Malaysia Budget 2024

Budget 2024 is Malaysia’s largest ever budget at RM393.8 billion, made up of operating expenditure of RM303.8 billion and development expenditure of RM90 billion. The Budget was formulated based on the Madani economic framework. With the theme of ”Economic Reforms, Empowering the Rakyat”, the Budget is focused on spurring economic activity as well as increasing foreign direct investments and domestic direct investments. The Budget proposals are also targeted towards elevating the well-being of Malaysians, particularly the lower-income group. The tax proposals include measures aimed at increasing government tax revenues and encouraging new investments as well as reinvestments.

Key takeaways

• The service tax rate will generally be increased to 8%. Certain essential services, such as food and beverage, and telecommunications, will continue to be subject to 6% service tax. The scope of taxable services will be expanded to include logistics, brokerage, underwriting and karaoke.
• In the retabled Budget 2023 on 23 February 2023, it was announced that the Government would study the introduction of a capital gains tax (CGT) on the sale of unlisted shares by companies, beginning from 2024. Budget 2024 stated that the CGT will be introduced from 1 March 2024 on the sale of unlisted shares by companies. For shares acquired before 1 March 2024, the taxpayer can elect to pay CGT at 10% of the net gains or 2% of the gross sale value. For shares acquired from 1 March 2024, the CGT rate will be 10% on the net gains. The Government is also evaluating CGT exemptions in certain circumstances, for example, the disposal of shares as part of an approved initial public offering or intragroup restructuring exercises, subject to conditions. There is no guidance at this stage on how the CGT will operate alongside the real property gains tax regime.
• In the retabled Budget 2023, it was announced that the Government is exploring the introduction of a Luxury Goods Tax in 2023. The Budget 2024 speech indicated that this tax will apply at a rate of 5% to 10% on certain high-value goods such as jewelry and watches, based on prescribed thresholds.
• In the retabled Budget 2023, it was announced that investment incentives would be restructured to be more outcome-based. Budget 2024 announced that a tiered incentive system will be adopted, whereby investors will enjoy incentives which commensurate with their commitments to Malaysia. As a start, the Government proposes to introduce a tax incentive for reinvestments, in the form of an investment tax allowance of 60% (to be utilized against up to 70% of statutory income) or 100% (to be utilized against up to 100% of statutory income).
• A Global Services Hub tax incentive has been proposed, with a reduced income tax rate of 5% or 10% based on the outcome-based approach, for a period of up to 10 years. This proposal is for applications received by the Malaysian Investment Development Authority (MIDA) from 14 October 2023 until 31 December 2027.
• It was previously announced that e-invoicing would be implemented in Malaysia in stages. The mandatory e-invoicing deadline for taxpayers with annual turnover or revenue exceeding RM100 million has been extended from 1 June 2024 to 1 August 2024. Implementation of mandatory e-invoicing for other taxpayers will be undertaken in phases, with full implementation targeted from 1 July 2025.
• Many countries will begin implementing Pillar Two of the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) 2.0 project, also known as the Global Minimum Tax project, in 2024 or 2025. The Ministry of Finance's “Mid-year 2023 Budget Performance Report” dated 27 September 2023 indicated that Malaysia expects to implement Pillar Two in 2025, and this was confirmed in today’s Budget speech. The Government will also continue to monitor global developments on this matter. Once Pillar Two is implemented, multinational enterprise (MNE) groups with group turnover of over €750 million (around RM3.7 billion) will have to pay a top-up tax if they are not subject to an effective tax rate (ETR) of at least 15% in each country in which they operate.