Themed ‘MADANI Economy: Empowering the People’, Malaysia’s Budget 2024 was tabled on October 13 2023 by Prime Minister and Finance Minister Dato’ Seri Anwar Ibrahim, with a total allocation of RM393.8 billion.
We’ve gone over the various entries to bring you what we feel are the top five most relevant to businesses in general and are most likely to affect company operations and decisions going forward.
Let’s begin!
1. It’s time to focus on ESG compliance
Budget entry: A proposed tax deduction up to RM50,000 per Year of Assessment from YA 2024 – 2027 for expenses incurred with ESG compliance.
The purpose of ESG compliance is ultimately to get companies to run more efficiently and transparently, which will inevitably lead to long-term cost savings. The problem has always been that this requires a significant capital investment that is not tax-deductible under the Income Tax Act 1967.
This change means companies are given ample breathing room to invest in their operations in the following ways:
- Enhance Sustainability Reporting Framework
- Climate Risk Management and Scenario Analysis
- Tax Corporate Governance Framework (TCGF) of Inland Revenue Board of Malaysia
- Transfer Pricing Documentation
- E-Invoicing implementation
2. Reclaim ICT purchase costs 25% faster
Budget entry: The initial allowance for purchases of ICT equipment and computer software will be raised from 20% to 40%.
The revised initial allowance applies to two items:
- Purchase of ICT equipment and computer software packages
- Consultation, licensing, and incidental fees related to customised software development
By raising the initial allowance from 20% to 40%, this reduces the length of time needed to reclaim the initial expense from four years to three.
By extending this to consultation and custom software development, this also gives companies more incentive to digitise their services with proprietary software. For example, law firms might consider developing desktop apps that simplify various legal processes.
It’s unclear if this applies to mobile app software development, though it stands to reason that it would.
3. Absorb or pass on 2% service tax?
Budget entry: The national service tax rate be increased from 6% to 8%, except for certain essential services.
For a long time, Malaysia’s service tax rate has remained steady at 6%, and the current proposed 2% increase will inevitably raise overall cost of business operations as parties along supply chains try to absorb as little of the increased tax rate as possible.
While the government has promised essential services such as F&B and communications will be spared, it might be wise for decision makers in the service sector to plan ahead and think how much of the 2% they can absorb, and how much to pass along to customers.
4. Expect more skilled mothers in workforce
Budget entry: Enhanced eligibility criteria for the Women Career Comeback Programme tax incentive.
Under the new terms, women returning to work after a career break are eligible for income tax exemption on from YA 2025 to YA 2028.
That’s right, three years of income tax exemptions when previously it was just one year!
The one condition is that it only applies to women who return after a career break of at least two years before the date of application received by Talent Corporation Malaysia Berhad (1 January 2024 to 31 December 2027).
We wouldn’t be surprised if this encourages a lot of highly skilled mothers to rejoin the workforce – so be ready to invest in a daycare centre at work!
5. Higher property transfer cost for foreigners
Budget entry: A flat stamp duty rate of 4% on the instrument of transfer of property by foreign-owned companies.
Foreign-owned companies and non-citizen individuals currently enjoy the same marginal tax rate imposed on Malaysian citizens for the transfer of properties.
To regulate property prices, the government has proposed that this be changed to a flat rate of 4% regardless of property price.
Click here for a more general list of Ekonomi MADANI proposals including general cost of living, nation-building, and more.