MALAYSIA: BUDGET 2015 HIGHLIGHTS - October 2014
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MALAYSIA: BUDGET 2015 HIGHLIGHTS October 2014 EXECUTIVE SUMMARY KEY CHANGES The 2015 Budget was tabled in Parliament on 10 October 2014 by the honourable Prime Minister and Minister of Finance YAB Datuk Seri Najib Tun GOODS & SERVICES TAX Razak with the theme “Budget 2015 : People Economy” which focused on seven main strategies: CORPORATE TAX 1. Strengthening Economic Growth 2. Enhancing Fiscal Governance PERSONAL TAX 3. Developing Human Capital and Entrepreneurship 4. Advancing Bumiputera Agenda REAL PROPERTY GAINS TAX 5. Upholding Role of Women 6. Developing National Youth Transformation Programme STAMP DUTY 7. Prioritising Well-Being of the Rakyat INCENTIVES The 2015 Budget allocates RM273.9 billion, which is 3.5% higher than the allocation for 2014, for development and operating expenditure. The Government revenue collection in 2015 is estimated at RM235.2 billion which is an increase of RM10.2 billion from 2014. Revenue from implementation of Goods and Services Tax (“GST”) is expected to be RM23.2 billion in 2015. The Government is committed to reduce the fiscal deficit to 3.5% of GDP (from 3.9% last year). Whilst continuing to focus on its fiscal transformation agenda, the Government has taken further steps to relieve the burden on the Rakyat in view of the implementation of GST on 1 April 2015. As such, the proposed list of zero rated or exempted items has been widened to further control the post-GST cost on basic necessities. The Government has also restated its commitment to reduce of income tax by 1% for companies (effective year of assessment 2016), and by 1% to 3% for individuals (effective year of assessment 2015). This is in line with making Malaysia more competitive in the region and the trend of gradually shifting from income tax to consumption tax. With only 5 years remaining to become a high income nation by 2020, the 2015 Budget marks the end of the 10th Malaysia Plan. The 11th Malaysia Plan, which is expected be launched in May 2015, is expected to have a new approach where the focus will be to embark on selected high impact projects without over-straining its resources.
2 2015 Malaysian Budget Highlights Outlined below are some of the key tax changes. BUDGET 2015 PROPOSALS COMMENTS GOODS & SERVICES TAX (GST) Additional The Government has widened the scope of items that will not be It is not clear which of these items not subject to GST which includes: items are zero-rated or exempt. subject to GST (i) All types of fruits whether local or imported; Items (i) to (iv) are likely to be zero-rated to be consistent with (ii) White bread and wholemeal bread; other basic food items. (iii) Coffee powder, tea dust and cocoa powder; As newspapers are zero-rated in the UK, it is possible that (iv) Yellow mee, kuey teow, laksa and meehoon; newspapers will also be zero- (v) The National Essential Medicine covering almost 2,900 medicine rated in Malaysia to avoid price brands. These medicines are used to treat 30 types of diseases increases. including heart failure, diabetes, hypertension, cancer and No definitive classification for fertility treatment; GST can be determined until the (vi) Reading materials such as children’s coloring books, exercise final zero-rated and exempt and reference books, text books, dictionaries and religious supply orders are released. books; and (vii) Newspapers. Supply of The Government has also agreed to increase the zero-rated supply The objective of this is to electricity threshold of electricity for domestic households from the first 200 benefit 70% of households. units to 300 units for a minimum period of 28 days. Relief from The Government has agreed that the retail sale of RON95 petrol, It is not clear how the relief will GST diesel and LPG will be given relief from the payment of GST for be applied and who is to be consumers and targeted groups. included in the targeted groups. GST impact on Of the 944 goods and services in the basket of goods of the CPI, the This indicates that the pricing prices of 532 items (56%) are expected to reduce by up to 4.1%. On Government has done some the other hand, 354 goods and services may experience some price preliminary pricing studies. increase but less than 5.8%. The Government will disseminate a shoppers’ guide to enable Depending on the information in consumers to compare prices before and after the implementation of the guide, this may assist GST. consumers to assess the reasonableness of pricing post- GST. Incentives and To assist businesses in the successful implementation of GST, the These incentives and financial financial following incentives and assistance will be provided: assistance were also announced assistance in last year’s Budget. (i) Training grant of RM100 million will be provided to businesses for employees to attend GST courses. (ii) Financial assistance amounting to RM150 million will be provided to SMEs for the purchase of accounting software. (iii) Accelerated Capital Allowance on ICT equipment and software. (iv) Expenses incurred for training in accounting and ICT relating to GST will be given additional tax deduction.
3 2015 Malaysian Budget Highlights BUDGET 2015 PROPOSALS COMMENTS CORPORATE TAX Review of The corporate tax rate for a company will be reduced by 1% to 24%. The corporate tax rate and the Corporate This rate also applies to the following entities: income tax rate for SMEs will be Income Tax (i) a trust body; reduced by 1%. This is to support the smooth implementation of (ii) an executor of an estate of an individual who was domiciled GST. outside Malaysia at the time of his death; This proposal has previously (iii) a receiver appointed by the court; and been announced in Budget 2014. (iv) a limited liability partnership. The income tax rate for SMEs (i.e. companies with paid-up capital of up to RM2.5 million) will be reduced by 1% as follows: (i) 19% on chargeable income up to RM500,000; and (ii) 24% on the remaining chargeable income. (Effective YA 2016) Review of Co- The chargeable income tax bands and income tax rates for co- The objective of this proposal is Operative operatives are amended and reduced as follows: to support the smooth Income Tax implementation of GST. Chargeable Income Proposed Tax Rates (RM) The reduction in the income tax rate for co-operatives will give 1 – 30,000 0% tax savings of RM7,000 to co- operatives with chargeable 30,001 – 60,000 5% income in excess of RM750,000. 60,001 – 100,000 10% This proposal has previously been announced in Budget 2014. 100,001 – 150,000 15% 150,001 – 250,000 18% 250,001 – 500,000 21% 500,001 – 750,000 23% Exceeding 750,000 24% (Effective YA 2015) Extension of Tax Tax deduction on expenses incurred for the issuance of Sukuk under The objective of this proposal is Incentive for the principles of Ijarah and Wakalah to be extended for another 3 to expand the Sukuk market at Issuance of years to YA 2018. the international level. Sukuk (Effective from YA 2016 to YA 2018) Tax incentive A double deduction is currently given on scholarships awarded by The proposal is to encourage for Scholarships companies to students pursuing diploma or bachelor degree courses companies to provide at higher educational institutions. This is further extended to scholarships in vocational and scholarships in the field of vocational and technical fields in technical fields. institutions recognised by the Government. (Effective from YA 2015 to YA 2016) Tax Incentive Double deduction given on expenses incurred by companies that Companies are encouraged to for Structured participate in the SIP programme implemented by the Ministry of extend SIP programme to full Internship Higher Education in collaboration with TalentCorp is further time students pursuing training Programme extended to full time students pursuing training at the vocational at the vocational and diploma (SIP) and diploma levels. levels. The eligibility criteria for students and conditions to be satisfied by companies under the current SIP programme will be maintained. (Effective from YA 2015 to YA 2016)
4 2015 Malaysian Budget Highlights BUDGET 2015 PROPOSALS COMMENTS Tax Incentive Currently a deduction is given on training expenses incurred by The proposal’s objective is to for Training companies for training programs approved by agencies appointed by support the Government’s effort the Ministry of Finance. to strengthen the development of human capital. This deduction is extended to training expenses incurred by companies for employees to obtain industry recognised certifications and professional qualifications such as in the field of accounting, finance and project management. (Effective from YA 2015) Due date for Currently the due date for the estimate of tax payable instalment instalment payments is the tenth day of a calendar month. With the proposed payments under amendment, the due date is extended to the fifteenth day of a Section 107C calendar month. (Effective 1 January 2015) Introduction of With the introduction of the new subsection, the Director General The implication of this change is new subsection (DG) may raise an assessment or an additional assessment in a to extend the timeframe for non- 91(5) particular year of assessment or within 7 years after the end of that arm’s length transfer pricing year of assessment in relation to a transaction entered into between adjustments to 7 years which is associated person, which is not at arm’s length. over the 5 year time bar period. (Effective upon the coming into operation of the Finance Act) Increase in Currently the maximum fine for the following offences is RM2,000: maximum fine (i) Section 112 – Failure to furnish return or give notice of for offences chargeability under Section 112, Section 115 (ii) Section 115 – Leaving Malaysia without payment of tax and Section 120 (iii) Section 120 – Other offences The maximum fine for the above offences is now increased from RM2,000 to RM20,000. (Effective upon the coming into operation of the Finance Act) Interest income With the introduction of the new subsection of 29(3), interest on With this amendment, interest from loan loan transactions between related parties is deemed obtainable on income in respect of related transactions demand when the interest is due to be paid. parties loan will be taxable when between (Effective Year of assessment 2014) the interest is due to be paid. related parties Manner in which Currently only the income which is subject to withholding tax under This is to avoid double taxation chargeable Section 109C or Section 109E is excluded for the purpose of for income which is already income is to be ascertaining chargeable income. subjected to withholding tax. ascertained The proposed amendment provides that any amount received which is subject to withholding tax under Section 109G, (i.e. income derived from withdrawal of a deferred annuity or a private retirement scheme) shall also be excluded in arriving at chargeable income. (Effective Year of assessment 2015)
5 2015 Malaysian Budget Highlights BUDGET 2015 PROPOSALS COMMENTS PERSONAL TAX Reduction in The income tax rates of resident individuals are to be reduced by 1% With the impending Income Tax to 3% as follows: implementation of GST, this Rates for proposal aims to reduce the cost Resident Chargeable Current Proposed Reduction of living and increase the Individuals Income (RM) Tax Rate Tax Rate (%) disposable income of resident (%) (%) individuals. 1–5,000 0 0 - This proposal was already announced in the 2014 Budget. 5,001-20,000 2 1 1 20,001-35,000 6 5 1 35,001-50,000 11 10 1 50,001-70,000 19 16 3 70,001-100,000 24 21 3 100,001-250,000 26 24 2 250,001-400,000 26 24.5 1.5 Exceeding 26 25 1 400,000 (Effective YA 2015) Reduction in Income tax rate for non-resident individuals are to be reduced by 1%, The reduction is in line with the Income Tax from 26% to 25%. proposed reduction in the Rate for Non- (Effective YA 2015) maximum income tax rates for Resident resident individuals. Individuals This proposal was already announced in the 2014 Budget. Monthly Tax Employees whose total income tax equals to the amount of MTD, such Apart from lifting the Deduction taxpayers no longer need to submit tax returns. This proposal is administrative burden of (MTD) as Final extended to the following: taxpayers from filing their tax Tax returns to the IRB, this (i) employees who receive employment income prescribed under exemption would also mean that section 13 of the Income Tax Act 1967; and the taxpayers who fall under this (ii) employees serving under the same employer in the same year of category would not be exposed assessment. to penalties for late submission of tax returns which are (Effective upon the coming into operation of the Finance Act) currently ranging at the rate of 20% to 35%. Penalty for The maximum penalty amount for failure to furnish tax return has The proposal is to deter Failure to been increased from RM2,000 to RM20,000. taxpayers from defaulting in Furnish Return furnishing the tax returns. (Effective upon the coming into operation of the Finance Act) Penalty for The maximum penalty amount for taxpayers leaving Malaysia without The proposal is to deter Leaving paying tax, where the certificate has been issued in respect of him taxpayers from leaving Malaysia Malaysia under Section 104 of the Income Tax Act 1967 has been increased from without paying tax. without RM2,000 to RM20,000. Payment of Tax (Effective upon the coming into operation of the Finance Act)
6 2015 Malaysian Budget Highlights BUDGET 2015 PROPOSALS COMMENTS Tax Incentive IAP is a new funding model based on Syariah principle with the aim to This proposal is aimed to under finance projects and venture companies. Profit earned by individual facilitate the provision of Investment investors from investments made through IAP will be accorded income funding for the benefit of both Account tax exemption. This proposal is subject to the following conditions: parties namely investors and Platform (IAP) SMEs as well as entrepreneurs (i) Tax exemption shall only be accorded for 3 consecutive years through effective projects starting from the first year profit is earned; financing. (ii) The investment is made for a period of 3 years starting from the operation date of IAP; (iii) Tax incentive shall only be accorded for investment activities in Malaysia, in venture companies owned by Malaysian or locally incorporated companies; (iv) Tax exemption shall only be accorded for investment made in SMEs and venture companies in any sectors; and (v) Definition for SMEs is as per the latest definition issued by SME Corporation Malaysia. (Effective from the operational date of IAP scheduled to be from 1 September 2015 to 31 August 2018) Personal Tax Personal tax relief on medical expenses for serious diseases for This proposal is to reduce the Relief on individual, spouse or child is to be increased from RM5,000 to burden of medical expenses and Medical RM6,000 per annum. treatment of serious diseases. Expenses for Serious (From YA2015) Diseases Personal Tax Personal tax relief for disabled child is to be increased from RM5,000 This proposal aims to alleviate Relief for to RM6,000 per annum. the cost of living of taxpayer Disabled with disabled child. Child (From YA2015) Personal Tax Personal tax relief for purchase of basic supporting equipment for the This proposal is to reduce the Relief for disabled is to be increased from RM5,000 to RM6,000 per annum. cost of living of taxpayer. Purchase of Basic (From YA2015) Supporting Equipment for the Disabled REAL PROPERTY GAINS TAX (RPGT) Self-assessment Taxes on gains from disposal of chargeable assets are to be self- This is to modernise the tax system for RPGT assessed by the taxpayer. system in Malaysia. (Effective tentatively from 2016) Increase in The retention sum which the acquirer is required to retain from the This increases the amount retention sum consideration which consists wholly or partly of money is increased collected in advance by the on disposal of from 2% to 3%. Government. chargeable asset (Effective from 1 January 2015)
7 2015 Malaysian Budget Highlights BUDGET 2015 PROPOSALS COMMENTS Review of the Where the donor is a citizen or permanent resident of Malaysia, the Arising from this amendment, treatment of recipient shall be deemed to have acquired the asset at the where the donor is a citizen or gifts of acquisition price plus permitted expenses of the donor only if the gift permanent resident and the gift chargeable is made within 5 years after the date of acquisition by the donor. is made 5 years after the date of assets acquisition by the donor, the However, if the donor is not a citizen or permanent resident, the recipient is deemed to have recipient shall be deemed to have acquired the asset at the acquired the asset at market acquisition price plus permitted expenses of the donor irrespective of value at the time of the gift. the length of time the donor has owned the asset. This may potentially be (Effective from 1 January 2015) beneficial to the recipient. STAMP DUTY Extension of Malaysians are eligible for 50% stamp duty exemption on the The Government is continuing its stamp duty instrument of transfer and loan agreement for the purchase of their policy of helping the Rakyat to exemption for first residential property priced not exceeding RM500,000. own a home by reducing the cost the purchase of of buying a house. first residential (Effective for sales and purchase agreements executed from 1 property January 2015 to 31 December 2016) Youth Housing Under this scheme for married youths aged between 25 and 40 years This is part of a scheme to Scheme with household income not exceeding RM10,000, the Government will address the issue of youths being give a 50% stamp duty exemption on the instrument of transfer unable to purchase a house due agreements and loan agreements for a first home not exceeding to the high costs. RM500,000. (Effective date to be announced) INCENTIVES Extension of tax New and existing companies engaged in expansion, modernization This is an extension of the incentive for and refurbishment for private healthcare facilities to at least 5% earlier incentive which medical tourism healthcare traveler shall be given exemption on income equivalent to encourages growth in the Investment Tax Allowance of 100% for qualifying capital expenditure medical tourism industry. for a period of 5 years. This incentive is for applications received by MIDA from 1 January 2015 to 31 December 2017. Incentives for Private sectors undertaking management, maintenance and The incentive is proposed to management of upgrading of industrial estates in less developed areas shall be given encourage the private sector to industrial incentive of 100% income tax exemption for a period of 5 years. An invest in management of estates incentive of 70% income tax exemption for the same period is being industrial estates. proposed for managing industrial estates in other areas. The definition of ‘less developed areas’ and ‘other areas’ is yet to be made available. Capital Incentive for the manufacturing sector in the form of capital This is a new incentive to Allowance for allowance on automation expenditure are given according to the encourage labour intensive automation following categories: industries to invest in industrial expenditure in automation to improve labour- First Category: For high labour intensive industries (such as rubber productivity and reduce reliance extensive products, plastics, wood, furniture and textiles), an automation on human labour. industries capital allowance of 200% will be provided on the first RM4 million expenditure incurred within the period from 2015-2017; and Second Category: For other industries, automation capital allowance of 200% will be provided on the first RM2 million of expenditure incurred within the period from 2015-2020.
8 2015 Malaysian Budget Highlights BUDGET 2015 PROPOSALS COMMENTS Extension of Currently, double deduction is given for training expenses incurred The extension of the incentive is double by Government-linked Companies (GLCs) and private companies that to encourage more companies to deduction on participate in the SL1M scheme to provide soft skills training and on- participate in the training training the-job training to unemployed graduates. Applications are subject programme and increase the expenses to approval of the Ministry of Finance and the double deduction is number of jobs for graduates from incurred on given for training expenses within 1 year from the date of approval. low-income households and rural training areas. programmes The types of qualifying training expenditure are as follows: under the Skim (i) Payment of monthly allowance at a minimum of RM1,000 for Latihan each trainee for a maximum period of 12 months; 1Malaysia (SL1M) (ii) Expenses incurred to provide soft skills training to the trainees; and (iii) Fees paid to training providers to conduct soft skills programmes to enhance skills and to increase employability of the trainees Total training expenses for items (2) and (3) that qualify for double deduction are restricted to RM5,000 for each trainee per year of assessment. Currently it is effective for applications made between 1 June 2012 to 31 December 2016. It is proposed that the double deduction is extended to 31 December 2020. CONTACT BDO TAX SERVICES SDN BHD (114863-K) 12th Floor Menara Uni.Asia, 1008 Jalan Sultan Ismail, 50250 Kuala Lumpur, Malaysia Tel: +603 2616 2888 Fax: +603 2616 3195 Email: firstname.lastname@example.org Website: www.bdo.my TAX ADVISORY & COMPLIANCE SERVICES BEH TOK KOAY DAVID LAI ONG ENG CHOON WOON YOKE LEE Senior Advisor Head of Tax Advisory Executive Director Executive Director email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org CHRISTOPHER LOW PHILIP YEOH BERNICE TAN LEE BOON HOOI Executive Director Executive Director Executive Director Executive Director email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org GST ADVISORY SERVICES MOK CHEW YIN GAN HOCK SOON NG SWEE WENG CHRIS JENKINS Executive Director Executive Director Senior Advisor Executive Director email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org JEFF O’CONNELL ANG AH LECK WOON TAI HAI TAN SIN HUAT Executive Director Executive Director Executive Director Advisor email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org
9 2015 Malaysian Budget Highlights This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Tax Services Sdn Bhd to discuss these matters in the context of your particular circumstances. BDO Tax Services Sdn Bhd, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO Tax Services Sdn Bhd (114863-K) a Malaysian Limited Liability Company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.
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