KUALA LUMPUR (Oct 13): Tax leaders have lauded the proposed reforms of the tax incentive system under Budget 2024, which was tabled by Prime Minister Datuk Seri Anwar Ibrahim in Parliament on Friday.
According to PwC Malaysia’s tax leader Jagdev Singh, it is timely to revamp the incentive system to one that is tiered, results-based and encourages investors.
“A tiered-rate approach based on set outcomes also aligns broadly with carve-outs permitted under Pillar 2 rules, thus reducing potential impact of top-up taxes on multinationals,” said Jagdev in a press statement.
Under Budget 2024, Anwar said that the outcome-based incentives and tiered approach will encourage companies to generate economic activities through investments in high-growth, high-value sectors, which will eventually build new economic clusters.
For a start, the federal government proposed tiered tax incentives for reinvestments in the form of an investment tax allowance at either 70% or 100%. The government will also introduce global services hub tax incentives at a rate of either 5% or 10%, determined by the outcomes of the investments over a period of 10 years.
Jagdev opined that the global services hub incentive is a good example of the outcome-based incentives that provide a tiered rate based on the outcomes achieved, such as employment of high-value, full-time employees, collaboration with higher education institutions, or environmental, social and governance (ESG) elements.
Meanwhile, Sim Kwang Gek, the country tax leader of Deloitte Malaysia, opined that the proposal to allow companies that have exhausted their reinvestment allowance (RA) eligibility period to claim the allowance would bring cheer to companies that are facing this predicament, and encourage them to further invest in high-value activities.
“The structure of the incentive by tiering system is also appropriate, as the tax incentive is tagged to the agreed outcome achieved by a particular investment. This will then encourage businesses to focus on investments that generate higher value-add,” said Sim in a statement.
Currently, manufacturing and agricultural companies can claim their RA for 15 consecutive years of assessment in respect of expansion, diversification, automation and modernisation projects, she said.
Farah Rosley, the Malaysia tax leader of Ernst & Young Tax Consultants Sdn Bhd (EY), opined that the introduction of the outcome-based and tiered tax incentives not only attracts targeted investments, but also ensures that economic growth is aligned with the country’s broader goals of social inclusivity and environmental stewardship.
“Malaysia's adoption of outcome-based tax incentives marks a significant step towards a more resilient and sustainable economy for the benefit of all stakeholders,” said Farah in a statement issued by EY on Friday.
The tax proposals introduced through Budget 2024 are observed as setting the scene for future tax reforms aligned with the government’s aspirations to enable inclusive and sustainable economic growth, said Soh Lian Seng, the head of tax at KPMG in Malaysia, in a statement.
The government also has Malaysia’s business competitiveness in its sights, with several incentives to spur investments, he said. These include extending tax incentives to individual investors who invest in local start-ups through the equity crowdfunding platform up to Dec 31, 2026 through nominee limited liability partnerships.
“Similarly, the extension of tax incentives for angel investors until Dec 31, 2026 to encourage capital funding of technology start-up companies should positively enable the internationalisation of Malaysia’s unicorns,” said Soh.
Adeline Wong and Yvonne Beh, partners in the Tax, Trade and Wealth Management Practice Group of Wong & Partners, a member firm of Baker McKenzie International, opined that the host of tax incentives introduced are aimed at maintaining Malaysia’s competitiveness.
“Enhancement and extensions of tax incentives to further bolster adoption of green technology and automation in manufacturing are commendable, as this will help spur the adoption of green technology and enhance the manufacturing industry,” they said.
Meanwhile, Jagdev of PwC stated that Budget 2024 recognises that tax incentives are but one of many factors assessed by foreign investors.
“The commitment to introducing measures to enhance ease of doing business, and invest in human capital development and industrial infrastructure, is necessary to gain a competitive advantage amid an increasingly competitive environment,” he said.
Go here for our comprehensive Budget 2024 coverage.