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Government to impose Digital Services Tax instead of reinstating GST

Some growing stacks of coins with the word taxes on it

11 October, KUALA LUMPUR – The government has no intention of bringing back the Good and Services Tax (GST), instead it will introduce a new Digital Services Tax and several tax incentives and exemptions to further boost the economy, said Finance Minister Lim Guan Eng.

He said the Digital Services Tax will be implemented on Jan 1 next year.

“This will include services such as, but not limited to, downloaded software, music, video or digital advertising.

“Foreign service providers can commence registration with the Royal Malaysian Customs Department as of Oct 1, 2019,” he said when tabling the 2020 Budget themed “Driving Growth and Equitable Outcomes Towards Shared Prosperity” in Parliament today.

Lim said to ensure a more progressive personal income tax structure, a new band for taxable income in excess of RM2 million would be introduced at the rate of 30 per cent, a hike of two percentage points from the current 28 per cent rate.

This increase will affect about 2,000 top income earners in the country, he said.

Meanwhile, Lim said new incentive framework, a comprehensive review and revamp of the existing framework, would be ready by Jan 1, 2021.

He said the government would provide up to RM1 billion customised packaged investment incentives annually over five years, as part of the strategic push to attract targeted Fortune 500 companies and and global unicorns in high technology, manufacturing, creative and new economic sectors.

The government would also make available RM1 billion in customised packaged investment incentives annually over five years to transform Malaysia’s businesses into most competitive enterprises in global export markets, he said.

Lim said the tax incentives given to venture capital and angel investors would be extended until 2023 to further encourage alternative sources of funding for start-up companies and to attract more foreign investment to Malaysia.

To further promote high-value added activities in the electrical and electronics (E&E) industry to transition into 5G digital economy and Industry 4.0, the government would provide tax exemption up to 10 years for E&E companies investing in selected knowledge-based services.

A special Investment Tax Allowance to encourage companies in E&E sector that have exhausted the Reinvestment Allowance to further reinvest in Malaysia would also be given.

To support the growth of small and medium enterprises (SMEs), Lim said the government has decided to increase the chargeable income tax to RM600,000 next year from the current RM500,000, with the rate maintained at 17 per cent.

This subjected to the SME having paid-up capital of not more than RM2.5 million and annual sales of not over RM50 million, he said.

On the GST, Lim said the government managed to repay the tax refunds amounting to RM15.9 billion to more than 78,000 companies as at end-September 2019 and income tax refunds totalled RM13.6 billion have been returned to 448,000 companies and 184,000 taxpayers.

To improve efficiency of management of taxpayer appeals, the government would merge the Special Commissioner of Income Tax and Customs Appeal Tribunal into the Tax Appeal Tribunal.

“Through this merger, taxpayers who are dissatisfied with the decision of the director-general of the Inland Revenue Board or the director-general of Customs Department may submit a tax-related appeal under all applicable tax laws to the Tax Appeal Tribunal to be operation in 2021,” he said.

He said beginning January 2021, Malaysians above 18 years old and corporate entities would be assigned a Tax identification Number.


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