Part 2: Finance Act of 2023, Finance (No.2) Act of 2023 and other laws as at 31 March 2024
Relevant to those sitting ATX-MYS in December 2024 or March, June or September 2025
This is the second of two articles, provided by the ATX-MYS examining team to update candidates on the legislation and related resources pertaining to advanced taxation in Malaysia, covering areas in direct and indirect taxes which are included in the ATX-MYS syllabus.
These articles should be read by candidates who are preparing for the ATX-MYS exam in the period from 1 December 2024 to 30 September 2025.
Part 1 provides an overview of the main features of the Malaysian tax system covered in the ATX syllabus as at 31 March 2024.
This Part 2 considers the changes brought about by:
It should be noted that the subject matter of tax on gains or profits from the disposal of capital assets (capital gains), which was introduced in Act 851 but amended by the Income Tax (Amendment) Act 2024, is specifically excluded from the ATX-MYS syllabus for the exam year of December 2024 to September 2025, as at the cut-off date 31 March 2024, the subject matter remained fluid and continues to evolve. Given the exclusion, capital gains will not be discussed in detail beyond a cursory mention in these two articles.
Any reference to a section or schedule in this article refers to a provision of the Income Tax Act 1967, unless otherwise specified.
The abbreviations used in this article are:
Finance Act 2023 (Act 845) and Finance (No.2) Act of 2023 (Act 851) as amended by Income Tax (Amendment) Act 2024
A. Background
Budget 2023 was first tabled in October 2022. As the Malaysian Parliament was dissolved soon after, followed by a general election and a new federal government thereafter, that Budget was not passed by Parliament.
On 24 February 2023, Budget 2023 was re-tabled and the resultant Finance Act 2023, Act 845, duly received royal assent on 31 May 2023 and was gazetted on the same day.
Budget 2024 was tabled in October 2023, passed by Parliament and gazetted on 29 December 2023, hence Finance (No.2) Act of 2023, Act 851. Unexpectedly, on 25 March 2024, an amendment bill was tabled at Parliament to amend Act 851, and duly gazetted on 20 May 2024 as Income Tax (Amendment) Act 2024.
B. Overview
The changes introduced by the two Finance Acts of 2023 relate to the following areas. Unless stated, ATX-MYS candidates are expected to be aware of these changes.
C. Amendments in detail
1. Companies and business
1.1 SMEs (companies and LLPs)
The dual-rate (17% / 24%) regime for SMEs has been made even more attractive by making it triple-rate – ie 15%/17%/24%. However, an additional condition is introduced in the definition of SME so that the beneficiary SMEs include only the ones which are held at least 80% by Malaysian incorporated companies and/or citizens.
Definition
The requisite conditions for SMEs for YA 2024 et seq are as follows:
Triple-rate regime
1.2 Capital allowance - definition of ‘plant’
W.e.f. YA 2023 et seq, the definition of ‘plant’ in paragraph 70A of Schedule 3 has been amended (in bold) as follows:
1.3 Revision of tax estimate in the 11th month
W.e.f. YA 2024, companies and LLPs may revise their EoT in the 11th month (in addition to the 6th and 9th months).
This is beneficial for the taxpayer as the 11th month revision, if made, will constitute the base for the minimum 85% tax estimate for the immediately following YA.
Illustration 1
ABC Sdn Bhd (year end 31 December) furnished an EoT of RM120,000 for YA 2024.
If the company finds that its tax chargeable is likely to decrease to RM50,000 for YA 2024, it may revise its tax estimate in the months of June, September, or November 2024, or in all months, to the lower amount of RM50,000.
The impact on the company’s cashflow in the following year is that for YA 2025, the minimum 85% will be based on RM50,000, rather than RM120,000 – ie RM42,500, instead of RM102,000.
2. Individuals
Changes impacting individuals relate to personal reliefs, revised scale rates and revision of tax instalments.
2.1. Personal reliefs
* Candidates will be expected to be aware of which reliefs apply for the syllabus year in which their exam is set, and these reliefs are provided in the ATX-MYS tax rates and allowances for their reference during the exam. The years of applicability are provided here for completeness.
2.2. Scale rates
2.3. Revision of tax instalments
An individual with income other than or in addition to employment income is required to pay tax by instalments as directed by the DGIR under s.107B, whether or not the tax has been assessed. In determining the amount of the instalment, the DGIR takes into consideration the tax assessed for the preceding YA.
Up to YA 2022, an individual may apply to the DGIR by 30 June of the YA to vary the amount to be paid by instalments and the number of instalments.
W.e.f. YA 2023 et seq, the individual may apply once by 30 June, or once by 31 October in the YA, or both, to vary the amount of the instalments and the number of instalments. This means that the individual is henceforth afforded an additional opportunity to vary their tax instalment so that they do not overly pre-pay tax.
Do take note that where an application to vary the amount of instalment has been made, and the final tax assessed (relating to the income other than employment) exceeds the total of instalments paid by more than 30% of the final tax assessed, a penalty of 10% of the excessive difference will be imposed.
3. Tax administration
3.1 Submission of returns
A new s. 82B(1) was inserted which states that where a person (including a company) has furnished to the DGIR a return in accordance with s. 77A, that person must provide the information and documents as may be determined by the DGIR for the purpose of ascertaining his chargeable income and tax payable as follows:
This is part of the IRB’s efficiency process and enhance the taxpayer’s tax reporting obligations electronically.
3.2 Power of the DGIR to issue guidelines
W.e.f. 1 January 2024, under s.134A(1), the DGIR may issue guidelines as the DGIR thinks useful or necessary to clarify any part of the Act or to facilitate the compliance of the law or any other matter relating to the Act. The DGIR is also given powers to amend or revoke any guideline issued.
3.3. Withholding tax on payments to resident individuals
W.e.f. 1 January 2023, withholding tax at 2% of payments to a resident ADD, is to be paid over to the DGIR by the end of the following month, instead of within 30 days after paying or crediting the payment.
Illustration 2
ABC Sdn Bhd paid sales commissions during the three months of July to September 2023 as follows:
Compliance with withholding tax
As Ah Chong received less than RM100,000 in the immediately preceding basis year for YA 2022, there is no need to withhold the 2% on the payments to him in 2023.
Ali received more than the RM100,000 threshold amount in 2022: ABC Sdn Bhd must withhold 2% from the commissions payable to him in 2023.
4. Double tax relief
4.1. Foreign Income
The definition of ‘foreign income’ is amended to read:
'foreign income' means, in relation to –
(a) unilateral credit, income derived from outside Malaysia charged to foreign tax;
(b) bilateral credit, income derived from outside Malaysia and from Malaysia, charged to foreign tax.
This means that w.e.f. YA 2024, if a given income item is derived in Malaysia and also derived from a foreign country with which Malaysia does not have a double tax treaty, Malaysia will not give the unilateral credit.
4.2. Foreign tax
Definition of foreign tax is also amended (see bold below) as follows:
'foreign tax' means any tax on income (or any other tax of a substantially similar character) chargeable or imposed by or under the laws of a territory outside Malaysia in which the same income arose and in relation to ……'
The amendment means that the foreign tax on the foreign income must be levied by the same country in which the income arose in order to constitute foreign tax suffered by the claimant of double tax relief.
5. RPGT
5.1 The NGNL treatment under Paragraph 3, Schedule 2 of RPGT Act 1976 was amended as follows:
5.2. Self-assessment system for RPGT returns
The SAS for RPGT has been proposed to be implemented on 1 January 2025 and will NOT be examined for the exam years December 2024 to September 2025.
5.3 RPC shares
Paragraph 34A of Schedule 2 relating to RPC shares was amended to include a new sub-paragraph 34A(5A) which provides that:
paragraph 34A 'shall not apply to an acquisition or disposal of any shares by a company, LLP, trust body or co-op, other than a Labuan entity as provided under section 2B of the Labuan Business Activity Tax Act 1990, on or after 1 January 2024'.
This has the significant implication of removing the gains or profits from the disposal of RPC shares by a company, LLP, trust body or co-op from the RPGT Act, and effectively placing such gains under the purview of the Income Tax Act 1967, w.e.f. 1 January 2024.
Written by a member of the ATX-MYS examining team