Tax News Update    Email this document    Print this document  

September 15, 2021
2021-1666

Malaysia issues Pre-Budget 2022 Statement

Executive summary

The Malaysian Ministry of Finance issued its maiden Pre-Budget Statement (Statement) on 31 August 2021, ahead of the Government’s 2022 federal budget (Budget 2022) announcement to take place on 29 October 2021.

This Alert summarizes the key tax-related aspects of the Statement.

Detailed discussion

Overview of the Statement

Malaysia’s tax revenue collections for the first half of 2021 were revealed to be lower than expected and are set to decline further due to the COVID-19 pandemic. The Statement outlines, in limited detail, the Government’s commitment to the OECD BEPS 2.0 initiative,1 its plans to improve the country’s tax incentive framework and the following measures that the Government is exploring to enhance tax compliance and increase tax revenues.

Indirect Tax Special Voluntary Disclosure Program (SVDP)

Under the proposed indirect tax amnesty program, taxpayers will be encouraged to voluntarily disclose underpaid or unpaid indirect taxes arising from errors or mistakes made in indirect tax filings or submissions, in exchange for reduced penalties. Taxpayers who have failed to register and comply with indirect tax filing requirements are also expected to be eligible for the SVDP.

Taxpayers participating in the SVDP may also face reduced Royal Malaysia Customs Department (RMCD) audit scrutiny on periods for which a voluntary disclosure is made. Consistent with previous tax amnesty programs, taxpayers can expect increased indirect tax enforcement activity and noncompliance penalties after the SVDP expires.

Further announcements and guidance on the duration of the program and scope of indirect taxes covered under the SVDP are expected in the Budget 2022 announcement.

Tax Compliance Certificate (TCC) requirement for government tenders

Although no details have been announced beyond needing a tax compliance certificate, taxpayers who are undertaking Government contracts or who are planning to bid for such contracts can at the very least be expected to demonstrate that their tax payments and submissions are current. Taxpayers may also be required to have a tax governance framework in place.

Implications

The Statement signals the Government’s focus on improving tax compliance. While details of the proposals are not yet available, it is expected that the indirect tax SVDP, when launched, will allow taxpayers to rectify errors and omissions, submit underpaid indirect taxes with reduced penalties, and move forward with a clean slate.

All multinationals with operations in Malaysia should consider this opportunity to regularize their indirect tax positions and make voluntary disclosures where relevant. Taxpayers that are exposed to a higher degree of indirect tax audit scrutiny, including beneficiaries of indirect tax exemptions and facilities or taxpayers who have been subject to an indirect tax audit in the past which had resulted in findings or issues stand to benefit the most from the SVDP.2 Taxpayers should act in a timely manner to:

  • Undertake a “health check” to identify controversial issues, errors in indirect tax submissions or underpaid or unpaid taxes. Service providers that are not service tax registered should also revisit their registration position as service tax rules have evolved significantly since first reintroduced in Malaysia on 1 September 2018.
  • Secure rulings from the RMCD or obtain tax advice on uncertain positions adopted.
  • Consider the overall approach to the SVDP submission.

Businesses undertaking government contracts should take action now and undertake “health check” exercises across all taxes to allow sufficient time to develop appropriate tax governance processes and rectify errors, if any, prior to the introduction of the TCC requirement.

_________________________________________

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Consultants Sdn Bhd, Kuala Lumpur

Ernst & Young LLP (United States), Malaysia Tax Desk, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, New York

Ernst & Young LLP (United States), Asia Pacific Business Group, Chicago

_________________________________________

ENDNOTES

  1. Organisation for Economic Cooperation and Development (OECD)’s Base Erosion and Profit Shifting (BEPS) 2.0 initiative
  2. See EY Malaysia Tax Alert, Ministry of Finance issues Pre-Budget Statement for Budget 2022, dated 2 September 2021 for additional taxpayer profiles that should capitalize on the indirect tax SVDP.
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 1996 – 2024, Ernst & Young LLP

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

EY US Tax News Update Master Agreement | EY Privacy Statement