New taxes introduced in Malaysia in the year 2024
This year is set to be a year when Malaysia fortifies its fiscal foundations to ensure the peoples’ wellbeing, as evidenced by the government taking serious steps to diversify its tax base to ensure stable and sustainable revenue streams.
This shift has become a strategic imperative as the country gradually steers away from a reliance on petroleum exports susceptible to global commodity price fluctuations.
The few significant tax policy changes set to unfold this year and their far-reaching implications for Malaysian businesses are:
1. Low-value goods tax.
Effective Jan 1, 2024, a low-value goods tax (LVGT) of 10% is imposed on low-value goods imported into Malaysia that are priced at RM500 or below, subject to certain exclusions. As LVGT is sales reliant, it helps level the playing field and improves the competitiveness of local businesses, especially those previously overshadowed by their online counterparts.
2. Capital gains tax
Effective Jan 1, 2024, a capital gains tax (CGT)is imposed on gains made by companies, limited liability partnerships, trust bodies and cooperative societies, from disposal of shares in companies incorporated in Malaysia not listed on the stock exchange.
This includes shares under the new Section 15C (shares of a controlled company incorporated outside Malaysia which owns real property situated in Malaysia or shares of another controlled company subject of meeting the 75% threshold conditions), and capital assets situated outside Malaysia, upon remittance into the country.
3. Service tax
The service tax (ST) is expanded to include logistics, brokerage, underwriting and karaoke services, with the tax rate being raised from 6% to 8% effective March 1, 2024 (excluding food and beverages, telecommunication services, parking and logistics services).
As ST is a final tax incurred by consumers, with no claimable input tax credit, the potential cascading effect may translate from spikes in prices among the supply chain.
4. High-value goods tax
Starting from May 1, 2024, a high-value goods tax (HVGT) ranging from 5% - 10% will be imposed on luxury goods such as jewellery and watches exceeding a certain price threshold, which has yet to be revealed by the government.
No doubt retailers are concerned that the HVGT may affect customer sentiment especially foreign tourists who visit Malaysia for shopping.
5. E-Invoicing
Starting Aug 1, 2024, e-invoicing will be mandatory for tax payers with annual turnover exceeding RM100mil, with the phased implementation for all companies set to be completed by July 1. 2025.
This is a transformative force that will reshape the business-transaction landscape in Malaysia as all invoices must be validated by the tax authorities’ automated portal before sending to their customers. Guidelines are also in place for the tax payer to issue self-bill invoices where the other party to the transaction is a non-business entity and or import of goods/services.
Depending with the level of integration with the e-invoicing system, businesses will benefit from economic efficiencies that ripple through across the business ecosystem through streamlined record keeping, faster payment cycles among other things.
Once implemented, e-invoicing is anticipated to bolster the government’s efforts in enhancing compliances and curbing revenue leakage from the shadow economy.
6. Global minimum tax
The global minimum tax (GMT) rate of 15% is set to be effective in Malaysia from Jan 1, 2025 onwards for multinational enterprises (MNEs) with a global income of at least €750mil in line with the OECD guidelines. The timeframe will allow some lead time for relevant MNEs to get ready to avoid unprepared disadvantages.
It is pertinent to prepare the necessary resources and specialized skillset to address the implementation of Global Anti-Based Erosion or GloBE rules.
Aside from the new qualitative and quantitative disclosures in the financial statements on Pillar Two exposure, existing tax incentive packages that will be impacted by the Pillar 2 implementation should also be explored and reviewed.
For more information, please contact Anthony Ng, Managing partner of CF& Ng Co at [email protected].