Budget 2024, unveiled by the Prime Minister of Malaysia, YAB Dato’ Seri Anwar Bin Ibrahim, marks a significant milestone in the country’s journey towards sustainable development. The budget presents a comprehensive roadmap for Malaysia’s economic transformation, focusing on Environmental, Social, and Governance (ESG) principles.
The budget has allocated substantial funds for renewable energy, sustainable agriculture, and green transportation, signalling the government’s commitment to reducing the country’s carbon footprint and promoting sustainable practices.
Moreover, the budget has also addressed social issues such as education, healthcare, and affordable housing, demonstrating the government’s dedication to ensuring that the benefits of economic growth are shared equitably among all segments of society. The budget also includes measures to enhance corporate governance and combat corruption, reflecting the government’s determination to promote ethical business practices and increase transparency in the corporate sector. In this article, we summarise tax measures Budget 2024 on ESG and Sustainability that will affect you, your business or your organisation.
1. Tax Deduction on Environmental, Social and Governance Related Expenditures
Tax deduction up to RM50,000 for each year of assessment (YA) effective from YA 2024 to YA 2027 will be given for Environmental, Social and Governance (ESG) related expenditure as follows:
- Enhance sustainability reporting framework
- Climate risk management and scenario analysis
- Tax Corporate Governance Framework (TCGF) of Lembaga Hasil Dalam Negeri Malaysia (LHDNM)
- Transfer pricing documentation
- E-Invoicing implementation
- Any reporting requirement related to ESG
Applicable to: PLCs on Bursa Malaysia, MSMEs, and Financial Institutions
2. Extension of Tax Exemption on Management Fees Income for Sustainable and Responsible Investment Funds
Income tax exemption for a period of 4 years, effective from YA 2024 to YA 2027, will be given to companies that provide Sustainable and Responsible Investments (SRI) fund management services.
Applicable to: Asset Management Companies
3. Extension of Tax Deduction on Issuance of Sustainable and Responsible Investments Sukuk
Tax deduction given on the issuance cost of Sustainable and Responsible Investments (SRI) sukuk will be extended for a period of 4 years, effective from YA 2024 to YA 2027.
Applicable to: Asset Management Companies
4. Expansion of Scope of Income Tax Exemption on the Sustainable and Responsible Investments Sukuk Grant and Bond Grant Scheme
In addition to SRI Sukuk and Bond Grant Scheme, income tax exemption will be expanded to recipients of SRI-Linked Sukuk Grants and bonds issued under the ASEAN Sustainability-Linked Bond Standards (ASEAN SLBS) approved by the Securities Commission from 1 January 2024 to 31 December 2025.
Applicable to: Asset Management Companies
5. Review of Tax Incentive for Women Career Comeback Programme
Women returning to work after a career break of at least two (2) years before the date of application received by the Talent Corporation Malaysia Berhad, where the applications are received between 1 January 2024 and 31 December 2027, will be eligible for income tax exemption on employment income received from YA 2025 until YA 2028.
Applicable to: Individuals
6. Review Of Green Technology Tax Incentive
Companies undertaking qualifying green activities are given tax incentives in two forms, which are Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE).
The tax incentive periods for GITA and GITE have increased, effective for applications received from 1 January 2024 until 31 December 2026. Please refer to the table below for a detailed description of the review of green technology tax incentives based on each tax incentive category.
Applicable to: PLCs and MSMEs
7. Extension of Tax Incentive for Rental of Electric Vehicle
Companies that rent non-commercial electric vehicles (EVs) will be given tax deductions up to RM300,000 effective from YA 2023 until YA 2027.
Applicable to: PLCs and MSMEs
8. Tax Deduction on Contributions for Environmental Preservation and Conservation Projects
Tax deduction under subsection 34(6)(h) of the Income Tax Act 1967 will be given to entities contributing or sponsoring activities related to tree planting projects or environmental preservation and conservation awareness projects verified by Forest Research Institute Malaysia (FRIM), from 1 January 2024 until 31 December 2026. Companies could include those activities in their Corporate Social Responsibility (CSR) programme.
Applicable to: PLCs and MSMEs
9. Further Tax Deduction for Voluntary Carbon Market
Expenditure related to the development of carbon projects incurred by carbon credit trading companies is allowed for tax deduction under subsection 33(1) of the Income Tax Act 1967. Further tax deduction of up to RM300,000 be given to companies for costs incurred on the Development and Measurement, Reporting and Verification (MRV) related to the development of carbon projects. The further tax deduction is deductible from the carbon credit income traded on Bursa Carbon Exchange (BCX).
The development of carbon projects must be registered with an international standards body recognised by Bursa Malaysia (currently includes only Verified Carbon Standard (VCS), better known as Verra), and expenditure on the development of carbon projects must be certified by the Malaysia Green Technology and Climate Change Corporation (MGTC).
Applicable to: Carbon Credit Project Developer
Budget 2024 is a watershed moment in Malaysia’s ESG journey, representing a concerted effort by the government to align the nation’s economic development with global sustainability imperatives. The budget’s focus on renewable energy, sustainable agriculture, and green transportation could position Malaysia as a leader in the region’s transition to a low-carbon economy. However, the success of these initiatives will depend on the government’s ability to implement them effectively and the commitments of various stakeholders including businesses.
Source: Tax Measures Budget 2024
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