Tax Matters – Budget to revive economy, broaden tax base

DESPITE the difficult economic environment domestically and internationally, Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim has focused on growing the economy by helping businesses largely through grants, cheaper financing, providing financial guarantees, and continuing with the provision of targeted tax incentives.

He is attempting to bring fiscal discipline by planning to reduce the budget deficit from 4.5% to 3.2% in 2025. However, he is constrained by the RM46 billion interest payment he has to make on the national debt.

The highlight of this budget is the increase in the taxation of high-income earners. Those earning more than RM100,000 of taxable income up to RM1,000,000 will have to pay an additional 0.5% to 2.0 percentage points in taxes, amounting to RM10,950 for a person earning RM1,000,000 or more. Those earning less than RM100,000 will benefit from a 2.0 percentage point in tax, saving them up to RM1,300.

The tax rate for SMEs has been reduced from 17% to 15% for the first RM150,000 of taxable income.

Anwar plans to introduce new taxes, for example, luxury goods tax on expensive items such as watches, jewellery, handbags, etc. It is expected that the tax will be imposed at the point of sale. Taxes are also expected to be raised on the sale of liquids and gels containing nicotine used in e-cigarettes and vapes.

Extending capital gains tax to the disposal of unlisted shares by companies is under consideration and could be introduced in 2024. Once the authorities have opened their minds to taxing capital gains, there is a possibility that this can be widened to capital gains beyond unlisted shares.

Self-Voluntary Declaration Scheme

The self-voluntary declaration scheme (SVDP) is again being introduced for both Royal Malaysian Customs Department and Inland Revenue Board (IRB) with the intention of waiving the penalty entirely if the declarations are made between June 2023 and May 2024.

In the previous SVDP conducted by the IRB up to December 2019, many taxpayers got away with underdeclaring their understated or undeclared income by paying just a few thousand ringgit compared to their actual tax liability which could have been much larger.

At that time, the finance minister directed the IRB to accept whatever number was declared in good faith. Sadly, many taxpayers misused this opportunity and underdeclared their income. We hope the IRB and the Customs authorities will be more diligent and exercise reasonable checks this time around to ensure that the taxpayers who come forward to participate in the SVDP will be declaring the correct amount.

Taxpayers entering into this arrangement should be able to show the basis of arriving at the underdeclared/undeclared income. If they are unable to do that, then the tax authorities should help them arrive at the numbers.

A summary of the other measures which will be of interest are:

1) Stamp duty will be waived for transfers of property between parent and children, and grandparents and grandchildren for the first RM1 million, the balance will be accorded a 50% remission.

2) Special tax deductions will be given to expenditure incurred by hoteliers to purchase local handicrafts.

3) Extension of tax relief for individual taxpayers up to RM3,000 for fees paid to taska (child-care centres or nurseries) and tadika (kindergartens).

4) Extension of tax incentives for ship building and ship repairing industry, aerospace industry, electrical vehicle industry.

Significant support is being extended by the government in the form of loans to the micro businesses in the form of loans totalling RM1.7 billion. Government agencies intend to provide various loan facilities and financing guarantees to SMEs of up to RM40 billion.

Overall it is a positive budget addressing all parts of the economy from the B40 onwards and the extremely poor, and at the same time, the finance minister has provided substantial financial support to the industry in the form of soft loans and grants.

This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director
SM Thanneermalai

The Inland Revenue Board and the Royal Malaysian Customs Department will be implementing the self-voluntary declaration scheme again.