Malaysia Budget 2023: Changes to Corporate and Individual Tax Regimes

Malaysia’s Budget for 2023 has changed the country’s corporate and individual tax regimes. The tax rates for small and medium-sized businesses have been lowered for certain chargeable incomes.

Further, the income tax rate for middle earners has also been lowered, but higher earners will see an increase in their tax rates.

---

Malaysia’s 2023 budget was passed with a majority vote in parliament on March 9, 2023. This is the first budget to be tabled by Prime Minister Anwar Ibrahim after winning the national elections in 2022.

Malaysia’s economy is expected to see 4.3 percent growth in 2023. Inflation is likely to be in the range of between 2.8-3.8 percent for the year, but this could worsen depending on supply chain disruptions and foreign exchange rates.

The 388-billion-ringgit (US$86.8 billion) budget is the largest in Malaysia’s history, and the new tax measures in its aim to accelerate economic growth and foster a more inclusive society. Some of the major changes implemented in the budget include income tax cuts for middle earners and for micro, small, and medium-sized enterprises (MSME), while also expanding the tax base among higher-income earners.

Further, Malaysia’s 2023 Budget offers enhanced tax incentives to encourage investment in key industries, such as aerospace, shipbuilding, electric vehicles, and electrical and electronics.

Corporate income tax

Reduction in corporate income tax for MSMEs

MSMEs will have a reduced corporate income tax rate from 17 to 15 percent for the first 150,000 ringgit (US$33,400) of chargeable income. MSMEs earning between 150,000 ringgit (US$33,400) and up to 600,000 ringgit (US$133,900) on the first chargeable income will be charged at the 17 percent rate, and those earning more than 600,000 ringgit (US$133,900) will be charged the 24 percent tax rate.

Tax deductions on the cost of listing on the Malaysian stock exchange for tech-based companies

Tech-based companies listed in Malaysia’s Access, Certainty, Efficiency (ACE) Market, and MSMEs listed in the Leading Entrepreneur Accelerator Platform (LEAP) Market, are currently given a tax deduction of up to 1.5 million ringgit (US$334,700) for the three years for the following expenses:

• Professional fees;
• Placement and brokerage fees, underwriting; and
• Fees to the authorities.

Under Malaysia’s Budget 2023, the existing tax deduction has been extended for ACE and LEAP listings for a further three years.          

The LEAP Market was established by Bursa Malaysia (Malaysia’s stock exchange) to provide emerging MSMEs with greater access to funding opportunities via the capital market.

The ACE Market was formerly known as the Malaysian Exchange of Securities Dealing and Automated Quotation (MESDAQ). The ACE Market is a sponsor-driven market and is mainly used for start-ups and new companies pushing for more capital.

Tax deductions for non-profit organizations

Malaysia’s Budget 2023 offers a deduction of up to 10 percent of aggregate income on contributions made by non-profit entities that focus on sports at the grassroots level in the country.

Individual income tax

To assist Malaysian individual taxpayers with the high cost of living, Malaysia’s Budget 2023 has proposed to reduce the income tax rates for the following chargeable incomes:

Chargeable income	Current rate (%)	Proposed new rate (%)
More than 35,000 ringgit (US$7,801) and up to 50,000 ringgit (US$11,145)	8	6
More than 50,000 ringgit (US$11,145) and up to 70,000 ringgit (US$15,600)	13	11
More than 70,000 ringgit (US$15,600) and up to 100,000 ringgit (US$22,289)	21	19

However, for those earning more than 100,000 ringgit (US$22,289), the government has proposed an increase in the income tax rates.

Chargeable income	Current rate (%)	Proposed new rate (%)
More than 100,000 ringgit (US$22,289) and up to 250,000 ringgit (US$55,725)	24	25
More than 250,000 ringgit (US$55,725) and up to 400,000 ringgit (US$89,163)	24.5	25
More than 400,000 ringgit (US$89,163) and up to 600,000 ringgit (US$133,900)	25	26
More than 600,000 ringgit (US$133,900) and up to 1 million ringgit (US$222,904)	26	28

The new income tax rates are effective from the year of assessment 2023.

Voluntary tax disclosure program

The Royal Malaysian Customs Department implemented the voluntary disclosure program (VDP) in 2022 to provide opportunities for individuals and businesses to voluntarily declare any duty/penalty/surcharge/levy/tax liabilities that remained outstanding on or before October 31, 2021.

Under this program, businesses and individuals were given a 100 percent penalty remission for voluntary disclosure. The program ran from January 1, 2022, to September 30, 2022.

 

Under Malaysia’s Budget 2023, the government has extended from June 1, 2023, to May 31, 2024.

Indirect tax

Import and sales tax on carbon capture technology

Malaysia’s government is proposing full import and sales tax exemption on equipment used in carbon capture and storage technology. Applications are open from February 25, 2023, to December 31, 2027.

Tax on luxury goods

Malaysia’s Budget 2023 has proposed the issuance of a luxury goods tax on certain types of branded goods. The government has yet to reveal details of this proposal, but it is expected to commence in 2023 and cover items, such as watches and fashion accessories.

• Previous Article New Due Diligence Requirements for Corporate Finance Advisers in Singapore
• Next Article Tax Incentives Under Malaysia’s Budget 2023