taxavvy special edition | 10 october 2014 the 2015 budget · taxavvy special edition | 10 october...

The 2015 Budget

TaXavvy Special Edition | 10 October 2014

www.pwc.com/my

AcceleratingGrowth, EnsuringFiscal Sustainabilityand Prospering theRakyat

2TaXavvy Special Edition | 10 October 2014

Key proposals

New incentives –Principal hubAutomation capital allowancesTechnology and innovationPage 9

GST relief on retail of petroleumPage 12

Extended time for raising assessment andadditional assessmentPage 10

Widening of scope for appeal against deemedassessmentPage 11

Increase in scope of supplies not subject to GSTPage 12


Corporate tax

Reduction in income tax rates for companies andco-operatives

The income tax rate reduction as announced in the 2014 Budget is nowincluded in the Finance Bill (No.2) 2014

Companies

Corporate income tax rate is to be reduced by 1% as follows:-

* Company with paid-up capital of up to RM2.5 million

** Limited liability partnership with capital contribution of up toRM2.5 million

(Effective from Year of Assessment (YA) 2016)

Co-operatives

Co-operative income tax rates are to be reduced by 1% to 2% forchargeable income exceeding RM150,000.

(Effective from YA 2015)

Category Current taxrate(%)

Proposed taxrate (%)

Company and the following entities –• trust body• executor of an estate of an individual who

was domiciled outside Malaysia at the timeof his death

• receiver appointed by the court• limited liability partnership

25 24

Small and medium size company* & limitedliability partnership**

• Chargeable income up to RM500,000

• Remaining chargeable income

20

25

19

24

Chargeable income(RM)

Current taxrate(%)

Proposed taxrate(%)

1 – 30,000 0 0

30,001 – 60,000 5 5

60,001 – 100,000 10 10

100,001 – 150,000 15 15

150,001 – 250,000 20 18

250,001 – 500,000 22 21

500,001 – 750,000 24 23

Exceeding 750,000 25 24


Corporate tax

Income deemed to be obtainable ondemand

Section 29 of the Act, an anti-avoidanceprovision, provides that income (except forbusiness income and dividend income) whichis obtainable on demand will be taxable in theperiod when such circumstances arise eventhough the income has not been received.

1) Section 29(3) of the Act was inserted witheffect from YA 2014 to deem a lender to beable to obtain on demand interest incomein the basis period where such interest isdue to be paid, from the following loantransactions:

• where the lender has control over theborrower or vice versa;

• where the lender and borrower are bothcontrolled by some other person.

It is proposed that the loan be expanded toinclude loans between individuals who arerelatives of each other as defined underSection 140(8) of the Act (e.g. parent,child, brother, sister, etc).

2) It is also proposed that gross incomeaccruing in or derived from Malaysia fromemployment, interest, rent, royalty, or any

pension, annuity or other periodicalpayment arising from the transactionsbetween the following persons be deemedto be obtainable on demand in the periodimmediately following the period where itfirst becomes receivable:-

• persons one of whom has control overthe other;

• individuals who are relatives of eachother; or

• persons whom are both controlled bysome other persons.


Establishment of special purposevehicle by Real Estate InvestmentTrust/Property Trust Fund for theissuance of Islamic securities

Currently, any source of income of a specialpurpose vehicle set up by a company for thepurpose of issuance of Islamic securities istreated as a source of income of that company.

It is proposed that the above tax treatmentaccorded to companies be extended to unit

trusts which are approved by the SecuritiesCommission as Real Estate Investment Trustsor Property Trust Funds.


Insurance business

A new subsection 60(4C) of the Act isintroduced to further define that the cost ofacquiring and realizing any investment orrights to include expenses incurred inmanaging those investments or rights for thelife fund, general fund or shareholders’ fundcomputed using a specified formula.



Corporate tax

Tax neutrality for the Takafulindustry

In order to ensure that there is tax neutralitybetween conventional insurance and Takaful,the government proposed the following:-

a) Tax deduction on commission payable,discount allowed and managementexpenses for general fund only for aTakaful Operator operating under themudharabah model;

b) Wakalah fees received by the shareholders’fund from the family fund are not subjectto tax and tax deduction is not allowed oncommission and management expensesincurred by the shareholders’ fund inrelation to the family fund;

c) Actuarial surplus transferred from thefamily fund to the shareholders’ fund issubject to tax;

d) Introduction of a new Section 110C of theAct (similar to Section 110B set off forconventional insurance) to eliminatedouble taxation on investment incomeincluded within actuarial surplustransferred to the shareholders’ fund;

e) Tax deduction on commission payable,

discount allowed and managementexpenses for shareholders’ fund only forTakaful Operator operating under thewakalah model. Management expensesincurred by shareholders’ fund inconnection with family fund is not allowedtax deduction; and

f) The cost of acquiring and realizing anyinvestment or rights which is deductiblefor the family, general and shareholders’funds includes expenses incurred inmanaging those investments or rights,computed using a specified formula.


Capital allowances underSchedule 3 of the Act

The following changes are proposed:

Qualifying forest expenditure

Qualifying forest expenditure be restricted tocapital expenditure incurred only by a personwho has a concession of licence to extracttimber.

Special allowances for small valueassets

The limits for the value of individual assetsand total qualifying expenditure for assetswhich qualify for 100% capital allowance(small value assets) under Paragraph 19A areincreased from RM1,000 to RM1,300 each,and RM10,000 to RM13,000 respectively.

Living accommodation for workers

If the expenditure incurred on a constructionof a building used as living accommodation,which is treated as an industrial building isalso a qualifying agriculture expenditure andqualifying forest expenditure, the taxpayer isallowed to elect to claim industrial buildingallowance, agriculture allowance or forestallowance in the tax return for a year ofassessment in which the qualifyingexpenditure was incurred. The requirementto make election within 3 months of thebeginning of the YA by notice in writing toDGIR is removed.



Corporate tax

Exemptions from tax underSchedule 6 of the Act

Amendments are proposed to Paragraphs12B and 20A to provide more clarity on thefollowing:-

• Dividends where the payer is notentitled to deduct tax - Any expensesincurred in relation to such dividends shallbe disregarded for the purposes ofascertaining the recipient’s adjustedincome.

(Effective upon gazetting of the FinanceAct)

• Life insurer or takaful operator -Any adjusted loss from the investment inrespect of deferred annuity shall bedisregarded.


Unit trust

Exempted income of a unit trust is expandedto include interest paid or credited by anydevelopment financial institution regulatedunder the Development Financial InstitutionsAct 2002


Reinvestment allowance (RA)under Schedule 7A of the Act

The following changes are proposed:

Disposal within 5 years

Consistent with the Public Ruling 6/2012, theclawback of RA shall be made in the YA theasset is disposed of.

Statutory income

A new paragraph 4A is proposed to beinserted into Schedule 7A to clarify that RA isto be utilised only against the statutoryincome of a business in respect of a qualifyingproject.



Personal tax

Review of individual income tax rates

This proposal, although effective from YA2015, was alreadyannounced in advance during Budget 2014, in conjunction with theannouncement of the introduction of GST. As the country shifts itsreliance away from direct taxes, it is fair to expect the lowering ofpersonal tax rates to be enhanced beyond YA2015.

It is proposed that the existing tax rates for resident individuals bereduced by 1 to 3 per cent and two new chargeable income bands beadded above the existing highest income band of more thanRM100,000.

The new schedule for resident individuals is as follows:

In addition, the tax rate for non-resident individuals is reduced by 1per cent, from 26% to 25%.

Monthly Tax Deduction (MTD) as final tax

Following on from last year’s introduction of MTD as final tax, anemployee who has income only in respect of gains and profits from anemployment (including benefits in kind and living accommodation) orthe individual is employed by the same employer in that year ofassessment irrespective of the period of employment , will also be ableto elect not to furnish a return for a year of assessment.


Increase in reliefs

The following reliefs will be increased to a maximum of RM6,000:

• Medical expenses for serious diseases• Disabled child• Purchase of basic supporting equipment for the disabled(Effective from YA 2015)

Manner in which chargeable income is to beascertained

It is proposed that income derived from withdrawal of a deferredannuity or private retirement scheme received by a person which issubject to deduction of tax under section 109G of the Income Tax Act1967 (the Act) be excluded for the purpose of ascertaining hischargeable income.


For every ringgit of the first 5,000 0%

For every ringgit of the next 15,000 1%






For every ringgit of the next 150,000 24.5%

For every ringgit exceeding 400,000 25%


Tax incentives

The Investment Account Platform(IAP)

To boost the development of small andmedium enterprises (SMEs), the Governmentwill be introducing the Investment AccountPlatform (IAP), a new shariah-compliantinvestment product to provide opportunitiesto individual and institutional investors infinancing entrepreneurial activities.

To promote investment in the IAP, profitsearned from investments made through theIAP by individual investors will be given taxexemption for 3 consecutive yearscommencing from the first year profit isearned, subject to the following conditions:-

• The investment is made for a period of 3years starting from the IAP’s operation date;

• The investment activities must be inMalaysia, in Malaysian owned venturecompanies or locally incorporatedcompanies; and

• Tax exemption shall only be accorded forinvestments made in SMEs (as defined bySME Corporation Malaysia) and venturecompanies in any sector.

(Effective from operational date of IAPscheduled to be from 1 September 2015 to 31August 2018)

Scholarships for students in thevocational and technical fields

To encourage companies to providescholarships to full time students who areMalaysian citizens and residents in thevocational and technical fields in Governmentrecognised institutions, the scholarships willbe given a further deduction for a period of 2YAs.

The eligible expenses include:

i. Study course fees; and

ii. Educational aid and cost of living expensesthroughout the student’s study period.

(Effective for YA 2015 and YA 2016)

Tax incentive for StructuredInternship Programme (“SIP”)

It is proposed that the existing incentive forSIP be extended to companies implementingSIP for Malaysian full time students pursuingtraining at the vocational and diploma levels.Expenses incurred by companies inimplementing SIP will be given doublededuction for a period of 2 YAs.

The eligibility criteria is consistent with thecurrent incentive for SIP. To qualify for theincentive, the company is required to obtainapproval from Talent Corporation MalaysiaBerhad (“Talent Corp”).

(Effective from YA 2015 to YA 2016)

Tax incentive for training

To support the Government’s effort tostrengthen the development of human capital,it is proposed that training expenses incurredby companies for employees to obtainindustry recognized certifications andprofessional qualifications be given furtherdeduction. The training programs are thoseapproved by the agencies appointed by theMinister of Finance


Expenses incurred for the issuanceof sukuk

It is proposed that the deduction for expensesincurred for the issuance of sukuk under theprinciples of Ijarah and Wakalah be extendedfor another 3 years in order to promote thesukuk market at the international level.

(Effective from YA 2016 to YA 2018)


Tax incentives

Tax incentive for medical tourism

To further stimulate the growth for medicaltourism, it is proposed that tax exemption onincome equivalent to Investment TaxAllowance of 100% of qualifying capitalexpenditure for a period of 5 years be given tonew companies and existing companiesengaged in expansion, modernisation andrefurbishment that provide private healthcarefacilities to at least 5% healthcare travellerfrom their total patients.

(Effective for applications to be received byMIDA from 1 January 2015 to 31 December2017)

Other proposed incentives

• Economic Corridors

The current special incentive packageprovided under the Economic Corridorswill be enhanced to include more areaswhich are less developed.

• Industrial estate management

- 100% income tax exemption for 5 yearsto manage, maintain and upgradeindustrial estates in less developedareas.

- 70% income tax exemption for 5 yearsto manage industrial estates in otherareas.

• Automation capital allowance

Enhanced capital allowance on automationexpenditure to encourage automation inthe manufacturing sector :-

- High labour intensive industries:Allowance of 200% on the first RM4million expenditure incurred between2015 to 2017

- Other industries: Allowance of 200%on the first RM2 million expenditureincurred between 2015 to 2020

• Technology and innovation

A specialised incentive package will beoffered for investment projects based ontechnology, innovation and knowledge,involving highly qualified andknowledgeable employees.

• Principal Hub

Customised incentives for Principal Hubswill be introduced in early 2015 toencourage multinational companies’ global

operational centres to be set up inMalaysia.

• Unemployed graduates

The Double Deduction for Training costsunder Skim Latihan 1Malaysia forunemployed Graduates incentive which isdue to expire on 31 December 2016 isextended until 31 December 2020.

• Youth Housing Scheme

This smart partnership between theGovernment, Bank Simpanan Nasional,Employees Provident Fund and Cagamasoffers a funding limit for a first home notexceeding RM500,000 for married youthaged between 25 and 40 years withhousehold income not exceedingRM10,000. A 50% stamp duty exemptionis given for instruments of transferagreements and loan agreements.


Tax administration

Review of penalty under Section112, 115 & 120 of the Act

It is proposed that the maximum fine for thefollowing offences be increased fromRM2,000 to RM20,000:

(Effective upon gazetting of the Finance Act)

Estimate of tax payable

1) Newly commenced company

Currently, any newly commenced SME* is notrequired to furnish an estimate of tax payablefor the first two YAs and where the companyhas no basis period for the relevant YA.

It is proposed that the newly commencedcompany must be resident and incorporatedin Malaysia.

* paid up capital in respect of ordinary sharesof RM2,500,000 or less


2) Payment of company tax instalments

Currently, the due date for payment ofmonthly tax instalments is on every 10th dayof a calendar month.

It is proposed that the due date be amendedfrom the 10th day to 15th day of a calendarmonth.

(Effective from 1 January 2015)

Extended time for raisingassessment and additionalassessment

Currently, the Director General of InlandRevenue (DG) is given the right to make anassessment or additional assessment within 5years after expiration of a YA where it appearsto him that no or insufficient assessment hasbeen made on a person chargeable to tax.

It is proposed that time frame for raising suchassessment or additional assessment beextended from 5 years to 7 years where theDG determines that the transactions betweenassociated persons are not at arm’s length.


Section Offences

112(1) Failure to furnish a return inaccordance with section 77(1) or77A(1), or failure to give noticeof chargeability in accordancewith section 77(3)

115(1) Voluntarily leaving or attemptingto leave Malaysia withoutpayment of tax

120(1) Other offences


Tax administration

Liability to tax in respect of apartnership or company which hasconverted to a limited liabilitypartnership (LLP)

It is proposed that section 75B of the Act beamended to clarify that where a partnershipor company has converted to a LLP –

• every partner of the partnership continuesto be personally assessable and chargeableto tax in respect of his chargeable incomein the YA of conversion to a LLP and anyprevious YA;

• the LLP is assessable and chargeable to taxin respect of the company’s chargeableincome in the YA of conversion to a LLPand any previous YA. The LLP will beassessed and charged to tax in the samemanner as the company would have beenprior to the conversion.


Right of appeal

Section 99 of the Act was amended with effectfrom 24 January 2014 to restrict appeals tothe Special Commissioners of Income Tax tocases where the taxpayer is aggrieved bydeemed assessment due to application ofpublic rulings made under section 138A of theAct.

It is proposed that the above right of appealunder Section 99 of the Act be extended tosituations where the taxpayer is aggrieved byany practice of the DG generally prevailing atthe time when the assessment is made.



Goods and Services Tax (GST)

Increase in scope of supplies notsubject to GST

The list of goods and services which are notsubject to GST has been expanded in the 2014Budget speech to include the following:

(i) All types of fruits whether local orimported;

(ii) White bread and wholemeal bread;

(iii) Coffee powder, tea dust and cocoapowder;

(iv) Yellow mee, kuey teow, laksa andmeehoon;

(v) The National Essential Medicine coveringalmost 2,900 medicine brands. Thesemedicines are used to treat 30 types ofdiseases including heart failure, diabetes,hypertension, cancer and fertility treatment;

(vi) Reading materials such as children’scoloring books, exercise and reference books,text books, dictionaries and religious books;and

(vii) Newspapers.

Supply of electricity to households

It was announced in the 2014 Budget speechthat the first 200 units of electricity suppliedto domestic households is to be zer0-rated.

This amount has since been increased to 300units of electricity supplied to domestichouseholds.

Relief on retail of petroleum

The Government has agreed that the retailsale of RON95 petrol, diesel and LiquefiedPetroleum Gas (LPG) will be given relief fromGST.

Incentives and assistance for GSTimplementation

As previously announced in the 2014 Budget,the following incentives and assistance forGST implementation have been proposed toassist businesses:

• Training grant of RM100 million providedto businesses for their employees to attendGST courses;

• Financial assistance amounting to RM150million provided to Small and MediumEnterprises for the purchase of accountingsoftware;

• Accelerated Capital Allowance on purchaseof Information and CommunicationsTechnology (ICT) equipment and software;and

• Expenses incurred for training inaccounting and ICT relating to GST will begiven additional tax deduction.


Other taxes

Stamp duty

Purchase of first residentialproperty

To reduce the cost of buying a first residentialproperty, it is proposed that the existing 50%stamp duty exemption on instruments oftransfer and loan agreements be extended tothe purchase of the first residential propertypriced not exceeding RM500,000 (currentlyRM400,000).

(For sales and purchase agreements executedfrom 1 January 2015 to 31 December 2016)

Real property gains tax

Increase in retention sum

The sum to be retained by the acquirer of realproperty on the acquisition of the property isto be increased from 2% of the totalconsideration to 3% of the total consideration.


Disposal by way of gift

It is proposed that where an asset is disposedby way of a gift and where the relationshipbetween the donor and recipient is husband

and wife, parent and child or grandparent andgrandchild and the donor is:-

i. not a citizen or permanent resident, therecipient is deemed to have acquired theasset at an acquisition price equal to thedonor’s acquisition price plus permittedexpenses incurred by the donor.

ii. a citizen or permanent resident, therecipient is deemed to have acquired theasset at an acquisition price equal to thedonor’s acquisition price plus permittedexpenses incurred by the donor only wherethe gift is made within 5 years from thedate of acquisition by the donor.


Introduction of self assessment systemfor RPGT

In line with the Government’s aspiration tomodernise the tax system, it is proposed thattax on gains from the disposal of property beself assessed.


Petroleum (Income Tax) Act 1967(PITA)

The following have been proposed :-

• Assessment and additional assessmentThe DG may make an assessment oradditional assessment for a YA in that YAor within 7 years after the end of that YA ifit appears to him that no or no sufficientassessment has been made on a personchargeable to tax in consequence of theDG’s determination pursuant to Section72A(3) in relation to a transaction enteredinto between a chargeable person andanother person not at arm’s length.

(Effective upon gazetting of the FinanceAct)

• Estimate of tax payableThe due date for payment of monthly taxinstalment is amended from the 10th day to15th day of a calendar month.



The Academy brings to you…

The PwC Budget Seminar 2014

Embracing change

Kuala Lumpur

Date: 27 October 2014, MondayVenue: Grand Hyatt, Kuala LumpurContact: Fazlina Jaafar at 03-2173 0860

Penang

Date: 28 October 2014, TuesdayVenue: Equatorial Hotel, PenangContact: Ann Yew or Ong Bee Ling at 04-238 9291 /04-238 9170

Johor Bahru

Date: 29 October 2014, WednesdayVenue: Doubletree by Hilton, Johor BahruContact: Tan Chin Yee or Lee Qiu Rong at 07-222 4448

For more information/to register please visit PwC’s website atwww.pwc.com/my/en/TheAcademy/public-programmes.jhtml

TaXavvy is a newsletter issued by PricewaterhouseCoopers Taxation Services Sdn Bhd. Whilst every care has been taken in compiling this newsletter, we make no representations or warranty (expressed orimplied) about the accuracy, suitability, reliability or completeness of the information for any purpose. PricewaterhouseCoopers Taxation Services Sdn Bhd, its employees and agents accept no liability, anddisclaim all responsibility, for the consequences of anyone acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. Recipients should not act upon itwithout seeking specific professional advice tailored to your circumstances, requirements or needs.

© 2014 PricewaterhouseCoopers Taxation Services Sdn Bhd. All rights reserved. "PricewaterhouseCoopers" and/or "PwC" refers to the individual members of the PricewaterhouseCoopers organisation inMalaysia, each of which is a separate and independent legal entity. Please see www.pwc.com/structure for further details.

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