17.10.2019
On 11 October 2019, Minister of Finance Lim Guan Eng delivered the annual budget speech in the Dewan Rakyat (the “Budget Speech”). This is the second budget to be tabled under the Pakatan Harapan Government. The theme of the 2020 Budget Speech was “Driving Growth And Equitable Outcomes Towards Shared Prosperity”, consistent with the Shared Prosperity Vision 2030. It mainly focuses on four matters: (i) driving economic growth in the new economy and digital era, (ii) investing in Malaysians by “levelling up human capital”, (iii) creating a united, inclusive and equitable society, and (iv) the revitalisation of public institutions and finances.
Among the numerous proposals included in the Budget Speech, it is worth highlighting some that are particularly significant:
The main Budget proposals announced by the Minister of Finance are summarized in the table herein below. This tax newsletter is solely based on the contents of the 2020 Budget Speech and its appendices. Where needed, Luther can provide you with further details in order to assist you in analysing the potential consequences of these changes for your company.
Subject matter | Nature of the proposal | Effective date | Details of the proposal | ||||||||||||||||||||||||||
A. BUSINESSES | |||||||||||||||||||||||||||||
I. Corporate tax | |||||||||||||||||||||||||||||
SMEs and | Revision | YA 2020 | The amount of chargeable income subjected to the preferential 17% rate will be increased from MYR 500,000 to MYR 600,000, subject to:
Comment: the 2020 Budget Speech has not clarified the scope of “annual sales”. | ||||||||||||||||||||||||||
Special allowances for Small Value Assets (“SVA”) | Expansion | YA 2020 | Capital allowance on SVA shall be increased as follows:
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Tax deduction on secretarial fees and tax filing fees | Revision | YA 2020 | Previously, tax deduction was given for secretarial fees up to MYR 5,000 and tax filing fees up to MYR 10,000 for each year. The tax deduction limit on expenses incurred on secretarial fees and tax filing fees shall be combined and allowed up to MYR 15,000 for each YA. | ||||||||||||||||||||||||||
II. Indirect tax | |||||||||||||||||||||||||||||
Sales tax: introduction of Approved Major Exporter Scheme (“AMES”) | New | From 1 July 2020 | The AMES shall be introduced under the Sales Tax Act 2018. The traders or manufacturers of exempted goods (for export) who export at least 80% of their annual sales will be eligible to claim an exemption from paying sales tax on the importation or purchase of raw materials, components and packing materials used in the manufacture of those goods. The approved traders and manufacturers of exempted goods are:
Sales tax shall need to be paid for:
Comment: This proposal is a significant improvement of the situation of importer-exporters in Malaysia. Traders will no longer need to follow the burdensome process of paying the sales tax upfront and applying for the drawback. | ||||||||||||||||||||||||||
Service tax: relaxation of the condition for group relief | Expansion | From 1 January 2020 | The Service Tax Regulation 2018 provides for a group relief facility under the service tax. Such group relief shall be allowed for the qualifying taxable services under professional group provided by a company to a third party who is not within the same group or company (previously not allowed), provided that the value of the services does not exceed 5% of the total value of services provided by that company within 12 months.
Comment: it might be difficult to determine whether the 5% threshold is breached. In practice, it will be necessary to track precisely the value of services provided to third parties outside the same group of companies, which can be very burdensome. | ||||||||||||||||||||||||||
Service tax: exemption for provisions of training and coaching services for disabled persons | Expansion | From 1 January 2020 | Service tax exemption shall be given on training and coaching services for disabled persons with hearing, visual, physical, speech, mental, and learning disabilities. | ||||||||||||||||||||||||||
Deferred payment facility for clearance of goods from customs control | New | To be determined | The RMCD shall introduce a deferred payment facility to expedite the clearance process of cross border transactions. This proposal should reduce the time and cost of cross border trade significantly.
Comment: further developments are to be expected with regard to this proposal (time of payment deferral, persons and goods concerned). | ||||||||||||||||||||||||||
III. Tax incentives | |||||||||||||||||||||||||||||
Packaged investment incentives for Fortune 500 companies and global unicorns in high technology | New | To be determined | Customised packaged investment incentives shall be available up to MYR 1 billion over 5 years, upon the following conditions:
Comment:further developments are to be expected with regard to this proposal. | ||||||||||||||||||||||||||
Packaged investments incentives for Export-oriented businesses | New | To be determined | Customised packaged investment incentives annually up to MYR 1 billion shall be available over 5 years for export-oriented businesses. These incentives are strictly conditional upon these companies proving their ability to grow and export their products and services globally.
Comment:further developments are to be expected with regard to this proposal. | ||||||||||||||||||||||||||
Incentive for Electrical and Electronics sector | New | To be determined
| E&E companies shall be exempted from income tax when investing in selected knowledge-based services up to 10 years.
Comment:further developments are to be expected with regard to this proposal (notably the scope of the “knowledge-base services”). | ||||||||||||||||||||||||||
For applications received by Malaysian Investment Development Authority (“MIDA”) from 1 January 2020 until 31 December 2021 | In addition, E&E companies that have exhausted the Reinvestment Allowance shall be given an Income Tax Allowance (“ITA”) of 50% on qualifying capital expenditure incurred within a period of 5 years. This ITA will be able to be set-off against 50% of statutory income for each YA. | ||||||||||||||||||||||||||||
Review of tax incentive for automation | Extension / Expansion | Extended to applications received by MIDA until 31 December 2023
| Both Accelerated Capital Allowance (“ACA”) for automation equipment in the manufacturing sector (i) for the first MYR 4 million incurred on qualifying capital expenditure in labour-intensive industries and (ii) for the first MYR 2 million incurred on other qualifying capital expenditure shall be extended for 3 years. | ||||||||||||||||||||||||||
For applications received by MIDA from YA 2020 to YA 2023 | Furthermore, the incentive shall be expanded to include the services sector for the first MYR 2 million incurred on qualifying capital expenditure. | ||||||||||||||||||||||||||||
Incentive for development of IP | New | For applications received by MIDA from 1 January 2020 until 31 December 2022 | An income tax exemption of 100% shall be given for a period of up to 10 years on qualifying IP generated income derived from patent and copyright software of qualifying activities. The Modified Nexus Approach will be adopted to ensure that the tax incentive only applies to income derived from IP developed in Malaysia. | ||||||||||||||||||||||||||
Tax deduction on cost of living in Bursa Malaysia | New | From YA 2020 to YA 2022 | Technology-based companies and SME’s that list through Access, Certainty, Efficiency (“ACE”) Market and Leading Entrepreneur Accelerator Platform (“LEAP”) Market shall be eligible for a tax deduction of up to MYR 1.5 million on the following costs:
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Income tax exemption to religious institutions or organisations registered as a Company Limited By Guarantee (“CLBG”) | Expansion | YA 2020 | Tax exemption on all income enjoyed by some religious institutions shall be extended to cover religious institutions registered as CLBG with SSM and approved by IRB. | ||||||||||||||||||||||||||
Expansion of the scope of tax deductions on contributions to charity and community projects | Expansion | YA 2020 | To further encourage the involvement of the private sector in the implementation of Corporate Social Responsibility, tax deductions under 34(6)(h), Income Tax Act 1967 shall be enhanced to include:
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Incentive for organising arts, cultural, sports and recreational activities in Malaysia | New | From YA 2020 to YA 2022 | Income tax exemptions of 50% on statutory income shall be given to companies that organise:
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Incentive for the purchase of tourism vehicles | New | From YA 2020 to YA 2021
| ACA shall be given on expenses incurred in the purchase of new locally assembled excursion buses, with initial allowance of 20% and an annual allowance of 40%, to be fully claimed within 2 years. | ||||||||||||||||||||||||||
Review of tax deduction limit for the sponsorship of arts, cultural and heritage activities in Malaysia | Revision | YA 2020 | Tax deduction limits on companies sponsoring arts, cultural and heritage activities shall be increased from MYR 700,000 up to MYR 1 million a year.
Tax deduction limit for sponsoring foreign arts, cultural and heritage activities shall remain up to MYR 300,000 a year. | ||||||||||||||||||||||||||
Expansion of scope of tax incentives for tourism projects | Expansion | For applications received by MIDA from 1 January 2020 | Integrated tourism and sports tourism projects shall be eligible for tax incentives as follows:
International theme parks shall be eligible for tax incentives as follows:
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Incentive for organising conferences in Malaysia | Expansion | From YA 2020 until YA 2025 | Income tax exemption of 100% statutory income shall be extended to any entity whose main activities are other than promoting and organizing conferences provided that the organizer brings in at least 500 foreign participants annually. | ||||||||||||||||||||||||||
Incentive for National Dual Training Scheme | Extension | Extended until 31 December 2021 | Double deduction on expenses incurred by companies participating in National Dual Training Scheme for Industry4WRD programs shall be extended for 2 years. | ||||||||||||||||||||||||||
Incentive for Structured Internship Programme (“SIP”) | Extension / Expansion | Extended from YA 2020 to YA 2021 | Double deduction shall be given on qualifying expenditure incurred by companies that implement SIP. Existing tax incentives for SIP shall be expanded to include Bachelor’s degree, Diploma, Vocational (DKM Level 4 and 5) and SKM Level 3 students in all academic fields and extended for 2 years. | ||||||||||||||||||||||||||
Real Estate Investment Trusts (“REIT”) tax treatment | Extension | Extended from YA 2020 to YA 2025 | The current tax rates applied to REIT investors that receive profit distributions from a REIT listed on Bursa Malaysia shall be extended for 6 years. | ||||||||||||||||||||||||||
Extension of period of tax incentive for issuance of Sukuk Wakalah | Extension | Extended from YA 2021 to YA 2025 | Tax deductions for issuance cost and additional issuance costs of Sukak under the principle of Wakalah shall be extended to YA 2025. Tax deductions for issuance costs of Sukuk under Ijarah shall be eligible to be claimed until YA 2020. | ||||||||||||||||||||||||||
Extension of period of tax incentives for issuance of Sustainable and Responsible Investments (“SRI”) Sukuk | Extension | Extended from YA 2021 to YA 2023 | The existing tax deduction for issuance cost of SRI Sukuk either approved by, authorized by, or lodged with Securities Commission of Malaysia (“SCM”) shall be extended for 3 years. | ||||||||||||||||||||||||||
Extension of the tax exemption on management fee income for SRI Funds | Extension | Extended from YA 2021 to YA 2023 | Tax exemption on the management fee income in managing conventional SRI and Shariah-compliant SRI funds approved by the SCM is extended for 3 years. | ||||||||||||||||||||||||||
Extension of the tax exemption on management fee income for Shariah-compliant fund | Extension | Extended from YA 2021 to YA 2023 | Tax exemption for companies that provide Shariah-compliant fund management services approved by the SCM, on management fees received from foreign investors, local investors, business trusts and REITs, shall be extended for 3 years. | ||||||||||||||||||||||||||
Extension of period of the tax incentive for angel investors | Extension | Extended to applications received by the Ministry of Finance until 31 December 2023 | Tax exemptions for angel investors that are equivalent to the amount of investment made in a qualifying investee company, shall be extended for 3 years. | ||||||||||||||||||||||||||
Extension of period of tax incentive for venture capital | Extension | The qualifying investment period being extended until 31 December 2026, for applications received by SCM until 31 December 2023 | The existing tax incentives for venture capital shall be extended for 4 years. | ||||||||||||||||||||||||||
Green technology incentives | Revision | Extension to applications received by MIDA until 31 December 2023
| Regarding the Green Investment Tax Allowance (“GITA”), an ITA of 100% shall be granted on capital expenditure for qualifying green activities for an extended period of 3 years. This allowance will be able to be set-off against up to 70% of statutory income. | ||||||||||||||||||||||||||
Extension to applications received by MIDA from 1 January 2020 until 31 December 2023 | Regarding the Green Income Tax Exemption (“GITE”), an income tax exemption of 70% (previously 100%) of statutory income shall be given for qualifying green services activity. Furthermore, a new tax incentive for solar leasing activities with income tax exemption of 70% of statutory income for a period of up to ten years of assessment shall be granted to solar leasing companies certified by Sustainable Energy Development Authority. | ||||||||||||||||||||||||||||
B. INDIVIDUALS / PERSONAL INCOME TAX | |||||||||||||||||||||||||||||
Review of individual income tax rate | Revision | YA 2020 | Income tax rate for individuals shall be increase as follows:
Comment: the 2% point increase from the current 28% top marginal rate should affect only about 2,000 taxpayers. | ||||||||||||||||||||||||||
Private retirement Scheme (“PRS”) | New | To be determined | Pre-retirement withdrawals for the PRS for the purposes of healthcare and housing shall be allowed with the same terms and conditions as that allowed by EPF and shall not be subject to any penalty for early withdrawal (currently, there is an 8% penalty). | ||||||||||||||||||||||||||
Increase in minimum wage | Revision | Effective from 2020 | The minimum wage was increased to MYR 1,100 per month effective January 2019. The Government now proposes to increase the minimum wage rate only in major cities to MYR 1,200 per month. | ||||||||||||||||||||||||||
Increase in limit of tax relief for fees paid to childcare centres and kindergartens | Expansion | YA 2020 | The individual tax relief given to taxpayers who enrol their children aged up to 6 years in childcare centres and kindergartens will be increased from MYR 1,000 to MYR 2,000. | ||||||||||||||||||||||||||
Extension of tax exemption for women returning to work from a career break | Extension | Extended to applications received by TalentCorp from 1 January 2020 until 31 December 2023 | Income tax exemption given on employment income for a maximum of 12 consecutive months to women who return to work after a career break shall be extended for a period of 4 years. | ||||||||||||||||||||||||||
Fertility Incentive | Expansion | YA 2020 | The income tax relief of up to MYR 6,000 given on expenses incurred for medical treatment of serious illnesses shall be expanded to include expenses incurred on fertility treatment. | ||||||||||||||||||||||||||
Expansion of scope of income tax deduction on Perbadanan Tabung Pendidikan Tinggi Nasional (“PTPTN”) loan amount paid by employers on behalf of employees | Extension | Extended to repayment made from 1 January 2020 until 31 December 2021 | The income tax deduction on Perbadanan Tabung Pendidikan Tinggi Nasional (“PTPTN”) loan amount paid by employers on behalf of employees is extended for a period of 2 years. | ||||||||||||||||||||||||||
Income tax rebate for departure levy imposed on outbound air passengers performing umrah and pilgrimage to holy places | Expansion | YA 2019 | Individual income tax rebate on the departure levy imposed on outbound air passengers performing umrah and pilgrimage to holy places shall be given and can be claimed twice in a lifetime. | ||||||||||||||||||||||||||
Donation for charitable and sports activities and projects of national interest | Revision / expansion | YA 2020 | For taxpayers other than companies, the tax deduction on contribution for charitable and sports activities and projects of national interest shall be increased from 7% to 10% of aggregate income. Furthermore, the tax deduction is expanded to cash wafak contributions to state religious authorities and some public universities, and cash endowment to public universities. | ||||||||||||||||||||||||||
Real estate ownership of foreigners | Revision | 2020 | The threshold on high rise property prices in urban areas for foreign ownership is lowered from MYR 1 million to MYR 600,000. | ||||||||||||||||||||||||||
Eligibility to Social Security Organization (“SOCSO”) contribution will be expanded to cover self-employed individuals in 18 key sectors and eligible spouse under i-Suri programme | Expansion | From 2020 | The current Self-Employment Social Security Scheme by the SOCSO will be expanded to enable contributions by other self-employed groups across 18 key sectors, such as fishermen, farmers, sole proprietors and partnerships. Furthermore, the i-Suri programme shall be expanded whereby a husband may voluntary elect to contribute 2% from his 11% EPF employee contribution to his wife’s EPF Account. | ||||||||||||||||||||||||||
C. TAX ADMINISTRATIVE | |||||||||||||||||||||||||||||
Donation reporting threshold | Expansion | 2020 | Effective 5 September 2019, the donation reporting threshold has been increased from MYR 5,000 to MYR 10,000 under Subsection 44(6) of the Income Tax Act 1967 (gift or money given to the Government, a State Government, a local authority or an institution or organization or a fund). This will subsequently be increased to MYR 20,000. | ||||||||||||||||||||||||||
Tax Appeal Tribunal | Revision | 2021 | The SCIT and the CAT shall be merged into the Tax Appeal Tribunal. Comment: further developments are to be expected with regard to this proposal (notably the future Tax Appeal Tribunal procedure as SCIT’s and CAT’s administrative procedures currently differ). | ||||||||||||||||||||||||||
Tax Identification Number | New | January 2021 | Malaysians above the age of 18 and corporate entities will be assigned a TIN. | ||||||||||||||||||||||||||
Review and revamp of existing incentive framework | Revision | The new framework is expected to be ready by 1 January 2021 | The Government shall review and revamp the existing incentive framework, comprising the Promotion of Investments Act 1986, Special Incentive Package and incentives under the Income Tax Act 1967.
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D. MISCELLANEOUS | |||||||||||||||||||||||||||||
I. Stamp Duty | |||||||||||||||||||||||||||||
Stamp duty exemption for Rent-To-Own (“RTO”) Scheme | New | For SPA executed from 1 January 2020 to 31 December 2022 regarding the transfer of residential homes from housing developers to financial institutions,
For rental agreements executed from 1 January 2020 to 31 December 2022 regarding the transfer of residential homes from financial institutions to final buyers | RTO is an alternative financing scheme to assist home ownership whereby financial institutions will initially rent out the house and the tenant is subsequently given the option to purchase.
For the purchase of first homes, with a property value of up to MYR 500,000, stamp duty exemption shall be given on the instruments of transfer, that is to say both the transfer of residential home from housing developer to financial institution, and the transfer of residential home from financial institution to final buyer. This stamp duty exemption is subject to the following:
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Stamp duty remission for transfer of property by way of love and affection | Restriction | For instrument of real property transfer executed from 1 January 2020 | Stamp duty remission of 50% on the instrument of real property transfer between parents and children and vice versa by way of love and affection shall be restricted to Malaysian citizens only (previously expanded to non-citizens). | ||||||||||||||||||||||||||
Stamp duty on foreign currency loan agreement | Revision | For loan agreements executed from 1 January 2020 | Loan agreements in foreign currency shall be subject to stamp duty at an ad valorem rate of MYR 5 for every MYR 1,000 of the loan amount, with a maximum amount of stamp duty increasing from MYR 500 to MYR 2,000. | ||||||||||||||||||||||||||
II. Real Property Gains Tax | |||||||||||||||||||||||||||||
Review of Real Property Gains Tax (“RPGT”) treatment | Revision | Effective for the disposal of real properties made from 12 October 2019 | For disposal of properties acquired before 1 January 2013 and after 5 years from the date of acquisition, the current base year of 1 January 2000 shall be replaced by a revised base year for asset acquisition at 1 January 2013 for the purpose of RPGT computation. | ||||||||||||||||||||||||||
E. CUSTOMS DUTIES | |||||||||||||||||||||||||||||
Review of export duty rate on Crude Palm Oil (“CPO”) | Revision | From 1 January 2020 | Export duty rate on CPO shall be reviewed as follows:
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Excise duty exemption for tourism vehicles | Expansion | From 1 January 2020 until 31 December 2021 | Excise duty exemption of 50% for locally assembled vehicles shall be given to tour operators for the purchase of qualified new tourism vehicles (before, this exemption was restricted to four wheel drive vehicles only). | ||||||||||||||||||||||||||
Digital Service Tax | New | From 1 January 2020 | The Digital Services Tax shall be implemented to include services such as, but not limited to downloaded software, music, video or digital advertising. Foreign service providers can commence registration with the RMCD as of 1 October 2019. | ||||||||||||||||||||||||||
F. ENTERTAINMENT DUTIES | |||||||||||||||||||||||||||||
Exemption of entertainment duty for stage performances | Expansion | From 1 January 2020 until 31 December 2021 | In conjunction with Visit Malaysia 2020, full entertainments duty exemption shall be given on admission tickets for stage performances that include concerts, singing, music, dances and theatres including cultural and artistic performances by local and international artists held at any venue in the Federal Territory of Kuala Lumpur, Labuan and Putrajaya, subject to approval by the relevant local authorities. | ||||||||||||||||||||||||||
David Martiny
Partner
Singapur
david.martiny@luther-lawfirm.com
+65 6408 8000
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