@ green | November-December . 2024

The Budget ’ s focus extends beyond green initiatives to support digital transformation

The government ’ s move to rationalise subsidies reflects a proactive approach to reallocating resources toward pivotal initiatives that accelerate the nation ’ s green growth agenda .

Among these is the National Energy Transition Facilitation Fund , which will receive over RM300 million in 2025 to support energy transition-related initiatives and projects .

An extension of the Net Energy Metering ( NEM ) programme to mid-2025 signals the government ’ s commitment to advancing renewable energy adoption , encouraging widespread solar uptake across the country .

These initiatives not only underscore the government ’ s dedication to raising awareness but also to improve the affordability and accessibility of sustainable energy , positioning Malaysia as a regional leader in its transition to a low-carbon economy .

The national Budget ’ s focus extends beyond green initiatives to support digital transformation - for instance , the introduction of accelerated capital allowance for e-invoicing implementation .

Expenses related to the purchase of information and communication technology equipment , computer software packages and consulting fees can be fully claimed over two years , with an initial allowance of 20 per cent and an annual allowance of 40 per cent .

This proposal is applicable from the Year of Assessment ( YA ) 2024 until YA 2025 . Combined with the tax deductions announced in the 2024 Budget , this measure aims to alleviate some of the costs associated with ESG compliance , especially as businesses increasingly adhere to sustainability reporting requirements .

Further reinforcing Malaysia ’ s commitment to renewable energy , the Budget allocates RM1 billion for the Green Technology Financing Scheme ( GTFS ) until 2026 .

CARBON CAPTURE

Provisions for investment tax allowances and income tax exemptions are expected to encourage carbon capture ,

BY PHANG OY CHENG

Head of Sustainability Advisory

and

DR VEERINDERJEET SINGH

Senior Adviser on Tax Policy , KPMG in Malaysia utilisation and storage activities , paving the way for the introduction of a carbon tax in 2026 targeting the iron , steel , and energy industries .

This sends a clear signal to these industries about the urgency to review their carbon footprint and assess the potential impact of the carbon tax on their operations .

Revenue collected from the tax will be used to fund green technology research and development programs , further supporting the nation ’ s sustainability objectives .

The i-ESG Framework , published by the Ministry of Investment , Trade , and Industry , serves as a practical guide for companies .

Primarily focusing on small and medium-sized enterprises ( SMEs ) from selected sectors , this framework aims to guide the adoption and enhancement of ESG practices , including environmental footprint considerations .

By helping SMEs integrate sustainable practices , the i-ESG framework will significantly contribute to Malaysia ’ s goals of achieving a low-carbon economy .

While the focus on energy transition is prominent , the Budget also addresses other significant ESG aspects . With an allocation of RM250 million , the Ecological Fiscal Transfer ( EFT ) will play a vital role in preserving and conserving national biodiversity .

TAX INCENTIVES

Moreover , to strengthen supply chain resilience , a new investment incentive framework will be introduced in the third quarter of 2025 , providing tax incentives and reliefs to multinational enterprises ( MNEs ) and local suppliers .

By incentivising education in emerging technologies , this initiative aims to create high-paying jobs and foster regional economic development .

Additionally , the emphasis on diversity in corporate governance , requiring at least 30 per cent of board members of public-listed companies ( PLCs ) to be women , will enhance shareholder value and positively impact the nation ’ s social landscape .

From a tax perspective , when it comes to ESG initiatives , it is more about being fully aware of the scope of coverage and what essentially qualifies for tax deductions .

Currently , the deductions provided for ESG initiatives , as stated in the previous 2024 Budget , were capped at RM50,000 , and that is certainly not adequate for many businesses . This limit leaves businesses with non-deductible expenses , effectively raising their tax burdens .

Given that these ESG initiatives are being encouraged by the government and , in some cases , mandated by regulatory authorities , there should not be any restriction to the tax deductions , and all expenses incurred in pursuit of such initiatives should be fully deductible .

These initiatives are fundamentally part of good governance , and imposing restrictions on deductions would only deter the broader governmental efforts to promote sustainability .

FISCAL BALANCE

Nevertheless , it is crucial to recognise that the Budget reflects a tight fiscal balance between addressing short-term demands and pursuing long-term fiscal sustainability goals .

This approach is essential for supporting medium- to long-term economic growth and a testament to the government ’ s commitment to reflating the economy and investing in the future .

Ongoing infrastructure projects and increased investments in greener technologies will further bolster the nation ’ s economic growth . Wage growth is expected to support consumer spending while addressing the cost of living through improved disposal income .

Overall , the 2025 Budget provides the necessary allocations to enhance the economic multiplier effect in trade and the services sector in a sustainable approach .

In summary , the tax incentives , tax deductions , carbon tax and Bursa Malaysia ’ s sustainability reporting requirements are catalysts for driving Malaysia toward a sustainable future .

These initiatives not only propel the country towards decarbonisation but also set the pace for a more resilient economy .

Through the 2025 Budget , Malaysia is not just encouraging businesses to adapt to sustainability trends - it is empowering them to innovate and thrive in a competitive landscape . – @ green

The views expressed herein are those of the authors and do not necessarily represent the views and opinions of KPMG in Malaysia .