Budget 2027: Can Malaysia make its tax framework more M&A-friendly?
Businesses pursue M&A for a myriad of commercial reasons including pursuing rapid inorganic growth, expanding market reach, unlocking synergies, or raising funds.
Malaysia's M&A scene is expected to continue thriving, fueled by strong GDP growth and the cost competitiveness of sectors like healthcare and education. The country's strategic location, world-class infrastructure, and proximity to the broader ASEAN market make it an attractive destination for cross-border deals. However, the tax framework for M&A transactions could use improvement to better align with commercial realities.
Currently, Capital Gains Tax (CGT) on unlisted local shares must be paid within 60 days of signing a deal, with an additional 30 days allowed under specific circumstances. This creates a situation where the seller pays CGT on a transaction that may not yet be finalized, and could be uncertain pending the fulfillment of conditions known as "conditions precedent." These conditions, which may include securing creditor consent or tenant extensions, can prolong the time before the seller receives the full deal price.
SMEs, which contribute significantly to Malaysia's GDP, often reorganise their businesses before M&A transactions to facilitate investors or focus on specific business segments. While tax exemptions are provided for internal restructuring, they may be cumbersome in practice, requiring taxes to be paid first before a refund, or necessitating prior approval from the tax authority. A more flexible approach could involve allowing these exemptions to be utilized first, with subsequent tax audits to ensure compliance.
Singapore offers a more conducive M&A environment through incentives such as an M&A allowance, stamp duty relief, and double deduction on transaction costs. Malaysia could learn from Singapore's approach and introduce similar measures to enhance the attractiveness of its M&A market. However, it is essential to strike a balance between stimulating M&A activity and ensuring the correct amount of tax is collected. Stability and predictability in Malaysia's tax landscape will be crucial to fully unlocking its M&A potential.
Written by urgent.news from New Straits Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
