KUALA LUMPUR (Nov 9): The removal of tax exemption for foreign sources of income in the recently announced Budget 2022 should not be seen as a negative move to discourage foreign direct investment (FDI), according to Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz.

Tengku Zafrul highlighted that the effectiveness of the investment ecosystem is not determined by tax incentives, but it also depends on the comprehensiveness of the country’s tax system that is in accordance with international tax standards. 

“This is to ensure taxing the right [party] and fairly distribute to the jurisdictions. This is also to avoid any practices of tax evasion and tax avoidance.

“So by signalling Malaysia’s rights to tax, we are signalling the message that we do not condone such practices. 

“We’ve seen in other countries like Hong Kong, Singapore and others which either removed or amended their laws in order to meet the international standards,” Tengku Zafrul said during Malaysia’s post-Budget 2022 discussion at virtual Invest Malaysia 2021 on Tuesday (Nov 9). 

In Budget 2022 announced on Oct 29, it was proposed that income tax be imposed on residents in Malaysia with income derived from foreign sources and received in Malaysia from Jan 1, 2022. 

Meanwhile, the finance minister also said that the increase in the threshold price of the crude palm oil (CPO) windfall profit tax (WPT) structure for local plantation companies is expected to benefit producers as well. 

“We have not only increased the levy (palm oil) percentage, but we will also increase the threshold for Peninsular Malaysia and Sabah and Sarawak,” Tengku Zafrul noted. 

Under Budget 2022, the government has proposed to increase the threshold price of the CPO WPT structure for local plantation companies.

Local palm oil producers next year will be subject to a standardised 3% levy when CPO prices exceed RM3,000 per tonne in Peninsular Malaysia and surpass RM3,500 per tonne in Sabah and Sarawak.

Currently, Peninsular Malaysia-based planters are subject to a 3% levy once CPO hits RM2,500 per tonne or above, while planters in Sabah and Sarawak are imposed with a 1.5% levy when CPO prices hit RM3,000 per tonne or above.

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