by Mary Swire, Tax-News.com, Hong Kong
30 October 2013
In Malaysia’s Budget for 2014, Prime Minister and Minister of Finance Najib
Razak looked to demonstrate the Government’s commitment to fiscal consolidation
by mixing the introduction of a goods and service tax (GST) and increased property
taxation, with cash handouts and cuts in both individual and corporate income
While Malaysian gross domestic product (GDP) is expected to grow strongly next
year by up to 5.5 percent, after around 5 percent this year, as the global economic
situation is also forecast to improve, Government’s revenue collection is
estimated at MYR224.1bn (USD71.3bn), an increase of MYR4bn from 2013. Its fiscal
deficit should decline from 4 percent of GDP in 2013 to 3.5 percent in 2014.
Last June, the Government established the Fiscal Policy Committee (FPC). The
role of the FPC is to strengthen the Government’s financial position and ensure
fiscal sustainability. Najib confirmed that the fiscal deficit will continue
to be reduced gradually, with the aim of achieving a balanced budget by 2020.
The Government will also ensure that Federal debt level will remain low and
not exceed 55 percent of GDP.
Najib announced plans to abolish the present sales tax and service taxes, and
to replace them with the GST. With the current inflation rate low and contained
at 2 percent, the Government believes that this is the best time to implement
a GST, whose rate will be 6 percent and effective from April 1, 2015.
He pointed out that the proposed GST rate will be the lowest among countries
within the Association of Southeast Asian Nations – compared with 10 percent
in Indonesia, Vietnam, Cambodia, the Philippines and Laos, and 7 percent in Singapore
and Thailand – and it will not be imposed on basic food items, water and
initial electricity supplies, services provided by the Government, transportation
and selected financial services and the sale, purchase and rental of residential
Upon implementation of GST, the Government is committed to provide various
forms of assistance to counteract the fall in disposable incomes of those on
lower incomes, including one-off cash grants to households and individual income
tax rate reductions of 1-3 percent for all taxpayers, so as to ensure that some
300,000 persons will no longer pay tax (generally, families with a monthly income
of MYR4,000 will no longer have a tax liability).
To ensure a more progressive tax structure, the chargeable income subject to
the maximum rate will be increased from that exceeding MYR100,000 to MYR400,000.
However, the current maximum tax rate of 26 percent will also be reduced to
24 percent, 24.5 percent and 25 percent.
In addition, to ensure smooth GST implementation by businesses, the Government
proposes that the corporate income tax rate be reduced by 1 percent to 24 percent,
while the income tax rate for small and medium-sized enterprises will be reduced
by 1 percent to 19 percent, from the 2016 year of assessment.
The cost of purchasing information technology (IT) equipment and software will
also be given an Accelerated Capital Allowance until the 2016 year of assessment;
and expenses incurred for training in accounting and IT relating to the new
GST will be provided with a further tax deduction for the 2014 and 2015 years
With regard to housing, the Government has recognized that the recent sharp
increase in the prices of houses, particularly from speculative activities,
has affected people’s ability to purchase houses. In that respect,
the Government will increase the rate of real property gains tax (RPGT) to 30
percent on properties disposed within a holding period of up to 3 years. For
disposals within a holding period up to 4 and up to 5 years, the RPGT rates
are increased to 20 percent and 15 percent, respectively.
For disposals made in the sixth and subsequent years, no RPGT is imposed on
individuals, whereas companies are taxed at 5 percent. For non-residents, RPGT
is imposed at 30 percent on the gains from properties disposed within a holding
period of up to 5 years, and for disposals in the sixth and subsequent years,
RPGT is imposed at 5 percent. The minimum price of property that can be purchased by
foreigners is increased from MYR500,000 to MYR1m.
Finally, to further promote Malaysia as a tourist destination, the Government
will continue to encourage investments particularly in new 4 and 5-star hotels,
to ensure an adequate supply of international-standard accommodation and increase
tourist arrivals, especially from the luxury and high-spending category. To
support this, the Government proposes the application period for their investment
tax allowance incentives be extended for another 3 years until December 31,