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Budget 2022, What’s In It For You & I?
Market Info
BUDGET
What’s In It For You & I?
B
udget 2022 was tabled in Parliament on 29 of October 2021 with the theme “Keluarga Malaysia, Makmur Sejahtera” and the focus was on 3 key objectives, namely: 1. Rakyat’s wellbeing; 2. Building business resilience; and 3. Creating a prosperous and sustainable economy
The Malaysian economy is forecasted to continue its recovery with GDP expected to grow at a slightly faster pace of 5.5% to 6% for 2022 compared to 3% to 4% projected in 2021. Budget 2022 is the largest ever Malaysian Budget, with a record spending of RM332.1 billion – an increase of 3% compared to the allocated budget in 2021. Of this, RM233.5 billion was set aside for operational expenses, RM75.6 billion for development expenses, RM23 billion for the Covid-19 fund, and the balance of RM2 billion for contingencies. Government revenue is predicted to rise 5.9% to RM234 billion in 2022, up from RM221 billion in 2021, with the budget deficit falling to 6% of GDP in 2022, down from 6.5 percent in 2021. Overall, the budget is comprehensive and inclusive in line with the “Keluarga Malaysia” spirit in ensuring that no one is left behind in Malaysia’s development.
WHAT’S FOR INDIVIDUALS?
The following are key tax changes affecting individuals in Malaysia arising from Budget 2022:
TAX RELIEFS
It is proposed that the scope of tax relief of RM4,000 for voluntary contributions to EPF is to include individuals who are self-employed and employed in the gig sector. In addition, there is an extension of the minimum contribution rate for employees of 9% to EPF until June 2022.
For lifestyle relief, the special tax relief of RM2,500 for the purchase of mobile phones, computers and tablets will be extended for one year to 31st of December 2022. This will enhance the scope of income tax relief for lifestyle.
It is proposed that the tax relief from the total education fees relief of RM7,000 be increased from RM1,000 to RM2,000 for Year of Assessment 2022 and Year of Assessment 2023 for fees paid for upskilling or selfenhancement courses recognised by the Department of Skills Development, Ministry of Human Resources. This is to encourage individuals who are affected by the pandemic to enrol for upskilling, re-skilling and to build up new skills.
SPECIAL TAX EXEMPTION FOR DOMESTIC TOURISM
To further encourage domestic tourism, it is proposed that the special tax exemption up to RM1,000 be extended for domestic tourism expenses incurred from 1 January 2022 to 31 December 2022.
CHILDCARE CENTRE A ND KINDERGARTENS
There will be an extension of tax exemption up to RM3,000 for 2 years for Year of Assessment 2022 and Year of Assessment 2023 for fees paid to childcare centres and kindergartens. This will alleviate the childcare centre and kindergarten expenses incurred by taxpayers.
TAX RELIEF FOR MEDICAL CHECK-UP EXPENSES
The existing tax relief of RM1,000 for full medical check-up expenses for self / spouse / child have been expanded to include medical expenses involving registered psychiatrists, clinical psychologists, counsellors, etc. This will reduce the medical expenses burden for the taxpayer, their spouses and children.
PERSONAL TAX RELIEF FOR SOCSO
It is proposed that the personal tax relief for SOCSO be increased
from RM250 to RM350 effective from Year of Assessment 2022. This will result in tax savings for the taxpayers in relation to their income tax liability.
DEFERRED ANNUITY SCHEME
The current tax relief of up to RM3,000 for the contribution to the deferred annuity scheme has been proposed to be extended for another 4 years to Year of Assessment 2025.
REAL PROPERTY GAINS TAX
The RPGT rates on individual citizens, permanent residents other than companies had been proposed to be reduced from 5% to 0% in relation to the disposal of real property and shares in real property of the company in the 6th year onwards. This will result in RPGT savings for taxpayers.
DISCOUNTS FOR PTPTN
Lastly, it has been proposed that discounts will be offered for PTPTN Loan Repayments from 1st of November 2021 until 30 April 2022 and the rates are 15% discount on full settlement, 12% discount for at least 50% on a single payment, and 10% discount for repayment through salary deductions or direct debit according to the repayment schedule.
WHAT’S FOR COMPANIES?
The following are key tax changes affecting companies in Malaysia arising from Budget 2022:
ENHANCED POWER FOR DGIR
Effective 1 January 2022, the Director-General of the Inland Revenue Board (DGIR) will be empowered to require banks to furnish taxpayer’s bank account information for the application to Court for a garnishee order. In this event, banks are not allowed to disclose to anyone that the DGIR has requested for the taxpayer’s bank account information.
DIGITAL ECOSYSTEM ACCELERATION SCHEME
It has been proposed that Activities under the Digital Ecosystem Acceleration Scheme (DESAC) where applications had been made to MIDA from 30 October 2021 to 31 December 2025 will be eligible for income tax exemption from 0% to 10% for 10 years. This proposal aims to support the development of a comprehensive national digital ecosystem.
It is proposed that a tax rate of 0% for 15 years for manufacturing and services companies that relocate their operations and have applied to MIDA will be extended for one year up to 31 December 2022.
WINDFALL PROFIT TAX
A windfall profit tax threshold price for planters increased to RM3,000 per tonne from RM2,500 per tonne.
Levy rates for Sabah and Sarawak will be adjusted to 3% as is the levy rate in Peninsular Malaysia.
SERVICE TAX FOR BROKERAGE CHARGES
Effective 1 January 2022, there will be no service tax for brokerage charges involving listed shares. The purpose of this proposal is to enable Malaysian stock market activities to remain competitive.
STAMP DUTY
It has been proposed that a 100% stamp duty exemption will be given on the loan or financing agreement between Micro, Small and Medium Enterprises (MSMEs) and investors for 5 years and this exemption is applicable for P2P financing platforms registered and recognized by the Securities Commissions (SC) executed from 1 January 2022 to 31 December 2026. This enables SMEs to obtain alternative financing methods and reduce funding costs.
It has been proposed that the stamp duty exemption for
Perlindungan Tenang Products be increased from RM100 to RM150, Individual insurance policies or takaful premium not exceeding RM150 and MSME purchase of insurance policies or takaful with premium not exceeding RM250. This proposal is applicable for insurance policies or takaful certificates issued from 1 January 2022 to 31 December 2025 and are in line with the Government’s efforts to improve the access to insurance and takaful products at a lower cost for the low-income group (B40) and SMEs.
For trading of shares listed in Bursa Malaysia, it has been proposed that the rate of stamp duty charged on the contract note will be increased from 0.1% to 0.15% and the limit of RM200 for each contract note will be abolished.
The 100% exemption for restructuring or rescheduling loan/financing as well as the stamp duty exemption for merger or acquisition approved by the Ministry of Entrepreneur Development and Cooperatives (MEDAC) has been extended for another 1 year to 31 December 2022.
INCOME TAX EXEMPTION FOR TOURISM SECTOR
For the tourism sector, it has been proposed that an income tax exemption up to 50% on statutory income for organisers of artistic and cultural activities, as well as sports competition and international-level recreational activities be extended for 3 years until Year of Assessment 2025. Accelerated Capital Allowance (ACA) with initial 20% allowance and 40% annual allowance for purchase of new locally assembled excursion buses for tourism is extended for 3 years up to Year of Assessment 2024.
Lastly, the existing tourism tax exemption on Malaysian residents and permanent residents will be extended for another one year until 31 December 2022. These proposals aim to support the resilience of Malaysia’s tourism industry affected by the COVID-19 pandemic.
INCENTIVES FOR EMPLOYERS
For employers, it is proposed that an incentive of 20% to 30% from monthly salary be provided to employers who recruit those who are not actively working. Besides that, an incentive of 30% to 40% from the monthly salary of RM1,200 to employers who hire persons with disabilities (PWDs), Orang Asli and Prisoners. Lastly, employers will receive tax relief and exemption on COVID-19 booster shots.
WINDFALL TAX
Introduction of “Cukai Makmur” (Windfall tax), a special tax on a one-off basis for large companies where the first RM100 million in taxable earnings will be taxed at 24% with the remainder being tax at 33% for the Year of Assessment 2022. This proposition is a drive to increase tax collections from organisations making exceptional profits to provide financial help to parties impacted by the COVID-19 pandemic.
POSTPONEMENT OF INCOME TAX INSTALMENTS
Effective 1 January 2022, all SMEs are allowed to postpone their income tax instalment for six months until 30 June 2022 in order to enable SMEs to recover from the effects of the COVID-19 Pandemic. In addition, all companies are allowed to revise their income tax estimates in the 11th month of the basis period until 31 October 2022.
SPECIAL TAX DEDUCTION FOR RENTAL REDUCTION
It is proposed that the existing special tax deduction on rental reduction of at least 30% is to be extended for another six months from 1 January 2022 to 30th June 2022. This proposal aims to reduce operating costs for companies affected by the COVID-19 pandemic.
SPECIAL TAX DEDUCTION FOR RENOVATION COSTS
Besides that, special tax deduction for renovation costs up to RM 300,000 will be extended to 31 December 2022. This proposal aims to improve a company’s cash flow and encourage companies to upgrade their operations in line with the COVID-19 Standard Operations Code.
FOREIGN SOURCE INCOME
Effective 1 January 2022, foreign source income earned by Malaysian Tax Residents and received in Malaysia will
be taxable. The IRB will offer a Special Income Remittance Programme (PKPP) for Malaysians who have overseas income from 1 January 2022 to 30 June 2022 and a gross tax rate of 3% will be imposed on income remitted back to Malaysia. There will be no audit review, investigation or penalty on income received during the PKPP period as it will be received in good faith by the IRB.
EXTENSION OF CARRYING FORWARD OF BUSINESS LOSSES
It is proposed that companies can carry forward business losses for up to 10 years instead of 7 years. The above proposition is applicable effective from Year of Assessment 2019 and will offer further aid to loss-making companies as they recover.
INCOME TAX REBATE FOR MSME
For Micro, Small and Medium Enterprises (MSME), it was proposed that the income tax rebate of up to RM20,000 for each Year of Assessment for the first 3 Years of Assessment be extended to include MSMEs that commence their operations on 31 December 2022 and MSMEs that perform business through online platforms.
REINVESTMENT ALLOWANCE
For Additional Reinvestment Allowance (RA), it has been proposed that the Special RA period for 3 years given for Years of Assessment 2020 to 2022 for companies that exhausted their 15 years RA be extended for 2 years to Year of Assessment 2024. This proposal is part of an initiative under the national economic recovery agenda.
INDIRECT TAXES
EXCISE DUTIES
It is proposed that excise duties will be imposed on nicotine-based gel or liquid products for vape and electronic cigarettes. This is part of a broader strategy to control the use of electronic cigarettes and vape in Malaysia, as well as to ensure that all cigarettes and tobacco products are taxed equally.
The current scope of excise duties on sugary beverage products had been proposed to be expanded to include sweetened drinks in the form of premixed with chocolate or cocoa, malt, coffee and tea such as 2-in-1 or 3-in-1 pre-mixed beverages from 1 April 2022 onwards. This proposal is intended to aid Malaysia’s National Plan of Action for Nutrition III (2016-2025) in combating obesity, diabetes, and other non-communicable diseases.
SALES TAX
It is proposed that sales tax will be imposed on low value items below RM500 sourced from overseas, sold by online sellers and sent to Malaysia via air courier on 1 January 2022. Under this provision, both Malaysian and overseas sellers of low value items who sell these goods to Malaysian consumers are required to register and charge sales tax. At present, further clarification is required for this new provision.
ELECTRIC VEHICLES
It is proposed that a full exemption on import, excise duties and sales tax for electric be imposed from 1 January 2022 onwards. This idea is part of an effort to boost domestic demand in accordance with the Low Carbon Mobility Blueprint (LCMB), the Electric Vehicle Roadmap, and the National Automotive Policy (NAP 2020).
EXTENSION OF SALES TAX WAIVER
It is proposed that the existing 100% sales tax waiver on CKD Passenger Vehicles and 50% Sales Tax Exemption for CBU Passenger Vehicles including MPVs and SUVs be extended for 6 months to 30 June 2022.
Lastly, effective Year of Assessment 2022 the Royal Malaysian Customs Department will introduce Special Voluntary Disclosure Programme (SVDP) for indirect taxes in phases, with a remission penalty of 100% in Phase 1 and 50% in Phase 2 and may also be considered on a case-to-case basis. The SVDP gives an opportunity for taxpayers to move forward in a clean state via regularizing their indirect tax positions and also pay reduced or no penalties.
SUMMARY CONCLUSION
In terms of tax revenue, 2021 was a challenging year with less income than expected. Budget 2022 proposed various measures to improve tax compliance and increase tax revenue, including the aforementioned indirect tax SVDP. The introduction of tax compliance certificates, as a prerequisite for bidders to participate in public procurement motivates taxpayers to ensure that tax compliance requirements are met and that the theme “Keluarga Malaysia, Makmur Sejahtera” is meant for ll Malaysians.
Dato’ Seri Dr Raymond Liew is a Tax Practitioner & the President of McMillan Woods, a global business advisory network.
