Tax Incentives Feature In Malaysia's 2012 Budget
Tuesday, October 11, 2011
In what is considered to be the last before he calls for elections, the Malaysian
Prime Minister and Minister of Finance, Datuk Seri Najib Tun Abdul Razak, recently
introduced a 2012 Budget that was full of tax breaks and incentives.
Overall, while he said that economic growth in Malaysia is estimated at between
5% and 5.5% of gross domestic product (GDP) in 2011, global economic prospects
next year are expected to be more challenging. However, the government is to
put in place measures to stimulate domestic economic activity, in particular
public and private investment, as well as private consumption, and economic
growth in 2012 is projected at between 5% and 6%.
The government’s total revenue is expected to increase by 1.9% to MYR186.9bn
(USD58.9bn) in 2012, compared with MYR183.4bn in 2011. Despite the tax breaks
and incentives he announced, the public deficit next year is expected to improve
to 4.7% of GDP, compared with 5.4% in 2011.
Much of Najib’s speech was dedicated to the services sector, which is
the largest contributor to Malaysia's economy, accounting for almost 58% of
GDP, and is targeted to reach 60% of GDP by 2015. He considered that, “to
accelerate the banking, finance and capital markets, continuous effort is required
to promote the development of more integrated and comprehensive financial services.”
Therefore, while attempting to attract multinational companies to establish
their treasury management services in Malaysia, with a 70% income tax exemption
for five years, a withholding tax exemption on interest payments and a stamp duty
exemption on loan and service agreements, he also proposed the accelerated development
of the Kuala Lumpur International Financial District (KLIFD).
For example, for companies in the KLIFD, the government proposes a 100% income
tax exemption for a period of 10 years and a stamp duty exemption on loan and
service agreements, and a 70% income tax exemption for five years for property
In addition, in recognition of the need for product diversification in the capital
market to attract foreign and domestic investments, the government will
extend the concessionary 10% tax rate on dividends of non-corporate institutional
and individual investors in real estate investment trusts (REITs), currently
available until December 31, 2011, for a further five years to December 31,
With regard to the pressure on property prices in the country, Najib said that
the government did not believe that the current 5% real property gains
tax (RPGT) on properties held and disposed within two years, is proving effective
in curbing real estate speculative activity. It is therefore proposed that,
from January 1, 2012, for properties bought and sold within two years, the tax
rate will be 10%; for properties bought and sold within a period from two years
and up to five years, the rate will be 5%; and properties bought and sold after
five years will not be subject to RPGT.
In an attempt to ease the higher cost of living on lower income groups, the
government is to propose the provision of one-off cash assistance. MYR500 will
be given to households with a monthly income of MYR3,000 and below. Najib said
that a total of 3.4m, or 53% of total households, are expected to benefit from
this assistance, which will cost MYR1.8bn.
He also announced an additional bonus of half a month’s salary for civil
servants, with a minimum payment of MYR500, and assistance of MYR500 to government
pensioners. For 2011, the total payout will thereby be one month’s pay,
with a minimum payment of MYR1,000 for civil servants and government pensioners
alike, costing MYR4bn.