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Malaysia 2022 Pre-Budget Statement

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Published on 9/16/2021 - Issue Q3/2021

 

On 31 August 2021, the Malaysian Ministry of Finance published its inaugural Pre-Budget Statement ("PBS") in an effort to improve the annual budget preparation process, to promote governance and to increase transparency in drafting the annual budget. This initiative is welcomed, as the PBS would instill public confidence, especially amongst investors.

 

The PBS essentially provides a preliminary view on the direction of the Budget 2022; and includes various tax related announcements, including potential avenues to enhance tax compliance and increase tax revenue. Below please find an outline of some of the key tax strategies.

 

Strategies to Increase Tax Revenue 

Implementation of Special Voluntary Disclosure Program ("SVDP") for indirect taxes

The SVDP intends to encourage taxpayers to voluntarily declare any indirect tax that either has not been paid, underestimated or erroneously reported to the Royal Malaysian Customs Department ("RMCD"). This would allow for taxpayers to perform a self-review and to rectify any non-compliance with potentially lower penalties.

 

Although the details of the SVDP for indirect taxes have yet to be announced, the approach under the SVDP for direct taxes introduced in 2018 is likely to be adopted.

 

It would be more welcomed if the SVDP was introduced as a permanent program to affirm certainty and confidence for businesses in voluntarily disclosing and correcting mistakes and errors without being unduly hit with significant penalties. A permanent SVDP would also contribute to a lasting change to overall indirect tax compliance practices and taxpayer attitudes.

 

On the other hand, one can also expect the RMCD to subject harsher enforcement actions and heavier penalties post the expiry of the SVDP, in the event the SVDP is introduced for a limited time.

   

In any case, this SVDP will allow taxpayers to conduct a self-review and move forward with a clean record.

At this juncture, companies and businesses should start assessing immediately whether they have any unpaid, underestimated or erroneously reported indirect taxes administered by the RMCD, so that they can take the opportunity to participate early in the SVDP upon implementation.

 

Tax compliance measures to increase tax revenue

Introduction of a requirement for taxpayers to obtain a Tax Compliance Certificate as a pre-condition for taxpayers to participate in Government procurement (i.e., government tenders). 

 

Implementation of the Tax Identification Number ("TIN") for the purpose of a speedy compliance review, including reviewing contentious tax treatment, or tax treatment in relation to transactions which are commonly identified as having elements of revenue leakage or harmful practices.

 

Strategies to Strengthen the Tax System

Tax Incentive Review

The Malaysian government has committed to review its existing tax incentives offered to foreign and domestic investors, in order to ensure they remain relevant in light of the current business landscape, and provide positive returns to the country's economy and fiscal position.

 

The objectives of this review are as follows:

  • Provide an incentive framework that is responsive to changes in the business environment and economic landscape;
  • Coordinate the role and focus as well as uniformity in evaluating investments by investment promotion agencies;
  • Ensure that the tax incentive framework complies with international commitments; and
  • Ensure that Malaysia remains a major investment destination.

 

This review exercise is welcomed as it would be an important step in ensuring that Malaysia remains competitive and attractive to valuable investors, as well as in ensuring economic growth.

 

The tax incentive review is being undertaken with due consideration to the international compliance commitments, such as the BEPS Action Plan. In this regard, we do not expect any announcement on new tax incentives to be contradictory to the BEPS Action Plans, specifically Action Plan 5, 6, 13 and 15.

      

Implementation of Medium-Term Revenue Strategies ("MTRS") 

The MTRS is a comprehensive initiative to ensure that Government revenue through tax collection is continually managed and sustainably increased in line with GDP growth.

 

The MTRS will have three main components, i.e., Tax Policy, Tax Administration, and Tax Legal Framework. This initiative will be undertaken by a Technical and Steering Committee comprising the Ministry of Finance, the Inland Revenue Board, the Economic Planning Unit, Central Bank of Malaysia, and the RMCD.

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Priya Selvanathan

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+60 3 2276 3755

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