SECTION 3 : Tax Incentives
3.1 Reinvestment Allowance (RA)
3.2 Enhancing Tax Incentives for Rearing of chicken and ducks using Closed House System
3.3 Stimulating the Development of Venture capital industry
3.4 Generation of energy from renewable sources
3.5 Energy conservation
3.6 Real Estate Investment Trust (REIT)
3.7 Extended tax incentive to enhance security control
SECTION 4 : Single-tier system
4.1 Single-tier system - Saving and Transitional Provisions, Finance Act 2007
SECTION 5 : Indirect Tax
5.1 Improving public transportation
5.2 Tax incentives for hybrid cars
5.3 Review of Excise Duty on Cigarettes
5.4 Import liberalisation on selected products
SECTION 6 : Stamp Duty / Withholding Tax
6.1 Provision to Determine and Collect Tax on Other incomes of non-residents
6.2 Withholding tax on technical fees
6.3 Amendment to withholding tax provisions
6.4 Stamp duty exemption on loan agreements for residential properties
6.5 Stamp duty on loan agreements and service agreements
6.6 Electronic stamping
6.7 Replica instrument
6.8 Abolishment of adjudication fee
6.9 Error in assessments issued by Collector
6.10 Stamp duty relief – allowance for spoilt stamps
SECTION 7 : Others
7.1 Review of co-operative income tax
7.2 Tax treatment on clubs
7.3 Tax treatment of professional associations
7.4 The application of arm’s length principle on business transactions carried out between related parties
7.5 Review of road tax on private vehicles owned by individuals and companies
7.6 Petroleum Income Tax Act
7.7 Self Amendment for Additional Assessment of Income Tax
3.1 Reinvestment Allowance (RA)
Existing
Proposed
The term “manufacturing” is not defined in Schedule 7A, Income Tax Act 1967
Definition of “manufacturing” inserted into Schedule 7A, Income Tax Act 1967
A company must be in operation for at least 12 months to be eligible to claim RA
12 months to be extended to 36 months
No specific prohibition
Where a company has claimed RA on an asset, no RA may be claimed by any person who subsequently acquires that asset if the acquirer and disposer is one of whom has control over the other, or both the acquirer and disposer are controlled by the same person.
RA is clawed back for assets disposed off within a period of 2 years from the date of purchase
The period is to be extended to 5 years
Effective Date
From YA 2009
Comments
Some of the above proposals would restrict or defer the company’s eligibility to RA claims.
3.2 Enhancing Tax Incentives for Rearing of chicken and ducks using Closed House System
Existing
A project undertaken in transforming a business of rearing chicken and ducks from an opened house to a closed house system as verified by the Minister of Agriculture is included as a qualifying project for RA purposes.
Chicken and duck rearers who commence operations using closed house system are not eligible for RA.
Proposed
Chicken and duck rearers who reinvest to expand the closed house system in existing or new locations would be given the following incentives:
a. Projects located in the promoted areas - RA of 60% on qualifying capital expenditure to be set-off against 100% of the statutory income; and
b. Projects located outside the promoted areas - RA of 60% on qualifying capital expenditure to be set-off against 70% of the statutory income.
The above incentives are given to chicken and duck rearers using closed house system approved by the Ministry of Agriculture and Agro-Based Industry.
Effective Date
From YA 2009 to 2010
Comments
This is to encourage an environment friendly rearing system and to ensure sufficient supply of chicken and duck meat for the nation.
3.3 Stimulating the Development of Venture capital industry
Existing
Income tax exemption for 10 years at statutory income level is given to venture capital companies (VCC) subject to the VCC meeting the following conditions:
i. at least 50% of its funds invested in venture companies must be in seed capital; or
ii. at least 70% of its funds invested in venture companies must be in start-up or early stage financing.
Proposed
VCC investing in venture companies with at least 30% of its funds in seed capital or early stage financing be given income tax exemption for 5 years.
Effective Date
Applications received by the Securities Commission from 30 August 2008 until 31 December 2013.
Comments
This is to stimulate and further promote the funding of venture companies.
3.4 Generation of energy from renewable sources
Sector / Activity
Existing incentives
Proposed additional incentives
Companies generating energy from renewable sources
PS with tax exemption of 100% of statutory income (10 years);
or
ITA of 100% on QCE incurred to be set-off against 100% of SI (5 years);
and
Import duty and sales tax exemption on equipment used to generate energy from renewable sources not produced locally and sales tax exemption on equipment purchased from local manufacturers.
Other companies in the same group undertaking the same activities; be given either PS or ITA incentive, even though one company in the same group has been granted the incentive.
Import duty and sales tax exemption on solar photovoltaic system equipment for the usage by third parties be given to importers including photovoltaic service providers approved by the Energy Commission;
and
Sales tax exemption on the purchase of solar heating system equipment from local manufacturers
Companies generating RE for own consumption
ITA of 100% on QCE to be set-off against 100% of SI (5 years)
Note
PS – Pioneer status
ITA – Investment tax allowance
SI – Statutory income
Effective Date
Applications received by the Ministry of Finance from 30 August 2008 until 31 December 2010.
Comments
This is to widen the usage of energy from renewable sources.
3.5 Energy conservation
Energy
Conservation/
Efficiency (EE) Activities
Existing incentive
Proposed additional incentives
Companies providing energy conservation services
PS with tax exemption of 100% of SI (10 years);
or
ITA of 100% on QCE incurred to be set-off against 100% of SI (5 years);
and
Import duty and sales tax exemption on energy conservation equipment that are not produced locally and sales tax exemption on the purchase of locally produced equipment.
Import duty and sales tax exemption on EE equipment e.g. high efficiency motors and insulation materials to importers including authorized agents approved by the Energy Commission;
and
Sales tax exemption on the purchase of locally manufactured EE consumer goods such as refrigerator, air conditioner, lightings, fan and television.
Companies which incur capital expenditure for energy conservation for own consumption
ITA of 100% on QCE to be set-off against 100% of SI (5 years);
and
Import duty and sales tax exemption on energy conservation equipment that are not produced locally and sales tax exemption on the purchase of locally produced equipment.
Effective Date
Applications received by the Ministry of Finance from 30 August 2008 until 31 December 2010.
Comments
This is to widen the usage of energy efficiency (EE) equipment.
3.6 Real Estate Investment Trust (REIT)
Existing
i. Foreign institutional investors especially pension funds and collective investment funds receiving income from REITs listed in Bursa Malaysia are subject to a final withholding tax rate of 20% for 5 years; and
ii. Non-corporate investors including resident and non-resident individuals as well as other local entities receiving income from REITs listed in Bursa Malaysia are subject to a final withholding tax of 15% for 5 years.
Proposed
The final withholding tax rate imposed on foreign institutional investors as well as non-corporate investors including individual residents and non-residents would be reduced to 10%.
Effective Date
From 1 January 2009 until 31 December 2011.
Comments
This is to further promote the development of REITs in Malaysia and to attract foreign investments.
3.7 Extended tax incentive to enhance security control
Existing
Accelerated Capital Allowance (claimed in 1 year) is given on security control equipment installed in the factory premises of companies licensed under the Industrial Coordination Act 1975. This allowance is eligible to be claimed within 1 year.
Proposed
Accelerated Capital Allowance (claimed in 1 year) on security control equipment would be extended to all business premises.
Effective Date
From YA 2009 to YA 2012.
Comments
This is to support the effort of companies in enhancing the security of their businesses and to help create a safe environment.
SECTION 4 : Single-tier system
4.1 Single-tier system - Saving and Transitional Provisions, Finance Act 2007
Additional provisions to the Saving and Transitional Provisions of Finance Act 2007 have been proposed to cover the following areas:-
(a) Form R
Notwithstanding that no franked dividend has been paid by a company during the transitional period from 1 January 2008 to 31 December 2013, the company is still required to furnish a Form R to the DiGIR within 7 months from the close of the accounting period which constitutes the basis period for the relevant year of assessment.
(b) Implications of non-submission of Form R and Form 31
Where in relation to a year of assessment (YA) from YA 2008 to 2013 or 2014 (if applicable), a company fails to furnish the Director General a statement in the prescribed form, the Director General may compute the amount of tax credit shortfall and shall serve on the company a written requisition on the prescribed form calling upon the company to pay an amount equal to tax credit shortfall and the penalty of 10% thereon upon service of the requisition.
(c) Amount in excess of 108 balance
Where the amount of tax discharged, remitted or refunded during the period from the first day of the basis period for YA 2008 to 31 December 2013 exceeds the company’s 108 balance or revised 108 balance, the excess shall be due and payable to the Government on the last day of the seventh month from the date following the close of the accounting period. If the debt is not paid by the due date, it would be increased by an amount equal to 10 per cent of the unpaid debt. This provision applies where no franked dividend is paid during the transitional period and notwithstanding the company has exercised an irrevocable option to disregard its Section 108 balance.
(d) Set-off for tax deducted
The recipient of a franked dividend would not be entitled to the tax set-off under Section 110 of the principal Act (prior to the amendment of that section under Finance Act 2007) if the dividend is not paid to the recipient in cash.
Effective Date
Date of gazette of the Finance Act 2008
SECTION 5 : Indirect Tax
5.1 Improving public transportation
Existing
Locally assembled buses including air conditioner installed in bus are subject to 10% sales tax.
Proposed
To reduce operational cost of buses and taxi operators, it is proposed that bus operators be given sales tax exemption on the purchase of locally assembled buses including air conditioners.
Effective Date
Applications received by the Ministry of Finance from 30 August 2008 until 31 December 2011.
Comments
The budget announcement proposed that only the bus operators are eligible to apply for the exemption. There is no specific mention in the proposal that the bus operators who are not the owners of the bus can apply for the exemption. As the application is approved on merits, the bus owner may apply for the exemption by the Ministry of Finance.
5.2 Tax incentives for hybrid cars
Existing
The importation of completely built-up (CBU) cars including hybrid cars below 2,000 cc is subject to the following taxes:
Engine Capacity (cc) Import Duty (%) Excise Duty (%) Sales Tax (%)
MFN CEPT
< 1800 30 5 75 10
≥1800 to < 2000 30 5 80 10
Proposed
Franchise holders of hybrid cars would be given 100% exemption of import duty and 50% exemption of excise duty on new CBU hybrid cars subject to the following criteria and conditions:
i. hybrid cars should comply with the United Nations’ definition as follows:
“A vehicle with at least 2 different energy converters and 2 different energy storage systems (gasoline and electric) on-board the vehicle for the purpose of vehicle propulsion”;
ii. limited to new CBU hybrid passenger cars with engine capacity below 2000 cc;
iii. engine specification of at least Euro 3 technology;
iv. hybrid cars certified by Road Transport Department, obtaining Vehicle Type
Approval and certified to have achieved not less than a 50% increase in the city-fuel economy or not less than a 25% increase in combined city-highway fuel economy relative to a comparable vehicle that is an internal combustion gasoline fuel; and
v. emission of carbon monoxide of less than 2.3 gram per kilometer.
Effective Date
Applications received by the Ministry of Finance from 30 August 2008 until 31 December 2010.
Comments
This is to promote Malaysia as a regional hub for hybrid cars and to incentivize local car manufacturers and assemblers to assemble such cars domestically.
5.3 Review of Excise Duty on Cigarettes
Excise Duty
Existing Rate
Proposed Rate
Cigars, cheroots and cigarillos
RM150/kg and 20%
RM180/kg and 20%
Cigarettes
RM0.15/stick and 20%
RM0.18/stick and 20%
Effective Date
4pm, 29 August 2008.
Comments
There will be an increase in the price of cigarettes, cigars, cheroots and cigarillos.
5.4 Import liberalisation on selected products
Existing
These goods are subjected to import duty of between 2% to 60%.
Proposed
· Import duty between 2% and 5% on food products such as ground nuts, sardines and fruit juices be abolished
· Import duty between 5% and 50% on electric goods / components such as voice recorders, generators and washing machine components be abolished
· Import duty of 5% and 25% on fertilizers and pesticides be abolished
· Import duty from between 10% and 30% on food products such as coffee paste, tomato sauce and monosodium glutamate be reduced to between 5% and 15%
· Import duty from between 15% and 30% on electrical goods such as blenders, rice cookers, microwave ovens and electric kettles be reduced to between 5% and 20%
· Import duty from between 10% and 30% on petrochemical and polymer industrial goods such as rubber and plastic bottles be reduced to between 5% and 20%
· Import duty of 20% on port cranes be reduced to 5%
· Import duty from between 25% and 60% on textiles such as carpets and glassware be reduced to between 20% and 30%
· Import duty from between 5% and 20% on food products such as vermicelli, biscuits, mixed fruit juice and sweet corns in air tight containers be fully exempted
Effective Date
4pm, 29 August 2008.
Comments
The reduced or eliminated import duties on these goods are expected to result in lower costs to domestic businesses, and long term economic benefits in the form of increased international trade activities with other territories. In the short term, however, some domestic businesses may face increased competition from imports.
SECTION 6 : Stamp Duty / Withholding Tax
6.1 Provision to Determine and Collect Tax on Other incomes of non-residents
Existing
There are no clear provisions to determine and collect tax on other incomes of non-residents falling under Section 4(f) of the Income Tax Act; e.g. commissions, guarantee fees and introducer’s fees.
Proposed
Withholding tax at the rate of 10% of the gross income is to be deducted from payments falling under Section 4(f) to non-residents, provided the income is derived from Malaysia.
Effective Date
From 1 January 2009
Comments
The proposal aims to enhance transparency, equity and effectiveness of the tax system.
6.2 Withholding tax on technical fees
Existing
Technical fees paid to non-residents are subject to withholding tax of 10% on the gross income. The gross income includes reimbursements such as travelling cost, hotel accommodation and telephone bills.
Proposed
Reimbursements relating to hotel accommodation in Malaysia is not to be included as gross technical fees for withholding tax purposes.
Effective Date
From 1 January 2009
Comments
The proposal aims to reduce the cost of technical services provided by non-residents.
6.3 Amendment to withholding tax provisions
Existing
There is no existing provision for remission of increase in amount payable for non compliance with the requirement to deduct tax from interest or royalty, special classes of income, income from a unit trust, gains or profits in certain cases derived from Malaysia.
Proposed
The DGIR may at his discretion for any good cause shown, remit the whole or any part of that sum and, where the amount remitted has been paid, the DGIR shall repay the same.
Effective Date
Date of gazette of the Finance Act 2008
Comments
This proposal aims to reduce the burden of the taxpayer by allowing tax penalties to be reduced or waived for good reasons.
6.4 Stamp duty exemption on loan agreements for residential properties
Existing
Purchasers of residential properties are given stamp duty exemption on the following:-
i. full exemption - all instruments for low cost houses purchases; and
ii. 50% exemption - instruments of transfer for residential properties priced up to RM250,000 for sales and purchase agreements executed from 8 September 2007 to 31 December 2010 and restricted to one residential property per individual.
Proposed
Loan agreement instruments executed for purchase of residential properties priced up to RM250,000 are to be given 50% stamp duty exemption. The exemption is given to individual Malaysian citizen and is limited to the purchase of one residential property only.
Effective Date
Sale and purchase agreements executed from 30 August 2008 to 31 December 2010.
Comments
This is to reduce the cost of home ownership.
6.5 Stamp duty on loan agreements and service agreements
Existing
Loan agreement and service agreement instruments are currently subject to various rates of stamp duty.
Proposed
It is proposed that all such instruments except for education loans, be subject to ad valorem stamp duty rates of RM5.00 for every RM1,000 or part thereof. For education loan agreements, the rate is fixed at RM10.
Effective Date
From 1 January 2009
Comments
This is to simplify the stamp duty assessment process.
6.6 Electronic stamping
Existing
Currently, there is no specific reference to electronic stamping in legislation. Duty paid instruments are indicated with an adhesive stamp on the instrument or an official receipt attached to the instrument.
Proposed
The proposed amendment is to introduce a “stamp certificate” issued by stamp office upon payment under the new electronic medium to be attached to an instrument to denote duty paid by electronic medium.
Effective Date
From 1 January 2009.
Comments
This is aimed at simplifying the stamp duty process.
6.7 Replica instrument
Existing
No existing provisions.
Proposed
It is proposed that a replica will not be taken as duly stamped until it is shown to satisfaction of the Collector that duty has been paid on the original.
Effective Date
From 1 January 2009
6.8 Abolishment of adjudication fee
Existing
An adjudication fee of RM10 is payable upon submission of an instrument for adjudication under section 36.
Proposed
It is proposed that the adjudication fee is abolished.
Effective Date
From 1 January 2009
6.9 Error in assessments issued by Collector
Existing
Currently, once the Collector issues an assessment, there is no provision in the Stamp Act to allow for the Collector to issue additional assessments (e.g. if the original assessment is erroneous.)
Proposed
It is proposed that where there is any erroneous or under assessment of duty or penalty by the Collector or a failure to assess that duty or penalty, the correct amount of duty and penalty due on the instrument shall be debt due to the Government and shall be recoverable by the Collector.
Effective Date
From 1 January 2009
Comments
Provides avenue for the Collector to recover the correct amount of duty together with penalty.
6.10 Stamp duty relief – allowance for spoilt stamps
Existing
There are currently various provisions which provide stamp duty relief where a stamped instrument is subsequently spoiled.
Proposed
In addition to the above, it is proposed that stamp duty relief be provided in the case where a duly stamped agreement for sale and purchase subsequently becomes cancelled, annulled, rescinded or not performed.
In the case of transfers of land, where the stamp becomes spoiled due to a rejection of the transfer by the Registrar of Titles, the application for relief must be made within 2 months of the date of rejection.
Effective Date
From 1 January 2009
7.1 Review of co-operative income tax
Existing
Co-operatives are taxed at progressive rates of between 0% to 28% and are given income tax exemption for 5 years from the date of registration. Co-operatives with members’ fund less than RM750,000 are given tax exemption indefinitely. Dividends distributed by co-operatives to their members are exempted from tax.
Proposed
· Tax rate be reduced from 3% to 2% for chargeable income group from RM20,001 to RM30,000
· Tax rate be reduced from 28% to 27% for chargeable income group exceeding RM500,000
Effective Date
From YA 2009
Comments
These proposals are aimed at streamlining the co-operative tax rates with the reduced tax rates for resident individual.
7.2 Tax treatment on clubs
Existing
There are no specific provisions relating to the tax treatment of clubs.
Proposed
It is proposed that specific tax provisions be introduced:-
i. income derived from transactions with members - not taxable income derived from transactions with non members - taxable;
ii. income from investment and external sources - taxable; and
iii. tax deduction allowed only on expenses incurred in the production of chargeable income and limited only on the portion attributable to non members.
Other institutions similar to clubs will be also expected to adopt this tax treatment.
Effective Date
From YA 2009
Comments
This is to enhance transparency in the tax treatment of clubs.
7.3 Tax treatment of professional associations
Existing
Professional associations are currently given the same income tax treatment as trade associations.
Proposed
It is proposed that professional associations be incorporated into the definition of trade associations.
Effective Date
From YA 2009
Comments
This is to enhance transparency in tax treatment of professional associations.
7.4 The application of arm’s length principle on business transactions carried out between related parties
Existing
There are no specific tax provisions which address transfer pricing and thin capitalisation issues. Hence, such cases are dealt with by applying provisions under Section 140 Income Tax Act 1967 (ITA) which allows the Director General of Inland Revenue to disregard or vary transactions between related companies and make the relevant adjustments.
Proposed
It is proposed that specific provisions be established to empower the Director General of Inland Revenue Board to make adjustments on transactions of goods, services or financial assistance carried out between related companies based on the arm’s length principle.
Effective Date
From 1 January 2009
Comments
This is to enhance transparency of tax treatment in relation to transfer pricing and thin capitalisation cases.
7.5 Review of road tax on private vehicles owned by individuals and companies
Existing
Private saloon and non-saloon diesel vehicles owned by individuals and companies are subject to higher road tax compared to petrol vehicles (except in Sarawak). This is due to the difference in fuel price structure in the past whereby the retail price of diesel was far lower than the retail price of petrol. However, after the steep hike in world oil price, the retail price of diesel has risen and does not differ much from the retail price of petrol. As a result, owners of diesel vehicles are burdened with high diesel prices and high road tax.
Proposed
It is proposed that road tax imposed on private saloon and non-saloon diesel vehicles owned by individuals and companies be reduced to be equated with that of petrol vehicles.
In addition, the current road tax treatment on green diesel vehicles which is 50% lower than diesel vehicles in the whole of Malaysia be withdrawn.
Effective Date
From 1 September 2008
Comments
This is to reduce the burden of diesel vehicle owners.
7.6 Petroleum Income Tax Act
There are amendments made to the Petroleum Income Tax Act 1967 that mirror those made to the Income Tax Act 1967:-
· Extending the scope of tax deduction on community project
(Refer 2.2)
· Widening the scope of appeal to special commissioners of income tax
It is proposed that the DGIR shall notify a person in writing that no assessment shall be made for that year of assessment together with the computation with regard to it. It is proposed that the scope of appeal to the SCIT be widened by allowing a person with no tax liability to appeal to the SCIT within 30 days from the date of written Notification of Non-Chargeability issued by the DGIR.
The appeal can be made by filing a Form Q.
· Capital allowance claim on cost of services for installation or operation of a plant and machinery
(Refer 2.13)
· Special Commissioners of Income Tax - appointment of Deputy Chairman
· Restriction of qualifying capital expenditure
It is proposed that the qualifying capital expenditure shall not include an amount paid to a non-resident in connection with the services provided onshore with respect to the installation or operation of that machinery or plant if withholding tax has not been deducted. However, if the withholding tax and penalties are subsequently paid to the Director General, the restriction is not applicable.
Effective Date
From YA 2010
7.7 Self Amendment for Additional Assessment of Income Tax
Existing
Under the Self Assessment System, a taxpayer declares his income and computes tax payable in the income tax form. Where the tax payer commits an error by under-declaring his income or claiming excessive deductions or expenses, the existing provisions do not allow him to make amendments to the self-assessed return.
Proposed
To enhance the Self Assessment System, it is proposed that a new provision be introduced in the Income Tax Act 1967 to allow tax payers to make self amendment for additional assessment. The conditions for self amendment are as follows:
i amendments allowed are in respect of errors resulting in increased assessments such as errors committed in reporting income or claims on deductions or expenses
ii self amendment be allowed only once for each year of assessment
iii self amendment be allowed within a period of 6 months from the due date of furnishing the tax form; and
iv tax payer makes self amendment in specific forms.
A tax payer who makes self amendment will not be subject to a penalty for the under-declaration of income or excessive claim on deductions or expenses. However, a tax payer is subject to a late payment penalty equivalent to the penalty imposed on a tax payer who files a correct return but defaults in paying tax due within the stipulated period.
Effective Date
From YA 2009
DEFINITION
CONTROLLED COMPANIES – Section 2(1) of Income Tax Act 1967
“means a company having not more than fifty members and controlled, by not more than five persons.”
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