of self-employed individuals.
IRBM's and RMCD's voluntary disclosure programmes
The IRBM and the RMCD will reintroduce the voluntary disclosure program and a 100% penalty waiver will be granted for voluntary disclosures made from 1 June 2023 until 31 May 2024.
Whistleblower Protection Act (WPA)
The Government is proposing to amend and present the WPA to effectively address corruption and misconduct.
Sumbangan Tunai Rahmah (STR)
Increase of STR to a maximum of RM3,100:
- RM2,500 - Households earning less than RM2,500/month, depending on the number of children.
- RM600 of food basket and food items voucher – For the poorest STR recipient households based on e-Kasih data.
RM200 will be credited into the e-wallet for youths aged 18 to 20.
Matching Contribution to EPF
Funding of RM30 million to be allocated to encourage more self-employed individuals to save in the EPF by increasing the value of the matching contribution to RM300.
Contribution to EPF by RM500
The Government has agreed to contribute RM500 to EPF members aged between 40 and 54 with EPF savings of less than RM10,000 in their Account 1.