In a keen observation, Mr. Soh Lian Seng, who serves as the Head of Tax at KPMG in Malaysia, highlights the noteworthy proposals shaping the future of tax reforms in Malaysia.
These reforms are strategically aligned with the government’s overarching vision of fostering inclusive and sustainable economic growth. Several pivotal initiatives stand out in this regard.
First and foremost, there’s a clear and calculated strategy to broaden the tax revenue base. The introduction of the Capital Gains Tax is a pivotal move. This tax will be imposed at a rate of 10% on the net profit arising from the disposal of unlisted shares by local companies, starting from March 1, 2024. Furthermore, the introduction of the High-Value Goods Tax at a rate ranging from 5% to 10% on select high-value goods, such as jewelry and watches, is also on the horizon. The exact rate will depend on the threshold value of the goods. For these reforms to succeed, it’s imperative that comprehensive regulations and guidelines, along with a practical transition plan, accompany their implementation.
The Global Minimum Tax (GMT) is another crucial component of the reforms. Importantly, it is now clarified that this tax will only apply to companies with a global revenue of at least 750 million Euros, commencing from 2025. This clarity provides much-needed breathing room for multinational enterprises (MNEs) to adequately prepare for the GMT’s implementation.
Additionally, there is a proposed increase in the service tax rate, rising from 6% to 8%. This increase is combined with an expansion in the scope of taxable services to include logistics, brokerage, underwriting, and karaoke services. This is a clear indication of the 2024 Budget’s intent to bolster tax revenue. According to the Fiscal Outlook and Federal Government Revenue Estimates for 2024, the estimated Service Tax revenue for 2023 stands at RM16.6 billion. Simple mathematics suggests that a 2% increase could potentially generate an additional RM5.5 billion. However, it is noteworthy that this 2% increase doesn’t cover all taxable services. Notably, services like food and beverages (F&B) and telecommunications will continue to be subject to a 6% Service Tax. These sectors significantly contribute to the overall Service Tax collection.
Furthermore, the government has its sights set on enhancing Malaysia’s business competitiveness. It is offering several incentives to stimulate investment, including the extension of tax incentives for individual investors who support local startups through the equity public funding platform (ECF) until December 31, 2026. This extension is facilitated through the nominee Limited Liability Partnership, aiming to promote capital funding in local tech startups. Additionally, tax incentives for angel investors are also extended until December 31, 2026, fostering capital investment in technology startup companies. These incentives are set to have a positive impact on Malaysia’s burgeoning unicorns, facilitating their internationalization.
In summary, Malaysia’s proposed tax reforms, as observed by Mr. Soh Lian Seng, signify a concerted effort by the government to foster economic growth while expanding the tax revenue base. These reforms are marked by the introduction of new taxes, a clear roadmap for GMT, and an increase in the service tax rate, among other significant measures.
