KUALA LUMPUR: The implemenntation of global minimum tax (GMT) in Malaysia, with effect from January 2025, will lead to a shake up in the local tax incentive landscape.
The move will see multinational enterprises (MNE) who enjoy tax incentives that push their effective tax rate to below 15 per cent here, have a top-up tax imposed.
Malaysia like many other regional countries had long relied on tax incentives to bring in foreign direct investments (FDI).
The implementation of GMT nullifies the effect of tax incentives and necessitates the introduction of non-tax incentives to entice investors.
Global Minimum Tax
In its paper entitled Global Minimum Tax in Malaysia - reconsidering tax incentives, KPMG said whilst the Malaysian headline corporate income tax rate of 24 per cent is well above the GMT rate of 15 per cent, an MNE Group's Global Anti-base erosion (GloBE) effective tax rate in Malaysia may be less than 15 per cent subsequent to making a series of GloBE adjustments.
In the event that MNE's ETR falls below 15 per cent a top-up tax is imposed to meet the minimum tax.
The implementation of GMT has led to neighbouring countries such as Singapore and Vietnam introduce non-tax incentives to keep and bring in FDI.
Singapore has a Refundable Investment Credit Scheme (RICS) which allows for tax credits on qualifying expenditure and consistent with the Qualifies Refundable Tax Credit (QTR) requirement under the GloBE rules, while Vietnam has the Investment Support Fund, which provides investment support for eligible taxpayers in targeted industries where stipulated conditions are met.
The KPMG paper authored by partner Neoh Beng Guan,director Gan Cheng Yee and associate director Jessica Yap said on the home front the Malaysian government issued a GMT survey form earlier this year to affected MNE Groups which are enjoying tax incentives here.
It served to collect information and feedback from MNE Group to evaluate the potential impact of existing tax incentives to GMT and also as a strating point for affected MNE Groups to renegotiate existing tax incentives.
Non-tax incentives
Prime Minister Datuk Seri Anwar Ibrahim in tabling the 2025 Budget said the government is committed to streamliningexisting tax and introducing new non-tax incentives.
This includes assesing the feasibility of a "Strategic Investment Tax Credit".
KPMG said if the tax credit is a QRTC, it is a tax credit that is creditable against tax liabilities.
"It has less negative impact on GloBE ETR as compared to other tax incentives such as tax holidays," it added.
Ernst & Young Tax Consultants Sdn Bhd Malaysia tax leader Farah Rosley also said that she expects the credit to designed as a QRTC, so that it would be less affected by GMT rules, and to give Malaysia a competitive edge in attracting foreign direct investments.
Positioning Malaysia as FDIs destination
With the GMT expected to level the playing field as far as tax incentives are concerned, there is a pressing need to revamp our incentive regime to ensure that we attract high-growth high-value investments that continue to propel us into a high-income nation.
PWC Malaysia tax leader Steve Chia said the proposed New Investment Incentive Framework is a step in the right direction, through its focus on value-driving activities as opposed to the current regime's product-based incentives.
"We see a marked shift in the approach to attracting investments, through measures designed to enhance diversity of the Electrical and Electronics (E&E) sector and the development of Artificial Intelligence (AI) through special deductions to private tertiary education institutions that provide courses in this field.
"To bolster confidence in the nation's investment landscape, we observed measures that target to strengthen the local supply chain and ecosystem of key sectors, develop economic clusters across states that play on specific strengths and emphasis on economic spillover effect," Chia added. Ends