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Malaysian Budget 2021 | Tax Highlights – What’s New?

The proposed Malaysian Budget 2021 is here. To make it simple, we have narrowed it down to the most important tax topics for the layman like you and me. Let's take a closer look at these tax highlights for 2021. Enjoy!
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Malaysians were looking forward to Budget 2021 since the COVID-19 pandemic has affected individuals from all income levels and companies of all sizes.

Subsidies and incentives for businesses were expected to contain losses and to be ready for the coming fiscal year.

On the 6th of November 2020, Malaysia Minister of Finance, YB Dato’ Sri Tengku Zafrul bin Tengku Abdul Aziz tabled Malaysian Budget 2021 and here are the highlights.

Malaysian Budget 2021 Focus And Goals

Focusing on the revitalisation of the economy, protecting lives and adopting sustainable ways to achieve economic growth. Malaysian Budget 2021 has three integral goals namely;

  • Rakyat’s well-being
  • Business continuity, and
  • Resilience

We bring you the latest info about the Malaysian Budget 2021 that will be of use for your personal and professional fronts. To make it easy we have zeroed into;

  • Personal Tax
  • Stamp Duty, and
  • Tax Incentives

Personal Tax

One of the most prominent measures in the Malaysian Budget 2021 is the reduction of the income tax rate for those in the income bracket of RM50,000 to RM70,000.

A reduction of 1% in the income tax rate in Malaysian Budget 2021 is expected to help the Middle 40% (M40) income group with their financial difficulties next year.

Several tax relief 2021 measures for medical expenses will be implemented in the Malaysian Budget 2021 are tax relief 2021 on vaccination expenses for the taxpayer, spouse and child up to RM1,000, as well as the tax relief 2021 for serious diseases medications has been increased from RM6,000 to RM8,000 for the taxpayer, spouse and child. Apart from that, the tax relief 2021 limit for a full medical check-up is also being increased from RM500 to RM1,000 while medical treatment, special needs and parental care are being relieved up to RM8,000 in Malaysian Budget 2021.

In Malaysian Budget 2021, taxpayers with especially disabled spouse will receive an increase of tax relief up to RM5,000 while those with SSPN savings (child education) will receive tax relief up to RM8,000 for the next two years.

To further aid the financial freedom of the rakyat in Malaysian Budget 2021, the government has proposed to extend the tax relief for Private Retirement Scheme (PRS) for four years up to YA 2025. Besides that, lifestyle tax relief is seeing an increase in RM3,000. What’s more, this also includes RM500 tax relief for the cost of purchasing sports equipment and registration fees for sports events.

Most remarkably, considering the impact of the pandemic on the job market in Malaysia, in Malaysian Budget 2021 the government is dishing out tax reliefs for skills upgrade programmes to increase the employability of the rakyat as well as to provide financial compensation for the unemployed.

In the Malaysian Budget 2021, The tax relief for pursuing vocational, technical and other professional courses is being increased from RM1,000 to RM2,000. This includes upskilling and self-enhancement courses approved by the Department of Skills Development, Ministry of Human Resources. For those who have lost their jobs due to the pandemic, the increase in an exemption for compensation for loss of employment is being doubled from RM10,000 to RM20,000 for the full-service year.

Tax Relief 2021 Personal Expenses Proposed
Vaccination expenses RM1,000
Serious diseases medications up from RM6,000 to RM8,000
full medical check-up from RM500 to RM1,000
medical treatment, special needs and parental care RM8,000
Specially disabled spouse RM5,000
SSPN savings (child education) RM8,000
tax relief for Private Retirement Scheme (PRS) Increase YA 2025
lifestyle tax relief increase RM3000
Purchasing sports equipment and registration fees for sports events RM500
Vocational, technical and other professional courses RM1,000 to RM2,000
Compensation for loss of employment RM10,000 to RM20,000

Stamp Duty

Another prominent measure in Malaysian Budget 2021 is the stamp duty exemption. Generally, the stamp duty exemption is being extended to another five years for Perlindungan Tenang Products, Exchange Trade Fund, the revival of abandoned housing projects and the purchase of the first residential property. Moreover, for first-time home buyers, the stamp duty exemption limit will be increased from RM300,000 to RM500,000.

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Tax Incentives

Moving on to tax incentives, naturally in the Malaysian Budget 2021, the government has allocated an investment incentive for the manufacturing pharmaceutical sector to prompt the manufacturers of COVID-19 vaccines to invest in Malaysia. The incentives include an income tax rate of 0% up to 10% for the first ten years and an income tax rate of 10% for the subsequent period of ten years.

Next, in Malaysian Budget 2021, the government also proposed an increase of sales limit for value-added and additional activities carried out in Free Industrial Zones (FIZ) and Licensed Manufacturing Warehouse (LMW) from 10% limit to 40% of the company’s annual sales value.

On another note, the review of tax incentives or principal hub in Malaysian Budget 2021 has also been highlighted. The government proposed that the period of applications for current incentives be extended for two more years and to relax the minimum condition of the number of high-value jobs, annual operating expenditure and the number of key posts for renewal of the tax incentive for the following five years.

Another proposal with regards to the manufacturing of Industrialised Building System (IBS) Components in the Malaysian Budget 2021 is to extend the tax incentive for five years and to merge category 1 and 2 whereby companies are only required to produce at least three basic components of IBS or IBS system that uses at least three basic IBS components to be eligible for the Investment Tax Allowance of 60% on qualifying capital expenditure incurred within five years. This allowance can be set off against 70% of statutory income for each year of assessment.

Tax Incentives 2021 Proposed
Income Tax Rate 0% up to 10% first ten years & 10% subsequent period of ten years
Free Industrial Zones (FIZ) and Licensed Manufacturing Warehouse (LMW) 10% to 40%
Applications for current incentives Extended for two years
Manufacturing of Industrialised Building System (IBS) Components Extended for five years
Investment Tax Allowance qualifying capital expenditure 60% allowance incurred within five years

Under the goal of enhancing business continuity, here are some more of the proposals from the government in Malaysian Budget 2021

  1. The Digitalisation Grant Scheme is expected to provide an additional RM50 million for HRDF to implement training and create jobs in collaboration with the private sector.
  2. A 50% income tax exemption on Investment in Equity Crowdfunding, limited to a maximum exemption of 10% of Aggregate Income or RM50,000, effective 2021 to 2023
  3. The Micro Entrepreneur Business Development Programme (BizMe) provides RM95 million for a special micro-credit fund to empower women entrepreneurs through a guidance programme.
  4. The PENJANA incentive package under which a special income tax rate of 15% is given for 5 years for non-resident individuals holding key positions in companies relocating their businesses to Malaysia.
Tax Exemption For Enhancing Business Continuity Proposed
Implement training and create jobs RM 50 million
Income tax exemption on Investment in Equity Crowdfunding 50%
Income tax exemption of Aggregate Income 10% or RM 50,000 effective 2021 to 2023
Special micro-credit fund to empower women entrepreneurs RM 95
PENJANA incentives for non-resident individuals holding key positions in companies relocating their businesses to Malaysia. 15% for 5 years

Meanwhile, here are some tax reliefs 2021 and allocations that come under the economic resilience goal as one of the highlights in Malaysian Budget 2021:

  1. RM5.1 billion and RM4.5 billion will be allocated to Sabah and Sarawak respectively as development expenditure for building and upgrading of water, electricity and road infrastructure as well as health and education facilities.
  2. RM2.5 billion will be allocated to class G1and G4 contractors to carry small and medium projects nationwide with RM200 million for Federal road maintenance and RM50 million for people’s housing program.
  3. All SRI Sukuk and bonds which meet the ASEAN Green, Social and Sustainability Bond Standards approved by the Securities Commission Malaysia (SC) will see tax exemption extended to five years until 2025.
  4. Tourism Tax has been exempted from 1 July 2020 until 30 June 2021 as part of the Economic Recovery Plan due to the COVID-19 pandemic.
Tax Reliefs 2021 Under the Economic Resilience Goal Proposed
Building and upgrading of water, electricity, road infrastructure, health and education facilities for Sabah and Sarawak RM 5.1 billion and RM 4.5 billion
G1 and G4 contractors RM 2.5 billion
Federal road maintenance RM 200 million
People’s housing program. RM 50 million
Tax exemption for all SRI Sukuk and Bonds which meet ASEAN Green, Social and Sustainability Bond Standards Extended to five years until 2025
Tax exemption on tourism 1 July 2020 – 30 June 2021

Budget 2021 to reduce the impact of the pandemic on the rakyat and the country’s economy.

It is crucial that these incentives and tax reliefs in Malaysian Budget 2021 are utilised optimally for the wellbeing of rakyat and continuity of economic sectors.