Dewan Rakyat passes the Finance Bill 2023

Dewan Rakyat passes the Finance Bill 2023

On 3 April 2023, the Dewan Rakyat passed the Finance Bill 2023. The Bill incorporates certain proposals from Budget 2023 (see Take 5: Malaysia Budget 2023) and was initially released after its first reading on 14 March 2023. Please refer to the Appendix to this alert for the key provisions set out in the Finance Bill 2023.

There were certain amendments made to the Bill before it was passed by the Dewan Rakyat. The key amendments are discussed below.

Please note that the amended Finance Bill 2023 has not yet been gazetted and hence, the legislative changes are not yet effective.

• Extension of personal income tax relief for deposits into the National Education Savings Scheme (SSPN) account

On 29 March 2023, the Honourable Prime Minister Dato’ Seri Anwar Ibrahim announced that the individual income tax relief of up to RM8,000 for deposits into the SSPN account will be extended for another two years, until the year of assessment (YA) 2024.

This has now been included in the Finance Bill 2023.

• Additional condition for micro, small and medium enterprises (MSMEs) to enjoy preferential tax rates – change in effective date

For MSMEs^{Note 1} to qualify for preferential tax rates^{Note 2}, an additional condition has been proposed such that with effect from YA 2024, not more than 20% of the paid-up capital with respect to ordinary shares or total capital contribution (as the case may be) of the MSME at the beginning of the basis period for a YA can be directly or indirectly owned or contributed by:
(a)  Companies incorporated outside Malaysia, or
(b) Individuals who are not Malaysian citizens.

The effective date of the amendments to Paragraph 2F of Schedule 1 of the Income Tax Act 1967 (ITA) provided via the Finance Bill 2023 have been amended to YA 2024 (instead of YA 2023) to be in line with the effective date of the introduction of the additional condition above.

Note 1:

An MSME is:

• A resident company incorporated in Malaysia which has a paid-up capital with respect to ordinary shares of RM2.5 million or less at the beginning of the basis period and that satisfies other specified conditions, or
• A limited liability partnership (LLP) with a total capital contribution of RM2.5 million or less at the beginning of the basis period and that satisfies other specified conditions

which has gross income from a source or sources consisting of a business of not more than RM50 million for the relevant YA.

Note 2:

With effect from YA 2023, it has been proposed that the preferential tax rate for MSMEs for the first RM150,000 of chargeable income be reduced by two percentage points, as follows: