Budget 2023 Highlights for Manufacturer in Malaysia

Key things to note for the proposed Budget 2023 for you manufacturers are the following:

  • a reduction in MSME income tax rate;
  • a tax incentive for manufacturing EV charging equipment;
  • a tax incentive for food production projects; and
  • accelerated capital allowance.

Reduction in MSME income tax rate

MSME (Micro, Small, and Medium Enterprises) might be looking at a reduction in the tax rate for the first RM150,000 of their chargeable income from 17% to only 15%. The tax rates for the next RM150,001 and RM600,000, and also for RM600,001 and above will remain unchanged. The proposed reduction is to be effective from YA2023.

Chargeable IncomeProposed Tax RateChanges
First RM150,00015%A reduction by 2% from the current rate of 17%.
RM150,001 to RM600,00017%Unchanged
RM600,001 and above24%Unchanged

Tax incentive: manufacturing EV charging equipment

Provided that your application is received by MIDA (Malaysian Industrial Development Authority) anywhere from 25 February 2023 until 31 December 2025, you could stand to enjoy either: an income tax exemption of 100% on statutory income from YA2023 until YA2032 (i.e., the early bird may enjoy a full 10 years while those that apply later get only the remaining exemption period); or an investment tax allowance of 100% for 5 years, which could be set-off against a maximum of 100% of your statutory income for each YA.

Tax incentive for food production project

Prior to 2023, the scope of this tax incentive, as far as agricultural products are concerned, includes the planting of seeds for agro-food, and high seas fishing projects. It is now proposed that scope shall include farming under the category of Controlled Environment Agriculture, which includes indoor agriculture and vertical farming. This is applicable to applications received by by MAFS (Ministry of Agriculture and Food Security) anywhere from 1 January 2023 until 31 December 2025.

Accelerated capital allowance (ACA)

An ACA already exists for qualified applicants that invest in using automation equipment. It is now proposed that automation shall include the adaptation of Industry 4.0 elements. Moreover, the scope of ACA shall be expanded to include the agricultural sector. Lastly, the capital expenditure threshold for category 1 (labour-intensive industry – rubby, plastic, wood and textile), category 2 (all industries other than category 1, including services sector), and agriculture be aligned and increased up to RM10 million.

To date, applications last until 31 December 2023. It is proposed that ACA will be for applications received by MIDA and MAFS anywhere from 1 January 2023 until 31 December 2027.

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