Following the re-tabling of Malaysia’s Budget 2023 on 24 February 2023, it was announced that the Government would explore the implementation of a capital gains tax (CGT) on the disposal of unlisted shares by companies at a reduced rate.
Subsequently, the Budget 2024 announcement on 13 October 2023 provided further elaboration on this proposal, including details such as the proposed commencement date, tax rates, affected taxpayers, and potential exemptions.
Since the Budget announcement, several developments have occurred:
- On 7 November 2023, the Finance (No. 2) Bill 2023 (Bill) was released and presented for its initial reading.
- On 29 December 2023, the Finance (No. 2) Act 2023 (Finance Act) was officially enacted into law after being gazetted. The Finance Act encompasses all the amendments proposed in the Bill.
- Additionally, on 29 December 2023, the Income Tax (Exemption) (No. 7) Order 2023 [P.U.(A) 410] (Exemption Order) was gazetted, providing exemptions related to CGT and deferring the effective date for CGT concerning certain disposals.
- On 15 January 2024, the Inland Revenue Board (HASiL) introduced the Capital Gains Tax Return Form (CGTRF) Filing Programme, which is set to take effect from 1 March 2024.
- On 23 February 2024, the Income Tax (Exemption) (No. 2) Order 2024 [P.U.(A) 57] (Exemption Order) was gazetted, providing exemptions related to CGT and deferring the effective date for CGT concerning the disposal of shares under section 15C of the Income Tax Act 1967.
It is worth noting that according to the Finance Act, CGT will be enforced starting 1 January 2024.
However, the Income Tax (Exemption) (No. 2) Order 2024 [P.U. (A) 57/2024] provides that a company, LLP, trust body, or co-operative society is given an income tax exemption to any gains or profits received from the disposal of shares under section 15C of the Income Tax Act 1967.
This exemption applies to such disposals of shares under section 15C of the Income Tax Act 1967 from 1 January 2024 to 29 February 2024.
Hence, CGT will only be payable on disposals of shares under section 15C of the Income Tax Act 1967 from 1 March 2024.
The order specifies an exception to the exemption of income tax on profits or gains from the disposal of shares under section 15C of the Income Tax Act 1967.
Specifically, the exemption does not apply to a disposal of shares under section 15C of the Income Tax Act 1967, where the gains or profits are taxable as business income under paragraph 4(a) of the Income Tax Act 1967.
This means that if the gains or profits from the disposal of shares under section 15C of the Income Tax Act 1967 are considered business income, they will not be eligible for the tax exemption outlined in the order.
Reference:
Income Tax (Exemption) (No. 2) Order 2024
Based on a review of the Income Tax (Exemption) (No. 7) Order 2023 [P.U. (A) 410] and the Income Tax (Exemption) (No. 2) Order 2024 [P.U. (A) 57], the key differences are:
Effective dates
- No. 7 Order 2023: 1 January 2024 to 29 February 2024
- No. 2 Order 2024: 1 January 2024 to 29 February 2024
The type of shares exempted
- No. 7 Order 2023: Shares of unlisted companies incorporated in Malaysia
- No. 2 Order 2024: Shares disposed under section 15C of the Income Tax Act 1967
Non-application provision
- No. 7 Order 2023: Exemption does not apply if gains/profits from share disposal are taxable as business income
- No. 2 Order 2024: Exemption does not apply if gains/profits from share disposal under section 15C are taxable as business income
In summary, No. 7 Order 2023 provides income tax exemption specifically for disposal gains/profits of unlisted company shares, while No. 2 Order 2024 exempts disposal gains/profits under section 15C. Both have identical effective dates.
The key difference is the types of shares exempted and the non-application provisions referencing the specific exemption scope defined in each order.
