IN recent years, Malaysia has embarked on significant fiscal reforms to bolster its financial stability and enhance economic resilience.
The introduction of the Public Finance and Fiscal Responsibility Act 2023 and the Medium-Term Revenue Strategy reflects the government’s commitment to strengthening public finances.
A key aspect of these reforms is establishing a robust tax system that supports macroeconomic stability while aligning with global tax practices.
More than 50% of Malaysia’s federal revenue comes from direct tax collections, with income taxes from corporations and individuals forming a significant portion.
While companies in Malaysia are taxed at a rate of 24%, micro, small, and medium enterprises benefit from reduced rates between 15% and 24%.
The government has also implemented tax incentives, such as the Pioneer Status and Investment Tax Allowance, to attract investments, which in turn lower the effective tax rate for businesses.
However, with the global shift towards equitable taxation, Malaysia is reforming its tax policy to stay competitive while supporting its development goals. The global economic landscape, marked by evolving international tax policies, has necessitated Malaysia’s adaptation to the emerging norms of global tax compliance.
A significant development in the global tax landscape is the introduction of the global minimum tax (GMT).
In the Asean region, Malaysia and Vietnam have started to implement and adopt the GMT in their domestic tax policies, while Indonesia, Singapore, and Thailand are in the process of drafting their legislation.
The GMT introduces a minimum tax rate of 15% on multinational enterprises (MNEs) with global revenues exceeding €750mil, ensuring these corporations contribute equitably to the economies in which they operate.
The GMT’s objectives include addressing tax avoidance. By imposing a minimum tax rate, the GMT reduces MNEs’ ability to engage in profit-shifting, ensuring countries maintain their tax base.
It also levels the playing field by ensuring all MNEs contribute fairly, reducing disparities created by jurisdictions offering excessively low tax rates.
With enhanced tax compliance, the GMT can help governments increase revenue, which is critical for funding infrastructure, public services and social programs.
Coordinated global efforts under the GMT framework foster trust among jurisdictions and improve the global tax environment.
Standardised tax liabilities and regulatory frameworks across jurisdictions offer businesses greater certainty and encourage long-term investments.
The government has introduced a ‘qualified domestic minimum top-up tax’ to ensure sufficient domestic tax collection before international rules come into effect.
This proactive move will help Malaysia mitigate the risk of losing tax revenues to other jurisdictions, particularly those that offer effective tax rates below 15%. By adopting the GMT, Malaysia aims to protect its tax base, ensure fair tax competition, and contribute to global tax equity.
Implementing the GMT requires Malaysia to continually update its tax laws and administrative systems to ensure effective compliance.
The government has recognised the need for skilled resources and technology to enforce this tax reform.
Simultaneously, the government needs to enhance and formulate a more robust national investment strategy.
In line with the New Industrial Master Plan 2030, which focuses on high-growth sectors, Malaysia is also reviewing its tax incentive framework to align with the GMT.
