Malaysia Budget 2023: How do the changes in corporate tax regimes affect MSMEs?

Malaysia Budget 2023_How do the changes in Corporate Tax regimes affect MSMEs

The first budget tabled by Prime Minister Anwar Ibrahim after winning the 2022 national elections was to change corporate and individual tax rates for middle earners and micro, small, and medium-sized enterprises (MSME), while also expanding the tax base among higher-income earners. With the high effects of inflation felt throughout the four quarters of 2022, Anwar Ibrahim called out areas of governance in administration that have been rendered ineffective to combat the Corruption Perception Index and World Competitive Ranking. The government aims to achieve fiscal consolidation by gradually decreasing the fiscal deficit to 3.2% by 2025. In the current budget, the main focus is on expanding Malaysia’s tax base and enhancing the effectiveness of the tax system, which has been a priority for several years. A notable emerging trend is the implementation of higher taxes for those who can afford them, alongside reduced taxes for individuals in need.

How will these changes affect Malaysia’s Small to Medium Enterprises?

1. Reduction for MSMEs in Corporate Tax

  • RM150,000 of chargeable income, MSMEs will have a 17 to 15% reduction in the corporate income tax rate
  • MSMEs with earnings ranging from RM150,000 up to RM600,000 will be subject to a tax rate of 17%. 
  • MSMEs earning above RM600,000 will be taxed at a rate of 24%.

2. Tax deduction for tech-based companies

Leap Market: Established by Bursa Malaysia to enhance opportunities for emerging MSMEs with funding.

ACE Market: Previously known as Malaysia Exchange of Securities Dealing and Automated Quotation (MESDAQ). The ACE Market is utilised by start-ups to gain more capital. 

Companies that are tech-based and listed in Malaysia’s Access, Certainty, and Efficiency (ACE) Market and MSMEs in the Leading Entrepreneur Accelerator Platform (LEAP) Market have been given a deduction of RM1.5 million for 3 years. These deductions cover professional fees, underwriting, placement, brokerage fees, and fees for authorities. The tax deduction for ACE and LEAP listings has been extended for an additional 3 years under Malaysia’s Budget 2023.

3. Tax deduction for non-profit organisations

The Malaysian 2023 budget plan offers a deduction of 10% in aggregated income for contributions made by non-profit organisations that implement grassroots sports development programmes. By focusing on grassroots sports development, non-profit organisations can provide coaching, training, and skill-building opportunities to aspiring athletes. This can help identify and nurture talented individuals, potentially leading to the discovery of future sports stars for Malaysia.

The Malaysia 2023 budget regime, themed ‘Developing Malaysia MADANI’ has stored RM40 billion for the sole purpose of targeting MSMEs growth and development. Overall, the changes in the tax plan demonstrate the government’s commitment to fostering the growth and sustainability of MSMEs in Malaysia. By reducing tax rates, providing deductions for tech-based companies, and supporting non-profit organisations, the government aims to create a conducive environment for MSMEs to flourish. These measures align with the government’s goal of expanding the tax base, enhancing the effectiveness of the tax system, and achieving fiscal consolidation in the long run.