2023 Budget: 

Tax Implications on Businesses

The Prime Minister cum Finance Minister of Malaysia has tabled the 2023 Budget yesterday. 

The overall Federal Government revenue is budgeted to reduce by 1 percent from RM294.4 billion in 2022 to RM291.5 billion in 2023, primarily due to reduction in non-tax revenue such as investment income and income from licenses and permits. 

Also, reduction is expected on tax revenue from petroleum income tax and export duty, which are evidently linked to commodity prices. 

The reduction in revenue from these sources is primarily offset by an expected increase of RM14 billion in corporate income tax collections.

This e-Alert summarises the tax policy changes proposed in the Budget that has potential implications on businesses. The tax proposals that impact individuals are summarised in a separate e-Alert published concurrently.

  • Full Penalty Waiver on Voluntary Disclosure

As the well-known saying, nothing is certain except death and taxes. 

However, practical application of the ever-evolving tax rules at times involves grey areas, leading to unintended compliance gaps even by most diligent taxpayers. 

In line with the Organisation for Economic Co-operation and Development’s (“OECD”) recommendation to make tax compliance easier and non-compliance harder, it has been announced that a full penalty waiver would be granted by both Malaysian Inland Revenue Board (“MIRB”) and Royal Malaysian Customs Department (“RMCD”) for taxpayers who voluntarily disclose compliance gaps to these authorities from June 2023, until 2024. 


  • Implementation of Capital Gains Tax 

In line with the international best practices, the Government would study introduction of capital gains. The information disclosed about this proposed new tax is as summarised below: 

  • Effective from 2024
  • Applicable on gains arising from disposal of shares in companies that are not listed on stock exchange 
  • Starting with a low tax rate (which is undisclosed at this juncture)
  • Further stakeholder consultation on this proposal 


  • Extension for Automation Capital Allowance Incentive

Extension of tax incentive for automation in manufacturing, services and agriculture sector for applications received by 31st December 2027, with the following enhancements:

  • Scope of automation to include the adaptation of Industry 4.0 elements 
  • Scope of tax incentive is expanded to include agriculture sector
  • Threshold for qualifying capital expenditure to be increased to RM10 million 

The Budget announcement does not make it clear whether the incentive is extended and expanded in relation to accelerated capital allowance only (i.e. 100% of the qualifying capital expenditure) or also in respect of automation capital allowance (i.e. an aggregate of 200% allowance on the value of qualifying capital expenditure).

  • ESG-related Tax Proposals

Environment, Social and Governance, commonly abbreviated as ESG, is presently a top priority in many organisations. The 2023 Budget includes several initiatives for promotion and development of ESG. Below are the tax proposals in the 2023 Budget that are ESG-related.


  • Reduced Income Tax Rate for Micro, Small and Medium Enterprises (“MSMEs”)

Micro enterprises are inherently included in the definition of SME for the purposes of income tax. For the purposes of income tax, SME is defined as a company and a Limited Liability Partnership (“LLP”) with paid-up capital not exceeding RM2.5 million and gross business income for respective year not exceeding RM50 million, and does not have any related company in the group with paid-up capital of RM2.5 million or more. 

Presently, the first RM600,000 of a MSME’s chargeable income is subject to corporate income tax at the rate of 17% and the excess chargeable income is subject to tax at 24%. 

To reduce the burden of MSMEs, a 2% reduction in corporate income tax rate is proposed for the first RM150,000 of the chargeable income effective YA 2023, as shown below:

Table 1: Proposed Corporate Income Tax Rates for MSMEs

Chargeable Income Tax Rate
First RM150,000 15%
RM150,001 to RM600,000 17%
RM600,001 and above 24%

This proposal brings MSMEs tax savings of up to RM3,000 per annum.

  • Proposed Tax Incentives for Businesses
  • Extension of tax incentives for manufacturing companies in the Electrical & Electronics (“E&E”) sector to relocate to Malaysia is to be extended until the year 2024.
  • Extension of tax deduction on the cost of listing on the ACE and LEAP Markets by a further three (3) years, i.e. YA 2023 to YA 2025. Also, the scope of the deduction is widened to include cost of listing of technology-based companies in Bursa Main Market.
  • Introduction of a special tax deduction for hoteliers with expenditure of up to RM150,000 for purchase of qualified Malaysian-made handicraft products between 1st January 2023 and 31st December 2025. 
  • Extension of tax incentive for food production project by a further 3 years, i.e. for application by 31st December 2025. Also, scope of the incentive is expanded to include agricultural based projects on Controlled Environment Agriculture (“CEA”).
  • Following tax incentives are proposed for chicken rearing in closed house system for YAs 2023 to 2025:
  1. Accelerated capital allowance of 100% on the qualifying capital expenditure; and
  2. Income tax exemption of 100% equivalent to the qualifying capital expenditure.
  • Extension of tax incentive for ship building and ship repairing industry (“SBSR”) by a further 5 years, i.e. for application by 31st December 2027.
  • Extension of tax incentive for BioNexus status company for a further two (2) years, i.e. for applications received by 31st December 2024. Also, the income tax exemption is increased from 70% of statutory income to 100% of statutory income. 
  • Extension of tax incentive for aerospace industry by a further 3 years, i.e. for application by 31st December 2025.

IMPORTANT NOTE: This e-Alert is prepared based on the Budget speech and appendices, which are generic. The technical details would only be known upon release of the Finance Bill. For details, join our complimentary 2023 Budget webinar series.


With Regards


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Disclaimer: The information in this Tax e-Alert is generic in nature and is not intended to be comprehensive. Strictly no liability assumed. Kindly seek case-specific advice prior to any action.