budget 2015

Executive Summary • Reduction of individual income tax rates of 1% to 3% across various income bands

from Year of Assessment (“YA”) 2015. The maximum individual tax rate is reduced from 26% to 25%, with the 25% rate applying to chargeable income in excess of RM400,000.

• Reduction of the standard corporate tax rate from 25% to 24%. For small and medium enterprises, the tax rate for chargeable income of up to RM500,000 is proposed to be reduced to 19%, with the remaining chargeable income subject to tax at 24%. These changes will be effective from YA 2016.

The due date for monthly instalments for income tax and petroleum income tax has been revised to the 15th day of the calendar month.

The time limit for the Director General to raise an assessment or additional assessment for income tax and petroleum income tax has been increased to 7 years for non arm’s length transactions entered into between associated persons.

The maximum penalty upon conviction shall be increased from RM2,000 to RM20,000 for the failure to furnish a return or give notice of chargeability, or attempting to leave Malaysia without payment of tax, amongst others.

Tax deductions are given on training expenses incurred by companies for their employees to obtain industry recognized certifications and professional qualifications from approved training programmes.

Double deductions are given to companies awarding scholarships and implementing structured internship programmes for eligible Malaysian students pursuing vocational and technical courses.

100% income tax exemption for 3 years is given on profits earned by individual investors from certain investments made through the Investment Account Platform (“IAP”), a new funding model to finance projects and venture companies based on Syariah principles.

Tax exemption equivalent to a100% investment tax allowance for 5 years is given to companies engaging in expansion, modernization or refurbishment where such companies provide healthcare facilities to qualified healthcare travellers who make up at least 5% of their total patients.

Additional items have been identified as not being subject to Goods and Services Tax (“GST”).

Retail sale of petrol (RON 95), diesel and Liquefied Petroleum Gas (“LPG”) are given relief from payment of GST.

Price watch teams will be jointly set up with consumer associations. The GST Enforcement Unit, Price Monitoring Unit and Consumer Squads will be strengthened.

50% stamp duty exemption on instruments of transfer and loan agreements executed by Malaysians for the purchase of their first residential property has been extended to 31 December 2016 for properties not exceeding RM500,000.

2015 BUDGET HIGHLIGHTS 10 October 2014


For real property gains tax purposes, where the consideration for a chargeable asset consists wholly or partly of money, the purchaser is required to withhold and remit to the Inland Revenue Board (“IRB”) the whole of that money or 3% of the total value of the consideration, whichever is lower.

Overview and Commentary The Honorable Prime Minister, YAB Dato’ Sri Mohd. Najib Tun Haji Abdul Razak, tabled the 2015 Budget on Friday, 10 October 2014. The 2015 Budget carries the theme “People Economy” and once again underlines the Government’s commitment to ensure that the National Budget is crafted with the intention to promote the well-being of the rakyat. Our economy grew by 6.3% in the first half of 2014, the highest amongst ASEAN countries. In line with this, the 2015 Budget contains an allocation of RM223.4 billion for operating expenditure and RM50.5 billion for development expenditure. The Federal Government expects to fund this expenditure with revenue of RM235.2 billion. These prudent Government fiscal policies should therefore result in a further contraction of our fiscal deficit to 3% of GDP in 2015. Notwithstanding the above, the Government recognises that with the impending introduction of GST, the rakyat may suffer from increased costs of living in some areas. In view of this, various incentives and schemes have been and are still being designed with the rakyat in mind to help ease them into the GST-era. Malaysia’s 56th Budget outlines seven main strategies as follows:

• Strengthening Economic Growth;

• Enhancing Fiscal Governance;

• Developing Human Capital and Entrepreneurship;

• Advancing Bumiputra Agenda;

• Upholding Role of Women;

• Developing National Youth Transformation Programme; and

• Prioritising Well-Being of the Rakyat.

In line with the above, some of the significant measures proposed in the 2015 Budget are:



Goods and Services Tax

The Government continues to recognise the need to support the rakyat, especially the lower income group, so that they will be less burdened by the imposition of GST. The list of products and services not subject to GST has therefore been expanded to cover additional basic food items and services as well as RON95 petrol, diesel and LPG.

A host of other incentives and financial assistance

programmes have also been announced to prepare the nation for GST implementation.

It is crucial that businesses be ready to embrace GST in view of its approaching implementation date of 1 April 2015. Businesses that have yet to consider the GST impact on their operations, or register for GST, may find themselves unprepared to meet the financial impact and compliance requirements of a GST regime.

Incentive for the Manufacturing Sector

The Government remains keen to encourage our manufacturing sector to de-emphasise labour intensive processes. An incentive is now being introduced in the form of enhanced capital allowances on automation expenditure to encourage automation in this sector.


Individual Tax

The Government’s objective to reduce the tax burden on the rakyat is clear with the following measures being introduced for individuals:

(i) Individual income tax rates to be reduced by 1 to 3% which will result in 300,000 individual taxpayers no longer paying income tax.

(ii) Increase of allowance for working disabled persons from RM300 to RM350 and financial

assistance for non-working disabled persons to be increased from RM150 to RM200.

(iii) Increase tax relief for each disabled child from RM5,000 to RM6,000.

(iv) To reduce the burden of medical expenses and treatment of serious diseases, the Government proposes the existing tax relief be increased from RM5,000 to RM6,000 per year.

These and the other key changes that have been announced are outlined in the following pages. Should you have any queries relating to the Highlights or any other tax matters, please feel free to contact your usual KPMG consultant or send us an email at www.kpmg.com/my

Tai Lai Kok Executive Director – Head of Tax KPMG Tax Services Sdn Bhd


SUBJECT BUDGET PROPOSALS

CORPORATE TAX

Review of Corporate Income Tax

The corporate tax rate is proposed to be reduced to 24%.

For small and medium enterprises, the tax rate for chargeable income of up to RM500,000 is proposed to be reduced to 19%. The remaining chargeable income is proposed to be subjected to tax at a rate of 24%. This preferential tax rate is also proposed to be limited to a company resident and incorporated in Malaysia.

The proposals are effective from YA 2016.

Limited Liability Partnership (LLP) – Review of Tax Rates

The tax rate for chargeable income of a LLP resident in Malaysia (which has a total contribution of capital not exceeding RM2.5 million at the beginning of the basis period for a YA) of up to RM500,000 is proposed to be reduced to 19%. The remaining chargeable income is proposed to be subjected to tax at a rate of 24%.

The proposal is effective from YA 2016.

Co-operative Society – Review of Tax Rates

It is proposed that income tax rates for co-operatives be reduced by 1% to 2% for chargeable income exceeding RM150,000.


Tax Estimates Currently, small and medium enterprises are relieved from furnishing tax estimates for a period of two YAs beginning from the YA the company commences operation if certain requirements are met. This relief is proposed to be limited to a company resident and incorporated in Malaysia.

The proposal is effective on the coming into operation of the Finance Act.

Income Deemed Obtainable on Demand

It is proposed that income (i.e. gross income from employment, interest, discount, rent, royalty or any pension, annuity or other periodical payment) accruing in or derived from Malaysia is deemed obtainable on demand in the basis period immediately following the basis period when it becomes due. This applies to transactions:

i. Between persons one of whom has control over the other;

ii. Between individuals who are relatives of each other; or

iii. Between persons both of whom are controlled by some other person.



Payment Of Tax By Instalments

It has been proposed under both the Income Tax Act 1967 (ITA) and Petroleum (Income Tax) Act 1967 (PITA) that the due date for monthly instalments be revised from the 10th day of the calendar month to the 15th day of the calendar month.

The proposals are effective from 1 January 2015.

Set Off for Tax Charged on Actuarial Surplus Under Takaful Business

To avoid double taxation, it is proposed that where actuarial surplus from the family fund of a Takaful operator is transferred to the shareholders’ fund, any amount of tax charged on that portion of the actuarial surplus shall be allowed as a set-off against the tax charged on the chargeable income of the Takaful operator in respect of its shareholders’ fund from family business.


Life Fund, Shareholders’ Fund, General Business

It is proposed that for the purposes of ascertaining the adjusted income of the life fund, shareholders’ fund or general business, the expenses incurred in managing any investments or rights shall be included in the cost of acquiring and realizing those investments or rights. A formula is provided to determine the deductible expenses.


Extension of the Definition of a Company that Establishes a Special Purpose Vehicle (“SPV”)

At present, where a company incorporates an SPV solely for the issuance of approved Islamic securities, the SPV is accorded tax transparent status. The SPV must be incorporated under the Companies Act 1965 or the Labuan Companies Act 1990.

It is proposed that the definition of “company” (i.e. the entity holding the SPV) in this context be extended to include a unit trust approved by the Securities Commission as a Real Estate Investment Trust or Property Trust Fund.


Chargeability to Tax on Conversion from a Partnership or a Company to an LLP

It is proposed that:

i. Where a partnership is converted into an LLP in a YA every partner of the partnership shall continue to be personally assessable and chargeable to tax in respect of his chargeable income for that YA (and previous YAs before the conversion).

ii. Where a company is converted into an LLP in a YA: The LLP shall be assessable and chargeable to tax in respect of the chargeable income


of the company for that YA (and previous YAs before the conversion) in the same manner and for the same amount as the company would have been assessed and charged to tax prior to the conversion.


Time Bar For Assessments

It has been proposed under both the ITA and PITA that the time limit for the Director General to raise an assessment or additional assessment be increased to 7 years for transactions entered into between associated persons not at arm’s length.

The proposals are effective on the coming into operation of the Finance Act.

Increased Penalties for Various Offences

Under the proposed amendments to the ITA, the maximum penalty upon conviction shall be increased from RM2,000 to RM20,000 for the following offences:

i. Failure to furnish a return or give notice of chargeability;

ii. Person voluntarily leaving or attempting to leave Malaysia without payment of tax; and

iii. Miscellaneous offences.


TAX INCENTIVES

Sukuk To expand the sukuk market at the international level, it is proposed that the deduction for expenses incurred for the issuance of sukuks under the principles of Ijarah and Wakalah be extended for another 3 years.

The proposal is effective from YA 2016 to YA 2018.

Scholarships At present, companies are given double deduction on scholarships awarded to Malaysian students pursuing diploma or bachelor degree courses at specified local institutions of higher learning.

To develop further human capital in vocational and technical fields, it is proposed that the double deduction incentive be extended to companies awarding scholarships to eligible Malaysian students studying in these fields in institutions recognised by the Government.

The double deduction is given on allowable expenses as follows: -

i. Fee on course of study required by the institutions recognised by the Government; and


ii. Educational aid and cost of living expenses throughout the student’s period of study at the institutions recognised by the Government.


Double deduction – Structured Internship Program (SIP)

Currently, companies are given double deduction on expenses incurred to implement SIPs approved by Talent Corporation Malaysia Berhad for Malaysian students.

To encourage companies to extend the SIP to full time students pursuing training at the vocational and diploma levels, it is proposed that expenses incurred in implementing SIP for eligible Malaysian students in vocational and diploma courses be given double deduction.

The double deduction is given on the following expenses: -

i. Minimum monthly allowance of not less than RM500;

ii. Expenditure incurred for the provision of training to the students;

iii. Meals, transport and accommodation allowances; and

iv. Payment to the appointed third party to run the SIP.


Tax Incentive for Medical Tourism

Currently, resident companies licensed by the Ministry of Health and registered with the Malaysian Healthcare Travel Council that provide private healthcare facilities services to qualified healthcare travellers are given a tax exemption equivalent to Investment Tax Allowance of 100% of qualifying capital expenditure incurred for a period of 5 years. The incentive is given to new companies as well as existing ones that are engaged in expansion, modernization or refurbishment.

Qualified healthcare travellers are any of the following:-

i. Malaysia My Second Home participant and his dependents;

ii. Expatriate holding a Malaysian work permit and his dependents; or

iii. Non-Malaysian citizen who visits and receives treatment from private healthcare facilities in Malaysia.

The above tax incentive is applicable for applications received by the Malaysian Investment Development Authority (MIDA) by 31 December 2014.

To stimulate the growth of Malaysia as a medical tourism hub, it is proposed that the above incentive be extended to new companies or existing companies engaged in expansion, modernization or refurbishment that provide private healthcare facilities to qualified healthcare travellers who


make up at least 5% of their total patients.

The proposal is effective for applications received by MIDA from 1 January 2015 to 31 December 2017.

Tax Incentives for Promotion and Development of Less Developed Areas

It is proposed that the special incentive packages under the Economic Corridors are to be enhanced to include more areas that are less developed.

To encourage private sectors to maintain public facilities and infrastructure, it has been proposed that the following incentives be given:-

i. 100% income tax exemption for a period of 5 years for companies that manage, maintain and upgrade industrial estates in less developed areas;

ii. 70% income tax exemption for a period of 5 years for companies that manage industrial estates in other areas.

Currently, details of the proposed incentives and their proposed effective dates have not been released.

Capital Allowance to Increase Automation

To encourage automation in the manufacturing sector, the following has been proposed:-

i. For high labour intensive industries (such as rubber products, plastics, wood, furniture and textiles), an automation capital allowance of 200% be given on the first RM4 million of capital expenditure incurred; and

ii. For other industries, an automation capital allowance of 200% be given on the first RM2 million of capital expenditure incurred.

With respect to item i, the proposal is effective for capital expenditure incurred within the period from 2015 to 2017.

With respect to item ii, the proposal is effective for capital expenditure incurred within the period from 2015 to 2020.

Training incentive To strengthen the development of human capital, it is proposed that a further deduction be given on training expenses incurred by companies for their employees to obtain industry recognised certifications and professional qualifications such as in the field of accounting, finance and project management from training programs that are approved by agencies appointed by the Minister of Finance.


Tax Incentive under IAP is a new funding model based on Syariah principles to be introduced by


Investment Account Platform (IAP)

the Government with the aim of financing projects and venture companies. The objective of IAP is to attract participation from individual and institutional investors to boost development of small and medium enterprises (SMEs) as well as entrepreneurs.

It is proposed that profit earned by individual investors from investments made through IAP be given an income tax exemption.

The incentive is subject to the following conditions:

i. Tax exemption for 3 consecutive years starting from the first year profit is earned;

ii. The investment is made for a period of 3 years starting from the operation date of IAP;

iii. Tax incentive shall be accorded for investment activities in Malaysia, in venture companies owned by Malaysian or locally incorporated companies;

iv. Tax exemption shall be accorded for investments made in SMEs and venture companies in any sectors; and

v. Definition of SMEs is as per the latest definition issued by SME Corporation Malaysia.

The proposal is effective from the operation date of IAP scheduled to be from 1 September 2015 to 31 August 2018.

Tax Incentives for Promotion of High-Quality and Focused Investments

To promote high-quality and focused investments, it is proposed that a more specialised tax incentive package be offered for investment projects that are based on technology, innovation and knowledge involving highly qualified and knowledgeable employees with high salaries.

Currently, details of the proposed incentive and its proposed effective date have not been released.

Extension of the Partial Stamp Duty Exemption for the Purchase of First Residential Property

At present, instruments of transfer and loan agreements executed by Malaysians for the purchase of their first residential property not exceeding RM400,000 are given a 50% stamp duty exemption. The exemption can only be claimed once.

To encourage further home ownership for first-time buyers, it is proposed that the abovementioned stamp duty exemption be extended to 31 December 2016. In addition, the ceiling price of the property is increased to RM500,000.

This proposal is effective for sale and purchase agreements executed from 1


January 2015 to 31 December 2016.

INDIRECT TAX

Additional Items Not Subject to GST

It is proposed that the following items are not subject to GST:

i. All types of fruits whether local or imported;

ii. White bread and wholemeal bread;

iii. Coffee powder, tea dust and cocoa powder;

iv. Yellow mee, kuey teow, laksa and meehoon;

v. The National Essential Medicine covering almost 2,900 medicine brands. These medicines are used to treat 30 types of diseases including heart failure, diabetes, hypertension, cancer and fertility treatment;

vi. Reading materials such as children’s coloring books, exercise and reference books, text books, dictionaries and religious books;

vii. Newspapers; and

viii. Supply of the first 300 units of electricity to a domestic household.

GST - Fuel It is proposed that the retail sale of RON95 petrol, diesel and LPG be given relief from the payment of GST.

GST Impact on Prices of Goods and Services

The prices of 532 items in the basket of goods of the Consumer Price Index (“CPI”) are expected to reduce by up to 4.1%. Among the goods are medicines, electrical appliances such as refrigerators and washing machines, textile products, plastic products such as pails and plates, shoes and slippers, household furniture, baby diapers, soap, meat, chicken eggs, cooking oil, seafood, rice and vegetables.

About 354 goods and services may experience some price increase but less than 5.8%. The Government will disseminate shoppers’ guide to enable consumers to compare prices before and after the implementation of GST.

GST – Incentives and Assistance

To assist businesses in the successful implementation of GST, the following incentives and assistance will be provided:

i. training grant of RM100 million provided to businesses for their employees to attend GST courses;

ii. financial assistance amounting to RM150 million provided to small and medium enterprises for the purchase of accounting software;


iii. accelerated capital allowance on the purchase of information and communication technology (ICT) equipment and software; and

iv. expenses incurred for training in accounting and ICT relating to GST will be given an additional tax deduction.

GST Enforcement The Government is committed to implementing various initiatives to ensure traders do not raise prices indiscriminately to burden the Rakyat. The measures that will be implemented include:

i. setting up a price watch team comprising of consumer associations; and

ii. strengthening the GST Enforcement Unit with 2,270 personnel, Price Monitoring Unit with 1,300 personnel and Consumer Squads with 202,800 volunteers as well as involving 579 mukim and village heads.

Export duty exemption for crude palm oil (CPO)

The export duty exemption for CPO will be extended until December 2014.

PERSONAL TAX

Review of Individual Income Tax

To reduce the tax burden of the Rakyat, it is proposed that the income tax rates for resident individuals be reduced by 1% to 3%.

The comparison between the current and proposed individual income tax rates are as set out below:

Chargeable Income

(RM)

Current Proposed Tax Savings

Tax Rate

Tax Without Rebate

Tax liability

Tax Rate

Tax Without Rebate

Tax liability

(%) (RM) (RM) (%) (RM) (RM) (RM) (%)

1 - 5,000 0 0 0 0

0 0* 0 0* - -

5,001- 20,000 2 300 1 150

300 0* 150 0* - -

20,001 – 35,000 6 900 5 750

1,200 800* 900 500* 300 37.5

35,001 – 50,000 11 1,650 10 1,500


2,850 2,850 2,400 2,400 450 15.8

50,001 – 70,000 19 3,800 16 3,200

6,650 6,650 5,600 5,600 1,050 15.8

70,001 – 100,000 24 7,200 21 6,300

13,850 13,850 11,900 11,900 1,950 14.1

100,001 – 250,000 26 39,000 24 36,000

52,850 52,850 47,900 47,900 4,950 9.4

250,001 – 400,000 26 39,000 24.5 36,750

91,850 91,850 84,650 84,650 7,200 7.8

Exceeding 400,000 26 25

*after personal tax rebate of RM400 for chargeable income up to RM35,000.

Non-resident individuals income tax rate is reduced by 1% from 26% to 25%.


Special Child Relief Currently, an individual taxpayer with an unmarried child who is proven to be physically or mentally disabled is eligible for a child relief of RM5,000 for each child.

To alleviate the cost of living of an individual taxpayer with a disabled child, it is proposed that the tax relief be increased to RM6,000 for each child.


Purchase of Supporting Equipment

At present, an individual taxpayer is given tax relief of up to RM5,000 for the purchase of any necessary basic supporting equipment if he is a disabled person for his own use or for the use of his spouse, child or parent who is a disabled person. Basic supporting equipment includes haemodialysis machines, wheelchairs, artificial limbs and hearing aids.

It is proposed that the above tax relief be increased from RM5,000 to RM6,000.


Medical Expenses for Serious Illness

Currently, a tax relief of RM5,000 is given to an individual taxpayer on medical expenses incurred for the treatment of serious diseases for the taxpayer, or spouse or child. Eligible expenses are for the medical treatment of serious diseases such as cancer, kidney failure, heart disease, acquired


immune deficiency syndrome, Parkinson’s disease and leukemia.

To reduce the burden of medical expenses and treatment of serious diseases, it is proposed that the relief be increased to RM6,000.


MISCELLANEOUS

Real Property Gains Tax (RPGT)

At present, where the consideration for the acquisition of a chargeable asset consists wholly or partly of money, the purchaser is required to withhold and remit to the IRB the whole of that money or 2% of the total value of the consideration, whichever is the lower.

It is proposed that the retention sum withheld be increased from 2% to 3%.

The proposal is effective from 1 January 2015.

RPGT - Technical Amendments in Relation to Disposals of Assets of Deceased Persons and Gifts

It is proposed that technical amendments be made to the RPGT Act 1976 in relation to the deemed market value (for the purposes of ascertaining the acquisition price) for the following:

i. Assets acquired prior to 1 January 1970 and disposed of by deceased persons; and

ii. Assets disposed of by way of gifts.

The proposals are effective from 1 January 2015.


KPMG Tax Services Sdn Bhd Level 10, KPMG Tower 8, First Avenue, Bandar Utama 47800 Petaling Jaya Selangor, Malaysia

Phone: +60 (3) 7721 3388 Fax: +60 (3) 7721 7288 / 7388

www.kpmg.com/my

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The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

budget 2015

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