KUALA LUMPUR (Oct 14): The government has announced several new tax reform measures in Budget 2024, which aims to broaden the country’s revenue base.

Among new taxes introduced are the capital gains tax (CGT) at 10% on net profit derived from the disposal of local companies' unlisted shares (starting from March 1, 2024), luxury goods tax (LGT) at 5%-10%, and the increase of the service tax to 8% from the current 6%, which will expand to cover logistics, brokerages, underwriting and karaoke services.

The government will also make e-invoices mandatory for taxpayers with annual income or sales exceeding RM100 million beginning Aug 1, 2024, while e-invoices for other income categories will be enforced in phases from July 1, 2025.

On top of that, the government is expected to implement the global minimum tax (GMT) in 2025 which will only be applied to companies with a global income of at least €750 million (approximately RM3.72 billion). They have to top-up tax if they are not subject to an effective tax rate (ETR) of at least 15% in each country they operate.

In a statement on Friday, PwC Malaysia tax leader Jagdev Singh said that both CGT and LGT do not come as a surprise as these have been shared in the revised Budget 2023 earlier this year.

For the service tax, he sees this as a “stopgap” measure until the government is ready to implement a broad-based consumption tax in the form of the goods and services tax (GST).

While the government plans to maintain the rate of service tax for food and beverage (F&B) and telecommunications services, Jagdev sees the increase of the tax rate on other services resulting in an increase in the cost of doing business.

“Also, expanding the service tax to cover logistics services will have a cascading effect on costs, and businesses will seek to pass these on to consumers in the form of an increase in prices of goods and services,” he said.

On GMT, Jagdev said that Malaysia’s decision to defer the implementation of GMT is consistent with the approach taken by many jurisdictions in the region, including Singapore and Thailand.

“This is a prudent move, as we want to remain on the same footing as our neighbours competing for foreign investments,” he said.

Chartered Tax Institute Malaysia (CTIM) president Chow Chee Yen, meanwhile said the deferment will give the tax authorities and the affected multinational companies more time to make the necessary preparations. He hoped the draft guidelines, indicative timeline for implementation, and draft legislative provisions on GMT and qualified domestic minimum top-up tax (QDMTT) will be made available for consultation and feedback soon.

Farah Rosley, Malaysia tax leader at Ernst & Young Tax Consultants Sdn Bhd (EY), advised groups with tax incentives to conduct a thorough assessment of how these incentives will affect their ETR.

“Groups with tax incentives should carefully evaluate the impact which the incentive will have on the Group ETR and consider whether the incentives should be re-negotiated to ensure that they continue to provide the intended benefits,” said Farah.

KPMG Malaysia head of tax Soh Lian Seng, on the other hand, hoped that there will be clear regulations and guidelines with a reasonable transition plan to successfully facilitate the implementation of the tax reforms.

“The same is also hoped for the global minimum tax (GMT), which is now clarified to only apply to companies with a global revenue of at least €750 million beginning from 2025. This clarity provides MNEs with much-needed breathing room to prepare for the implementation of GMT,” said Soh.

Following the implementation of CGT effective March 2024, Deloitte Malaysia country tax leader Sim Kwang Gek expects the current Real Property Gains Tax (RPGT) Act 1976 will be amended to remove RPGT on disposal of real property company shares to avoid double taxation.

“The introduction of CGT on gains arising from disposal of unlisted shares may have a short term impact on mergers and acquisition (M&A) deals as it will increase the tax costs but over time, the market would have taken such tax costs into consideration,” said Sim.

She also opined that the implementation of the service tax will have an immediate impact on businesses as it would raise costs of doing business, with the service tax increase being passed on to consumers and businesses at the end of the day.

“To cushion this, it is hoped that the government will expand the business-to-business exemptions that is currently applicable to certain prescribed taxable services,” she added.

Go here for our comprehensive Budget 2024 coverage.