Review of Income Tax Rate for Micro, Small and Medium Enterprises
Updated: Jul 15
Update: The Ismail Sabri Government Budget is no longer applicable. Malaysia's national budget for 2023 was re-tabled again in February 2023.
To Download Revised Budget 2023 Speech and some other related publications - https://www.ccs-co.com/post/budget-2023-malaysia-madani
Current Position
A Company or Limited Liability Partnership (LLP) that has a paid-up capital of RM2.5 million and below with an annual sales turnover not exceeding RM50 million is categorised as Micro, Small and Medium Enterprises (MSME).
They are subjected to income tax of:
17% (preferential tax rates) for the first RM600,000 of chargeable income; and
24% (prevailing tax rate) on the remaining chargeable income.
Proposal
To boost MSME competitiveness and promote economic growth, it is suggested to cut the tax rate on chargeable income for the first RM150,000 from 17% to 15%, while maintaining the tax rates for the remaining taxable income at 17% and 24% as follows:-
Effective Date
For the year of assessment 2023.
Comments
The reduction of tax rates for the first RM150,000 of chargeable income can provide some relief for MSMEs, which are often cash-strapped and struggling to stay afloat, especially during the COVID-19 pandemic.
By reducing their tax burden, MSMEs can have more resources to invest in their business and grow their operations. This, in turn, can contribute to economic growth and job creation.
Footnotes
A MSME will not be entitled to the preferential tax rate if more than:
50% of the paid-up capital of its ordinary shares is directly or indirectly owned by a related company
50% of the paid-up capital of the ordinary shares of the related company is directly or indirectly owned by the first-mentioned company, or
50% of the paid-up capital of the ordinary shares of the first-mentioned company and the related company is directly or indirectly owned by another company.
“Related Company” means a company which has a paid-up capital in respect of its ordinary shares of more that RM2.5m at the beginning of the basis period for a year of assessment.
Practice Note
The Inland Revenue Board (IRB) released Practice Note No 3/2020 and Practice Note No 4/2020 to explain gross income from business sources of not more than RM50m.
According to the practice note, investment holding companies not listed on Bursa Malaysia are not eligible for the preferential tax rate because they do not have business income. However, Investment holding companies listed on Bursa Malaysia will be considered to have business income and qualify for the preferred tax rate.
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