12th July 2018
BUDGET 2018 HIGHLIGHTS
The Malaysian Federal Budget 2018 was tabled by the Finance Minister and Prime Minister YAB Dato’ Sri Mohd Najib bin Tun Haji Abdul Razak on October 27, 2017 and was passed in Parliament following a majority voice vote on November 28, 2017.
The budget themed “Prospering an Inclusive Economy, Balancing between Worldly and Hereafter, for the Wellbeing of Rakyat, towards the TN50 (National Transformation 2050) Aspiration proposed an allocation of 280.25 billion to stimulate the Malaysian economy focusing on domestic investments, enhancing the welfare of Malaysian and preparing future generations through a strong economic growth and competitiveness.
Read more at http://www.treasury.gov.my/index.php/en/budget/annual-budget.html
The following tax updates in summary are:
A. DIRECT TAXATION
A1. INCOME TAX
- that for resident individuals the tax rates be reduced by 2% for chargeable income bands from RM20,001 to RM70,000.
- that an income tax exemption of 50% be given on rental income not exceeding RM2,000 per month for each residential home received by Malaysian resident individuals under a legal tenancy agreement for a maximum period of three (3) consecutive years of assessment.
- that the relief of up to RM6,000 a year is given to a taxpayer for net savings made by the taxpayer for his/ her child in the Skim Simpanan Pendidikan Nasional account established under the Perbadanan Tabung Pendidikan Tinggi National Act 1997 be extended for another 3 years of assessment up to year of assessment 2020.
- that an exemption be given on the employment income up to a maximum of 12 consecutive months to women who return to work after being on a career break for at least 2 years on 27 October 2017.
- that the description of a public entertainer pursuant to Schedule 6 Paragraph 22 of the Income Tax Act 1967 be removed and in turn allow for consistency in defining public entertainers who will not be able to utilise the 60-days exemption.
Companies & Unincorporated Business
- that income of a non-resident person derived from Malaysia in relation to services, technical advice or assistance referred to in Section 4A(i) and (ii) of the Income Tax Act 1967 which are rendered and performed by the person outside Malaysia is exempted from withholding tax.
- that the proviso to Section 127(5) of the Income Tax Act 1967 is to include deduction of tax of taxable income distribution by Real Estate Investment Trusts or Property Trust Funds to unit holders under Section 109D of Income Tax Act 1967.
- that companies be allowed to claim capital allowance with IA of 20% and AA of 20% in respect of qualifying expenditure incurred for purchase of ICT equipment and computer software packages and development of customised software comprising of consultation fee, licensing fee and incidental fee related to software development.
- that the Accelerated Capital Allowance and Automation Equipment Allowance be given on the first RM 10 million qualifying capital expenditure incurred in the years of assessment 2018 to 2020 for Industry 4.0 applied to & received by Malaysian Investment Development Authority (MIDA) between 1 January 2018 and 31 December 2020 which involves the adoption of technology drivers by companies in the manufacturing sector and its related services.
- that a further deduction be given to employers for the salaries paid to employees affected by accidents or critical illnesses and who are able to work within their capabilities as certified by the Medical Board of the Social Security Organisation (SOCSO).
- that the double deduction for expenses, not being capital expenditure, incurred in obtaining certification for quality systems and standards from the above five (5) certification bodies be extended to companies registered with Malaysia Healthcare Travel Council that provide dental and ambulatory healthcare services.
- that a company, limited liability partnership, trust body or co-operative society must furnished a notification to the Director General within the stipulated period 30 days before the end of the new accounts or the corresponding day (whichever applies) when there is a change of accounting period. A non-compliance carry a fine of RM200 to RM20,000 or to imprisonment for a term not exceeding 6 months or to both.
- Introduced a formulated tax deduction for the management expenses in relation to any other fee receivable in respect of general takaful business and investment fund from the family fund.
Investments on Green Sustainable and Responsible Investment (SRI) Sukuk
- that income tax exemption be given to the recipients of the Green Sustainable and Responsible Investment (SRI) Sukuk grant for applications received by the Securities Commission of Malaysia from 1 January 2018 to 31 December 2020.
- that income tax exemption on management fee income be extended to fund managers of the Green Sustainable and Responsible Investment (SRI) funds approved by the SC in respect of the management fee income derived from managing conventional and Shariah-compliant SRI funds for Years of assessment 2018 to 2020.
Extension of Tax Incentives
- Accelerated Capital Allowance (ACA) and Automation Equipment Allowance (AE) on capital expenditure incurred in the purchase of automation equipment in the Labour intensive industries in the manufacturing sector be extended for another 3 years; for applications received by MIDA from 1 January 2018 to 31 December 2020 in respect of Category 1.
- 3 tiered preferential rates (0%, 5% 10%) for locally incorporated company that uses Malaysia as a Principal Hub to conduct its regional and global business and operations be extended another 3 years; for applications received by MIDA from 1 May 2018 to 31 December 2020.
- Application period for pioneer status and investment tax allowance for investments in new 4 and 5 star hotels in Peninsular Malaysia, Sabah and Sarawak be extended another 2 years; for applications received by MIDA from 1 January 2019 to 31 December 2020.
- Tax exemption incentive for tour operating companies licensed under the Tourism Industry Act 1992 be extended until Year of Assessment 2020; effective Year of assessment 2019 and year of assessment 2020.
- Medical tourism tax incentive be given to new companies and existing companies undertaking expansion, modernization or refurbishment of private healthcare facilities be extended for another 3 years until Year of Assessment 2020; for applications received by MIDA from 1 January 2018 to 31 December 2020.
- Export of Private Healthcare Services exemption from payment of income tax be increased from 50% to 100% of the value of increased export of services and to be set-off against up to 70% of statutory income from Year of Assessment 2018 to Year of Assessment 2020.
- Angel Investors tax incentive be extended for another 3 years; for applications submitted to the Ministry of Finance from 1 January 2018 until 31 December 2020.
- Tax exemption for Venture Capital (VCMC, VCC, Investment in VCC fund created by VCMC) be given for a period of 5 years until Year of Assessment 2022; for applications received by the Securities Commission Malaysia from 1 January 2018 until 31 December 2018.
A2. REAL PROPERTY GAINS TAX
- that where the disposer in a disposal referred to above is not a citizen and not a permanent resident, the acquirer shall retain the whole of that money or a sum not exceeding 7% of the total value of the consideration, whichever is lower and remit the sum withheld within 60 days after the date of such disposal; effective 1st January 2018.
- that Schedule 2 Paragraph 3 of the Real Property Gains Tax Act 1976 [disposal price shall be deemed to be equal to the acquisition price of a chargeable asset] be amended to restrict the above deeming provision in the case of (a) a transfer of asset between spouses, where the asset to be disposed of is owned by the husband or the wife, who is a citizen; and (b) in the case of a transfer of asset to a company, where the asset to be disposed of is owned by an individual or the individual’s wife, who is a citizen, or where the asset is jointly owned by the individual and his wife, both of whom are citizens, or where the asset is jointly owned by the individual and his connected person, both of whom are citizens; thereby requires the disposer of the chargeable asset to be a Malaysian citizen in order for the above transaction to be deemed as a “no gain no loss” transaction; effective 1st January 2018.
- that Schedule 2 Paragraph 16 of the Real Property Gains Tax Act 1976 Subparagraph 16(a) with regards to the acquisition and disposal of an asset under conditional contract be amended by deleting the words “or an authority or committee appointed by the Government or a State Government” thereby subjecting to the approval with regards to the acquisition or disposal by the Government of Malaysia and a State Government only; effective 1st January 2018.
- that Part III of Schedule 5 be expanded with the word of “In the case of a disposer who is not a citizen and not a permanent resident, or an executor of the estate of a deceased person who is not a citizen and not a permanent resident” to apply the same tax rates imposed on an individual who is not a citizen and not a permanent resident; effective 1st January 2018.
A3. STAMP DUTY
- that full stamp duty exemption be given on contract notes relating to the trading of Exchange Traded Funds (ETF) and Structured Warrants (SW) executed from 1 January 2018 to 31 December 2020; for contract notes relating to the trading of ETF and SW executed from 1 January 2018 to 31 December 2020.
- that the exemption of stamp duty for transfer and loan agreements executed by rescuing contractors or developers and original house purchasers for the purpose of reviving an abandoned housing project certified by the Ministry of Urban Wellbeing, Housing and Local Government be extended from 1 January 2018 to 31 December 2020; for loan agreements and instruments of transfer executed from 1 January 2018 to 31 December 2020 in relation to certified abandoned housing projects.
- That stamp duty rate will remain at 3% for property cost above RM 1 million
B. INDIRECT TAXATION
B1. GOODS SERVICE TAX (GST)
- that all types of books which are reading materials (including magazines, journals, periodicals and comics) are subject to GST at zero-rate; effective 1st January 2018.
- that the management and maintenance services including the cost recovery of group insurance, quit rent and land assessments of stratified residential buildings supplied by housing developers to owners of houses held under strata titles be exempted from GST; effective 1st January 2018.
- that with effect 27th October 2017 GST relief is granted wholly (100%) on construction services for the construction of school buildings and places of worship that are funded through public donations; and the relief is limited only to construction services where the invoice has not been issued, and is subject to the following conditions: (a) the approval under the Subsection 44(6) of Income Tax Act 1967 for their construction fund has been obtained; (b) the approvals for development and constructions by Local Authorities, the Ministry of Education Malaysia or State Religious Councils (for surau or mosques) have been obtained; (c) the construction of the school building including hall and sport facilities are directly used for teaching and learning purposes; (d) the relief is not used for the purchase of commercial buildings; and (e) the construction services contract is signed on or after 1 April 2017.
- that companies carrying out activities in the aviation, shipping and oil and gas industries will be given relief from paying GST upon the importation of big ticket items prescribed by the Minister of Finance; effective 1st January 2018.
- that companies in the oil and gas industry be given relief from payment of GST on the importations of goods under lease agreements from Designated Areas as prescribed by the Minister of Finance; effective 1st January 2018.
- that cruise ship operators be given relief from the payment of GST on handling services acquired from sea port operators in Malaysia; effective 1 January 2018 to 31 December 2020.
- that the importation of all goods excluding cigarette, tobacco and intoxicating liquor where the total value of goods does not exceed RM 800.00 per consignment into Malaysia through international airports via air courier services be exempted/relieved from import duty and GST.
- that any contribution made to the pension, provident or social security fund under any written law or any levy under the Pembangunan Sumber Manusia Berhad Act 2001 [Act 612] shall be treated as neither a supply of goods nor a supply of services.
C. INTERNATIONAL TAX
- that to replace Thin Capitalisation Rules, the Earning Stripping Rules (“ESR”) is introduced with similar objective to control excessive deduction on interest expenses between associated persons.
- Implementation of the Automatic Exchange of Information (AEOI) on non-resident financial account information among tax authorities of member countries to come into effect September 2018.
- To amend relevant legislation to international agreed tax standards in participation of OECD initiatives and in streamlining tax incentives to be in line with FHTP criteria.