24 February 2023
The Malaysia re-tabled Budget 2023 announcement on 24 February 2023 by the Prime Minister and Finance Minister, YAB Dato’ Seri Anwar bin Ibrahim, takes a responsible and balanced approach to reinforce the drive for inclusive and sustainable economic growth, equipping Malaysia to withstand the current global economic headwinds without compromising the rakyat’s well-being. The fiscal measures comprise a good mix of proposals addressing the high cost of living and protecting the more vulnerable segments of the population while progressively introducing a broadened tax base with an increased revenue collection focus.
In this Alert, we will cover the key reforms and measures that will impact individual taxpayers and employers.
While the Budget focuses on striking a balance between fiscal management and the welfare of the people, the widespread reset of fiscal reforms aimed at elite income earners, such as the uptrend in tax rates at the highest income bands, luxury goods tax and the potential introduction of capital gains tax on the disposal of unlisted shares, may have an impact on investment activities and attracting highly skilled talents to Malaysia.
Voluntary Disclosure Programme
The programme is to be administered by the Malaysian Inland Revenue Board (MIRB) from 1 June 2023 until 31 May 2024. There will be a full remission of penalties.
At the time of writing, it is unclear whether there are any criteria to be met before the penalties are waived.
The programme offers a chance for individual taxpayers and companies to come forward and make good of the gaps arising from their respective tax reporting obligations. From a global mobility perspective, such gaps can arise due to non-visibility of split or offshore payroll arrangements, incorrect application of domestic and treaty exemptions, offshore trailing income and under remittance of monthly tax deduction.
Coming clean with the tax authorities will pave the way forward for employers and individuals to strengthen their fiscal responsibilities.
Key individual tax measures
Individual tax rates for tax resident
In an attempt to narrow the income gap, the proposed changes to individual income tax rates for tax residents comprise the lowering of tax rates for the lower income groups, and the merging of and increase in tax rates for the higher income bands.
| Chargeable Income
(MYR) | Y/A 2022 | Y/A 2023 | Impact
(Tax Savings) / Tax Increase MYR | |||
| Tax on column 1 | Tax on excess | Tax on column 1 | Tax on excess | |||
| MYR | % | MYR | % | |||
| 5,000 | 20,000 | 0 | 1 | 0 | 1 | |
| 20,000 | 35,000 | 150 | 3 | 150 | 3 | |
| 35,000 | 50,000 | 600 | 8 | 600 | 6 | (300) |
| 50,000 | 70,000 | 1,800 | 13 | 1,500 | 11 | (700) |
| 70,000 | 100,000 | 4,400 | 21 | 3,700 | 19 | (1,300) |
| 100,000 | 250,000 | 10,700 | 24 | 9,400 | 25 | 200 |
| 250,000 | 400,000 | 46,700 | 24.5 | 46,900 | 950 | |
| 400,000 | 600,000 | 83,450 | 25 | 84,400 | 26 | 2,950 |
| 600,000 | 1,000,000 | 133,450 | 26 | 136,400 | 28 | 10,950 |
| 1,000,000 | 2,000,000 | 237,450 | 28 | 248,400 | 10,950 | |
| 2,000,000 | 517,450 | 30 | 528,400 | 30 | 10,950 | |
Employers need to ensure that their payroll systems are updated with the new tax rates and chargeable income bands once the Finance Bill is passed into law, to ensure that their employees’ monthly taxes are calculated accurately, as well as communicated accordingly to their employees. Y/A 2023 tax returns that have already been filed in the tax clearance process must be revised and finalised through amended assessments.
Special tax rate of 15% for C-Suite employees
Extension of special tax rate of 15% for C-Suite employees in electrical and electronic manufacturing companies relocating their operations to Malaysia until Y/A 2024.
Tax deduction for contribution to sport industry
Up to 10% deduction from aggregate income for donations to non-profit organisations implementing sports development programs at the grassroots level.
Personal tax reliefs
Expansion
Medical expenses for self, spouse or child is expanded to include intervention expenditure for learning disabilities** up to MYR4,000. Overall limit is also increased from MYR8,000 to MYR10,000 from Y/A 2023
**Autism, Attention Deficit Hyperactivity Disorder (ADHD), Global Developmental Delay (GDD), Intellectual Disability, Down Syndrome and Specific Learning Disabilities
Expansion
Relief for life insurance premium/ takaful contributions is expanded to cover voluntary contributions to EPF from Y/A 2023
Extension
Relief for fees paid to child care centre and kindergarten is extended to Y/A 2024
Other related tax measures
Hiring Incentives
Corporate tax deductions for employers hiring senior citizens, former convicts, parolees, and supervised persons (with conditions met) will be expanded to include inmates/ former inmates of Henry Gurney School under the Malaysian Prison Department, protection and rehabilitation institution and registered care centres under the Social Welfare Department (from Ys/A 2023 until 2025).
Micro, Small and Medium Industries (MSME **) Tax Rates
From Y/A 2023, income tax rates for MSME are amended to
| Chargeable Income | Tax Rate |
| First MYR 150,000 | 15% (↓ 2%) |
| MYR 150,001 to MYR 600,000 | 17% |
| MYR 600,001 and above | 24% |
** Companies with paid up capital of ordinary shares ≤ MYR 2.5 million, or Limited Liability Partnerships (LLPs) with total contribution of capital ≤ MYR 2.5 million and having gross business income ≤ MYR 50 million.
With the proposed changes in individual and MSME income tax rates, the disparity between the income tax paid as a small business owner and a MSME corporation has widened further
Key labour measures
Individuals/ Self-Employed/ Gig Workers
Cognisant of the rising costs of living, the Budget aims to provide additional social protection and increase retirement savings for the self-employed, with this first step of mandating the Self-Employment Social Security Scheme in stages.
Malaysian Employers
While we await the draft Finance Bill 2023 to see what other amendments the Budget may bring, please join us for our Mobility Roundup webinar at 2.30pm on Friday, 3 March 2023 (register here) as we discuss the Budget announcement measures that impact employers and employees in Malaysia.
Hilda Liow
Partner
hilda.liow.wun.chee@vialto.com
Lim Phing Phing
Partner
phing.phing.lim@vialto.com
Sasha Reddy
Partner
sasha.reddy@vialto.com
Wee Lay Har
Director
lay.har.wee@vialto.com
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