2024 in review: Seven taxes and e-invoicing to boost Malaysia’s revenue

KUALA LUMPUR, Dec 11 — The government will continue efforts to narrow its fiscal deficit to 4.3 per cent in 2024 and 3.8 per cent in 2025, down from five per cent of the gross domestic product (GDP) in 2023.

Simultaneously, it will advance fiscal reforms to strengthen financial resilience and boost revenue.

This year’s key initiatives include the service tax revision to eight per cent from six per cent, a 10 per cent online sales tax on imported low-value goods (LVG) valued at RM500 or less, and the introduction of a capital gains tax.

There were also efforts to digitalise tax and financial reporting via e-invoicing to reduce incidents of tax avoidance and financial leakages.

Sales and Service Tax (SST)

The 10 per cent sales tax imposed on imported LVG sold online took effect on Jan 1, 2024. It was first announced in Budget 2022 and was to take effect on April 1, 2023, but was subsequently postponed.

Meanwhile, from March 1, 2024, the service tax rate was raised to eight per cent from six per cent across various sectors. Essential services such as food and beverages, telecommunications, parking, and logistics with taxes remained at six per cent.

In Budget 2025, it was announced that a progressive SST extension in terms of scope and rate will be effective May 1, 2025. The move is anticipated to contribute an extra RM5 billion to the country’s revenue — RM2.2 billion from a sales tax and RM2.8 billion from a service tax.

Finance Minister II Datuk Seri Amir Hamzah Azizan said these enhancements are expected to raise SST revenue to RM51.7 billion in 2025, up from a current RM46.7 billion forecast.

Deputy Finance Minister Lim Hui Ying said the scope of the expanded service tax will be announced in early 2025 before being implemented in May. The scope of the list depends on the outcome of an engagement session the Finance Minister is currently conducting with stakeholders.

Capital Gains Tax (CGT)

Introduced in the revised Budget 2023 with additional details provided in the Budget 2024, the government imposed a 10 per cent CGT on the sale of local companies’ unlisted shares effective March 1, 2024.

Initial public offerings (IPOs), internal restructuring, and venture capital investments were exempted to encourage innovation and investment.

Prime Minister Datuk Seri Anwar Ibrahim, also Finance Minister, reportedly said in November 2023 that the CGT was expected to generate RM800 million annually.

E-Invoicing

Planned in the revised Budget 2023 and elaborated in Budget 2024, the government announced the implementation of e-invoicing which was aimed to raise compliance among taxpayers and reduce leakages.

Businesses with an annual revenue above RM100 million adopted e-invoicing effective Aug 1, 2024. Those with an annual revenue of between RM25 million and RM100 million will do so on Jan 1, 2025.

E-invoicing will be mandatory for all taxpayers from July 1, 2025.

High-Value Goods Tax (HVGT)

Initially introduced in Budget 2023 as a luxury goods tax, the HVGT was scheduled to take effect in May 2024 with rates ranging from five to 10 per cent, but its implementation was postponed.

Expected to generate RM700 million annually, the tax remains under policy and legislative review and was not mentioned in the Budget 2025 tabled in October 2024.

Global Minimum Tax (GMT)

Announced in Budget 2024, the Global Minimum Tax (GMT) is a 15 per cent tax imposed on companies with a global income of at least 750 million euros (1 euro = RM4.6719).

Aligned with the Organisation for Economic Co-operation and Development’s base erosion and profit-shifting initiative, the tax will be implemented in 2025.

While GMT is expected to generate additional revenue, the government plans to mitigate investment risks through streamlined incentives, new non-tax incentives, and a strategic investment tax credit, according to Budget 2025.

Dividend Tax and Sugar Tax

The government also announced in Budget 2025 that individual shareholders earning an annual dividend income exceeding RM100,000 will be subject to a two per cent tax, starting in the 2025 assessment year.

Dividend income from government savings, such as the Employees Provident Fund (EPF), unit trusts under Permodalan Nasional Bhd (PNB), and foreign dividend income will be exempted.

As part of its public health strategy, the excise duty on sugary drinks will be raised by a further 40 sen per litre, bringing it to 90 sen per litre, starting Jan 1, 2025.

Initially introduced at 40 sen per litre in 2019, the rate was raised to 50 sen per litre in 2024. The additional revenue generated from the tax will be allocated to public health expenses.

Carbon tax

In Budget 2025, the government said it will introduce a carbon tax for the iron, steel and energy industries by 2026, to encourage the adoption of low-carbon technologies.

Tax proceeds will be used for research and programmes related to green technology, it said.

All in all, for 2024, the government expects tax revenue ‒ being the primary contributor to overall revenue ‒ to amount to RM241 billion, or 74.8 per cent of total revenue.

Heading towards 2025, the government has projected tax revenue to rise to RM259 billion. It will maintain its position as the largest revenue source, making up 76.3 per cent of total revenue, or 12.4 per cent of the GDP as reported in the 2025 Fiscal Outlook and Federal Government Revenue Estimates report. — Bernama

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