Tax Reforms for SMEs

Malaysia’s Budget 2024 introduces significant tax reforms to support small and medium-sized enterprises (SMEs) as they transition to e-invoicing and digitalization.
Ng Sue Lynn, Partner and Head of Indirect Tax at KPMG in Malaysia, highlights key elements SMEs should note.

New Tax Reliefs

With the upcoming mandatory e-invoicing requirement, SMEs can benefit from a special deduction of RM50,000 per year from YA 2024 to YA 2027 to aid in its implementation. Additionally, the new Investment Tax Allowance (ITA) encourages SMEs to reinvest strategically in their businesses. “The ITA encourages existing companies that have exhausted their Reinvestment Allowance eligibility period to increase capacity and investment in high-value activities under the New Industrial Master Plan 2030,” explained Ng. SMEs can apply for the ITA through the Malaysian Investment Development Authority (MIDA) from January 1, 2024, to December 31, 2028.

Existing Rebates and Reliefs

Several existing reliefs remain available, albeit with tightened eligibility criteria:

• Start-up Tax Rebate: Newly incorporated companies from July 2020 to December 2022 are eligible for a tax rebate of RM20,000 per YA for three consecutive years.
• Concessionary Income Tax Rate: Since YA 2023, the rate has been reduced from 17% to 15% on the first RM150,000 of chargeable income. For income between RM150,001 and RM600,000, the rate is 17%, and 24% for income above RM600,000.
• Special Capital Allowance: SMEs can claim a 100% capital allowance for small value assets of RM2,000 or less per item, with no cap on the aggregate claim per YA.

Exemptions and Grants

Micro credit loans below RM50,000 are exempt from stamp duties. The Digitalisation Grant Scheme, a collaboration between the Malaysia Digital Economy Corporation (MDEC), Bank Simpanan Nasional (BSN), and the Malaysian Communications and Multimedia Commission (MCMC), offers a 50 per cent matching grant, capped at RM5,000 per entity, to support SMEs in digitalizing their operations.

Staying Informed

Ng emphasizes the importance of staying updated with the latest tax regulations. “Attend regular training sessions, workshops, and seminars organized by tax authorities like LHDN and RMCD, as well as organizations like ACCA that provide regular update alerts,” she advised. These sessions provide valuable opportunities to clarify complex tax definitions and eligibility for various incentives.

Key Tax Filing Tips

Ng outlines three essential steps for SMEs when filing taxes:

1. Revisit Company Status: Ensure compliance with regulatory requirements.
2. Check Eligibility Criteria: Verify that your company meets the conditions for any incentives before claiming them.
3. Organize Documentation Early: Avoid last-minute paperwork issues by establishing and maintaining strict standard operating procedures (SOPs) for business and financial documentation.

Preparing for E-Invoicing

As e-invoicing becomes mandatory by July 1, 2025, Ng recommends business owners visit the LHDN portal for comprehensive information. She advises business owners to educate their staff, conduct regular compliance assessments, and ensure their enterprise resource planning (ERP) systems are compatible with LHDN requirements.
“While these changes can feel overwhelming, getting a head start can help pave the way for a smoother transition,” said Ng. “In the long run, digitalisation comes with cost-saving benefits, enhancing efficiency and reducing errors, while freeing up time for more strategic functions, allowing you to grow your business.”
These reforms and incentives aim to support Malaysian SMEs in adapting to new digital norms and maintaining competitiveness in a rapidly evolving market.