Malaysia Budget 2020 proposals presented to parliament

On 11 October 2019, the Budget for 2020 was presented to the parliament by the Minister of Finance. The main tax proposals of the Budget, which unless otherwise indicated will apply from 1 January 2020, are summarized below.

Direct taxation

Corporate taxation

  • Special investment incentives packages for 5 years will be awarded to attract Fortune 500 companies and global unicorns companies that are involved in the high technology, manufacturing, creative and economic sectors.
  • The current tax incentives for venture capital and angel investors will be extended up to year of assessment (YA) 2023.
  • To further enhance sustainable development within the country, the existing Green Investment Tax Allowance and Green Investment Tax Exemptions will be extended to YA 2023. Companies undertaking solar leasing activities will be given up to 70% income tax exemption. 
  • Tax incentives, as follows, will be provided to qualifying companies under the electrical and electronics (E&E) industry that promotes the transition of 5G digital economy and Industry 4.0:
    • income tax exemption up to 10 years; and
    • special investment tax allowances for existing qualifying E&E companies that have exhausted the current reinvestment allowance incentive.
  • Accelerated capital allowance and automation equipment capital allowance for manufacturing sector on the first MYR 2 million and MYR 4 million incurred on qualifying capital expenditure. This incentive will be extended up to YA 2023.
  • The existing tax deductions on cost of issuance and additional deductions on sukuk issuance costs under the Wakalah principle will be extended up to YA 2025.
  • Various tax incentives targeted to promote tourism are introduced, such as:
    • income tax exemption for organizers of approved activities, including arts and culture, international sports recreational competitions and conference organizers;
    • investment tax allowance or 100% income tax exemption for new investments in international theme park projects; and
    • the current tax deduction up to MYR 70,000 for companies that sponsor arts, cultural and heritage activities in Malaysia will be increased to MYR 1,000,000 per year of assessment.
  • Small and medium-sized enterprises (SMEs) will be taxed at 17% on the first MYR 600,000 of chargeable income (instead of the current MYR 500,000 threshold). 

Personal taxation

  • A new band for top income earners was introduced, whereby taxpayers with taxable income above MYR 20 million will be taxed at 30% (currently 28%).
  • Income tax exemption for women who return to work after a career break will be extended up to YA 2023.
  • Personal relief on fees paid to child care centres and kindergartens will be increased from MYR 1,000 to MYR 2,000.
  • The scope of serious diseases relief (with tax relief amount up to MYR 6,000) will be expanded to include medical costs related to fertility treatment.
  • Tax deduction on donations to approved institutions which were previously capped at 7% of the aggregate income will be increased to 10%.

Indirect taxation

  • Training and coaching services provided by training service providers to disabled persons will be exempt from services tax.
  • Services tax on digital services by foreign service providers will be implemented with effect from 1 January 2020.

Other measures

  • A comprehensive review and revamp of the existing incentive framework is ongoing (including the incentives under the Income Tax Act 1967, the Promotion of Investments Act 1986 and Special Incentive Package), the new framework being expected to be completed by 1 January 2021. 
  • A Tax Identification Number (TIN) system will be introduced to all Malaysians above the age of 18 and corporate entities. This is expected to take effect from January 2021, 

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