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March 7, 2023
2023-0423

Malaysia's indirect tax measures in Budget 2023 discussed

  • On 24 February 2023, the Prime Minister and Finance Minister of Malaysia, Datuk Seri Anwar Ibrahim, presented the revised Budget for 2023 (Budget 2023) to the Parliament.
  • The revised Budget 2023 focuses on measures that are based on three objectives: (i) driving inclusive and sustainable economic growth; (ii) institutional reform and good governance to restore confidence; and (iii) combating inequality through social justice.
  • This Alert summarizes the key indirect tax proposals that include a voluntary disclosure program, a tax on luxury goods and tax incentives related to electric vehicles and carbon.

Executive summary

On 24 February 2023, the Malaysian Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim, presented the revised Budget 2023 to the Parliament. The Budget 2023 was tabled earlier to the Parliament by the previous administration before Parliament was dissolved on 10 October 2022.

The revised Budget 2023 focuses on measures that are based on three objectives: (i) driving inclusive and sustainable economic growth; (ii) institutional reform and good governance to restore confidence; and (iii) combating inequality through social justice.

This Alert summarizes the key indirect tax proposals that include a voluntary disclosure program, a tax on luxury goods and tax incentives related to electric vehicles and carbon.

Detailed discussion

Voluntary Disclosure Program

The Royal Malaysian Customs Department will relaunch its Voluntary Disclosure Program (VDP). Under the VDP, taxpayers will be granted full penalty relief for voluntary disclosures from 1 June 2023 to 31 May 2024.

A new tax on luxury goods

A new luxury goods tax is proposed to be imposed on certain types of luxury goods, such as watches and fashion accessories, from the year 2023.

Tax incentives

Tax incentives for electronic vehicles (EVs) are extended:

  • The 100% import duty exemption on importation of components for locally assembled EVs, and 100% excise duty and sales tax exemptions for locally assembled Completely Knocked Down EVs, will be extended until 31 December 2027.
  • 100% import duty and excise duty exemptions on importation of Completely Built-Up EVs will be extended until 31 December 2025.

Import duty and sales tax exemptions on equipment for Carbon capture and storage technology will apply from 1 January 2023 until 31 December 2027. Applications must be received by the Ministry of Finance (MOF) between 25 February 2023 and 31 December 2027.

From 1 March 2023, the excise duty and sales tax exemption will be expanded to include executive taxis and TEKS1M, as well as airport taxis (budget and family), and the vehicle age requirement is reduced to at least five years.

Import duty and sales tax exemptions on studio and filming production equipment will be given to providers of studio equipment, production and post-production services for three years. This is available for applications received by the MOF between 1 April 2023 and 31 March 2026.

Excise taxes

Excise duty is to be imposed on liquid or gel products, containing nicotine, for use in electronic cigarettes or vape devices.

Nicotine gum and nicotine patches used in Nicotine Replacement Therapy will be exempted from import duty and sales tax. This is applicable for applications received by the MOF between 1 April 2023 and 31 March 2026.

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

Ernst & Young Tax Consultants Sdn Bhd, Indirect Tax, Kuala Lumpur

 

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