Written by Ashley Yip and Kam Sue Herng
In light of the new budget for 2025 by the Malaysian government, new tax schemes have been proposed, this article aims to revisit and refresh the understanding of the current tax structures and their definitions while getting acquainted with the various terms and policies that shape the financial landscape in Malaysia.
The five new proposed taxes for 2025 budget include:
- ‘Unhealthy food tax’ is defined as a type of tax imposed on foods high in fat, sugar and calories.
- This proposed tax is aimed at reducing obesity and diabetes rates in Malaysians and to encourage healthier food consumption and choices.
- Countries like Hungary and Mexico have implemented similar tax schemes and had positive responses.
- ‘Inheritance tax’ is defined as a type of tax imposed on an estate (property, money and possessions) inherited by beneficiaries after someone passed away.
- The inheritance tax has been abolished in 1991 due to poor tax collection as it was only applicable to a specific threshold when the person passed away and it served as a redundant double taxation.
- However, in the new 2025 budget tax schemes, the inheritance tax seems to be making a return with the aim to reduce wealth inequality across the population and prevent unproductive wealth accumulation.
- ‘Carbon pricing tax’ is defined as a type of tax imposed on the carbon emissions required to produce goods and services.
- This proposed tax is aimed to combat climate change and facilitate carbon trading while aligning itself with Malaysia’s goal of achieving net-zero carbon emissions by 2050.
- ‘Artificial intelligence tax’ is defined as a type of tax imposed to regulate and generate revenue from the AI sector.
- This proposed tax aims to establish a financial framework that fosters the growth and advancement of AI technology in Malaysia.
- ‘High value goods tax’ is defined as a type of tax imposed on individuals purchasing any luxury items in Malaysia.
- This proposed tax was originally planned for May 2024, but it was placed on hold indefinitely. With the new budget for 2025, this proposed tax could make an appearance.
- The HVGT value is between 5%-10% and will apply to luxury items (watches, jewellery and cars) that exceed a certain price threshold.
- This proposed tax aims to reduce income inequality and address the wealth gap in Malaysia.
The five new proposed tax schemes outlined above in the Malaysian government’s 2025 budget represent a significant shift towards promoting healthier lifestyles and addressing social inequities. However, some tax schemes being introduced are receiving a great deal of pushback such as the reintroduction of the Inheritance Tax. The reintroduction of the Inheritance Tax could unfairly impact individuals who have invested in real estate for the benefit of future generations, potentially discouraging Malaysians from working hard and investing within the country.
The tax might be perceived as penalising those who have accumulated wealth through their efforts and long-term investments. The introduction of the AI Tax could also be difficult as the government has yet to clarify what exactly AI Tax entails and its impact on Malaysian technology companies.
In discussing the new proposed tax schemes, let us revisit our current tax schemes and their definitions. In Malaysia, there are two types of taxes which consist of direct tax and indirect tax.
Direct tax is a tax that the taxpayer pays directly to the government:
Individual Income Tax
- ‘Income tax’ is defined as a tax that is imposed on salaries, dividends or other income a tax resident earns throughout the year and ‘Individual’ is defined as a Malaysian tax resident if the individual stays in Malaysia for 182 days or more in a calendar year.
- Section 4 of the Income Tax Act 1967, amended by Finance Act 2017.
Corporate & Business Income Tax
- ‘Corporate & business income tax’ is defined as a direct tax paid to the government imposed on both resident and non-resident companies that receive income from Malaysia.
- Section 4 of the Income Tax Act 1967, amended by Finance Act 2017, Section 3 of the Labuan Business Activity Tax Act 1990.
Co-operative Tax
- ‘Co-operative tax’ is defined as a lower direct tax paid to the government imposed on cooperatives which are organizations established for the mutual benefit of their members of the cooperative.
- Co-operative Societies Act 1993, s 65A of the Income Tax Act 1967.
Petroleum Income Tax
- ‘Petroleum income tax’ is defined as a tax that imposed on the income derived by a chargeable person from any petroleum operations in Malaysia for each year of assessment.
- Petroleum (Income Tax) Act 1967, Finance Act 2017.
Withholding Tax
- ‘Withholding tax’ is defined as an amount withheld by the party making payment (payer) on income earned by a non-resident (payee) and paid to the Inland Revenue Board of Malaysia.
- Section 109 of the Income Tax Act 1967, amended by Finance Act 2017.
Real Property Gain Tax
- ‘Real property gain tax’ is defined as a tax on chargeable gains that homeowners and businesses are required to pay when selling their property. If the property is sold at a loss, the tax is waived.
- Real Property Gains Tax Act 1976, Finance Act 2017.
Stamp Duty
- ‘Stamp duty’ is defined as a tax that is imposed on legal documents and is divided into two categories, fixed duties and ad valorem duties.
- Stamp Act 1949, Finance Act 2017.
Payroll Tax
- ‘Payroll tax’ is defined as a tax that is imposed on the taxes and contributions employers must withhold from employees’ wages and remit to the government.
- Section 107 of the Income Tax Act 1967, Finance Act 2017.
Double Tax Treaty
- ‘Double tax treaty’ is defined as a tax that is imposed to eliminate double taxation between two sovereign states.
- Sections 132 and 133 of the Income Tax Act 1967, Finance Act 2017.
Indirect tax is a tax that can be passed on or shifted to another person or group by the person or business that owes it.
Export Duty
- ‘Export duty’ is defined as a tax that is imposed on the country’s main commodities such as crude petroleum and palm oil for revenue purposes.
- Customs Act 1967, Sales Tax Act 2018, Excise Act 1976.
Import Duty
- ‘Import duty’ is defined as a duty charge imposed on goods entering Malaysia from overseas via road, sea or air.
- Customs Act 1967, Sales Tax Act 2018, Excise Act 1976.
Excise Duties
- ‘Excise duties’ is defined as a type tax imposed on specific goods imported into or manufactured in Malaysia for domestic use. For instance, it is imposed on the manufacturing of alcoholic beverages, tobacco products, electronic cigarettes and electronic vaporizing devices, passenger motor vehicles, playing cards, mahjong tiles and sugar sweetened beverages.
- Customs Act 1967, Sales Tax Act 2018, Excise Act 1976.
Sales & Service Tax (SST)
- ‘Sale & service tax’ is defined as a type of tax that is imposed on products manufactured and produced locally and on taxable goods imported into Malaysia.
- Sales Tax Act 2018, Goods and Services Tax Act 2014.
Tourism Tax
- ‘Tourism tax’ is defined as a tax imposed on all foreign passport holders staying at accommodation premises in Malaysia.
- Tourism Tax Act 2017.
Published on 9 December 2024