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6 NOVEMBER 2017 ISSUE 26

Copyright Song Liew - November 2017

Budget Highlights 2018

As announced by the prime minister cum finance minister, Dato’ Sri Najib Tun Razak, the budget

is the “best” annual expenditure ever tabled by the federal government. It is well crafted and marked

in the history, making this Budget “the mother – of all budgets”. This budget includes an income

tax cut, new GST exemptions, a focus on medical tourism, the digital economy, new Chinese and

Indian community incentives, removal of toll fees for certain roads, tax incentives, maternity leave

and childcare. In addition, further tax implication from the Finance Bill.

In this highlight, we will talk specifically on the proposed direct and indirect tax mechanism in

Malaysia. We trust its contents are informative and of interest to you.

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A. Goods and Services Tax (GST)

1. GST Treatment for Reading Materials

It is proposed that all types of reading materials including magazine, journals,

periodicals and comics are subject to GST at zero rate.

Effective from 1 January 2018.

2. GST Treatment for Local Authority

It is proposed that all supplies made by Local Authorities will not subject to GST (out

of scope). In addition, GST relief will be given to Local Authorities on the acquisition

of all goods excluding petroleum, commercial buildings or land and on the importation

of motor cars.

Effective at 1 April 2018 or 1 October 2018 as opted by the Local Authorities.

3. GST Treatment on Management and Maintenance Services of Stratified

Residential Buildings

At present, only management and maintenance services provided by joint

management body and management corporation to owners of stratified residential

building is categorized as GST exempt supply. It is proposed that the GST exempt

supply scope will be widened to include similar supplies by housing developers.

Effective 1 January 2018.

4. GST Relief Granted

a. Construction Services for School Buildings and Places of Worship

Full GST relief will be given for school buildings and places of worship that

funded through public donation. However, it is subject to the following

conditions:-

o Approval under the s.44(6) of the ITA for their construction fund has been

obtained;

o The approvals for development and construction by Local Authorities, the

Ministry of Education Malaysia, or State Religious Councils (for surau or

mosques) have been obtained;

o Construction of school building including hall and sport facilities are

directly used for teaching and learning purposes;

o The relief does not apply to the purchase of commercial buildings; and

o Construction services contract signed on or after 1 April 2017.

Effective for applications submitted to the MoF from 27 October 2017.



b. Importation of Big Ticket Items

To enhance Malaysia’s competitiveness and improving cash flow position of

companies in the aviation, shipping and oil and gas industries, GST relief is

given on the importation of big ticket items. The list of big ticket items and the

terms and conditions of approval are to be prescribe by the MoF.


c. Handling Services Rendered to Operators of Cruise Ships

At present handling services by sea port operators to ships such as stevedoring,

loading, unloading and reloading and inspection of cargo are categorized as

zero-rated supply.

It is proposed that cruise ship operators will be given relief from payment of

GST on handling services provided by sea port operators in Malaysia.

Effective from 1 January 2018 to 31 December 2020.

d. Importation of Goods under Lease Agreement from Designated Areas

It is proposed that companies in oil and gas industry will be given relief from

payment of GST on the importation of goods under lease agreements from

Designated Areas. The list of goods as well as the terms and conditions shall

be prescribed by the Minister of Finance.


5. Merger of Customs Appeal Tribunal (CAT) and GST Appeal Tribunal

To ensure smooth and efficient management of appeals as well as optimization of

resources, it is proposed that both Tribunals will be merged and all appeals relating

to DG of Customs to be heard by single Tribunal, i.e. CAT.


6. Computation of annual taxable threshold for GST deregistration

It is proposed that any value of capital asset made in the course of cessation of

business shall be excluded in determining the value of taxable supply for GST

deregistration.



7. Expansion of scope of penalty

New s.43(1A) of the GSTA is introduced to empower DG of RMCD to raise

assessment against non-GST registered person who failed to furnish a declaration

or furnish of incomplete or incorrect declaration. This includes paying GST on

imported services under reverse charge mechanism and late payment penalty.

B. Income Tax – Changes affecting individual

1. Reduce in income tax rates

As a measure to increase to disposable income of the M40 group and to address the

rising cost of living, it is proposed that individual income tax rates for resident

individual be reduced by 2% for 3 chargeable income bands as follows:-

This measure will increase the disposable income of the public between RM300 to

RM1,000. With this measure more than 261,000 individuals are no longer subjected

to income tax.

2. Tax Exemption on Rental Income

To encourage Malaysian resident individuals to rent out residential homes at

reasonable charges, it is proposed that 50% income tax exemption be given on rental

income received by Malaysian resident individuals subject to the following conditions:

a) Rental income received not exceeding RM2,000 per month for each residential

home;

b) The residential home must be rented under a legal tenancy agreement; and

c) Tax exemption is given for a maximum period of 3 consecutive years of

assessment.

However, it is unclear whether such exemption is on gross rental income or net rental

income. Effective from YA 2018 until YA 2020.

Chargeable

Income (RM)

Rate % Tax (RM) Proposed

Tax Rate

Tax (RM) TaxSavings(RM)

0– 5,000 0 0 0 -

5,001– 20,000 1 0* 1 0* -

20,001– 35,000 5 500* 3 200* 300

35,001 – 50,000 10 2,400 8 1,800 600

50,001– 70,000 16 5,600 14 4,600 1,000

70,001– 100,000 21 11,900 21 10,900 1,000

100,001 –250,000

2447,900

2446,900 1,000



3. Women Returning to Work After Career Break

It is proposed that women who return to the workforce after being on a career break

for at least 2 years are eligible to claim income tax exemption on their employment

income up to 12 consecutive months in YA 2018 to YA 2020.

Applications must be submitted to Talent Corporation Malaysia Berhad from 1

January 2018 to 31 December 2019.

4. Extension Period of SSPN Contribution Relief

Currently, a resident individual is eligible to claim income tax relief of up to RM6,000

per annum on net savings in the National Education Savings Scheme (SSPN)

effective from YA 2012 until 2017.

The above relief is to be extended for another 3 years, effective from YA 2018 to

2020.

C. Income Tax – Changes affecting companies and unincorporated businesses

1. Capital allowances on Information and Communication Technology (ICT)

Equipment and Software

Accelerated Capital Allowance (ACA) (IA 20% + AA 80%) is given for the expenditure

incurred on the purchase of ICT equipment and software until YA 2016 and it is

excluding the incidental development cost such as consultation fees and the licensing

fees.

It is proposed that:-

Qualifying Expenditure

Capital

Allowance

rate

Effective date

Expenditure incurred on the purchase of

ICT equipment and software packages

IA : 20%

AA : 20% From YA 2017

Expenditure incurred on the development

of customize software (includes

incidental development cost)

IA : 20%

AA : 20% From YA 2018

Effective YA 2017. As the ACA is backdated, companies which have submitted their

income tax return can elect to submit an amendment.



2. Notification on change of accounting period

New subsection 21A(3) requirement taxpayer to notify the IRBM within a stipulated

period for the change of financial year end which results in change of tax basis period.

Effective from YA 2019. Form to submit is Form CP204B.

3. Implementation of Earning Stripping Rules (ESR) to replace Thin Capitalisation

Rules

Thin Capitalisation Rules s.140A(4) has been introduced in 2009, however such

enforcement of this rule has been deferred.

It is proposed that such rule shall be deleted in which ESR will be introduced to control

excessive deduction on interest expenses between associated persons. Under the

ESR, interest deduction on loans between related companies will be limited to a ratio

ranging from 10% to 30% of the company’s profit before tax using either the Earnings

Before Interest and Taxes (EBIT) or Earnings Before Interest, Tax, Depreciation, and

Amortisation (EBITDA).

Effective 1 January 2019. However, it is unclear how the implementation will be and

whether they will be any de-minimis introduced. In addition, how ESR will affect the

Withholding Tax on interest and Transfer Pricing issues.

D. Stamp Duty Exemption

1. Revive Abandoned Housing Project

Current stamp duty exemption for eligible abandoned housing projects which to be

certified by the Ministry of Urban Wellbeing, Housing and Local Government will be

extended for another 3 years (for loan agreements and instruments executed from 1

January 2018 to 31 December 2020.

2. Exchange Traded Funds (ETF) and Structured Warrants (SW)

It is proposed that stamp duty exemption be given on contract notes for trading of

ETF and SW by investors for 3 years.

Effective for contract notes executed from 1 January 2018 to 31 December 2020.



E. Tax Incentives

1. Double Deduction on for Hiring the Disabled

Currently, double deduction is given on the remuneration payable by an employer in

respect of the employment of a disabled person as certified by the Department of

Social Welfare (JKM).

The scope of “Disabled” is proposed to extend to employees who have been affected

by accidents/critical illnesses and certified by the Medical Board of the Social Security

Organisation (SOCSO) that they are able to work within their capabilities.

Effective YA 2018. It is unclear what is the definition of critical illnesses which still

pending clarification from IRB.

2. Expansion of Double Deduction on Expenses incurred to obtain Certification

for Quality System and Standard (Private Healthcare Sector)

It is expanded to include similar expenses incurred by any private healthcare

company registered with the Malaysian Healthcare Travel Council (MHTC) that

provides dental and ambulatory healthcare services.

The approved certification bodies for the accreditation of companies providing

healthcare services are as follows :

i) Malaysian Society for Quality in Health (Malaysia);

ii) Joint Commission International (United States of America);

iii) CHKS Accreditation Unit (United Kingdom);

iv) The Australian Council on Healthcare Standard (Australia); and

v) Accreditation Canada (Canada).



3. Manufacturing companies

a. Accelerated Capital Allowance (ACA) and Automation Equipment

Allowance (AE) fully claimable within 1 year

Category 1:

Labour-

intensive

industry

ACA of 100% and AE of 100% on the first

RM4 million for qualifying capital

expenditure incurred during the basis

period of YA 2015 to 2017

Extended to application

received by MIDA from 1

January 2018 to 31

December 2020

b. Tax Incentive for transformation to Industry 4.0

Companies in the manufacturing sector and its related services which adopt

advanced technology known as Industry 4.0 will be provided ACA and AE on

the first RM10 million qualifying capital expenditure incurred in the YA 2018 to

2020. It is fully claimable within 2 YAs.

4. Extension Period for Tax Incentive

Tax Incentives Current Extended Period

Principal Hub

(3-tier preferential rates of 0%,

5% or 10%)

Application received

up to 30 April 2018

Application extended

to 31 December

2020

Hotel Operators

Pioneer Status or Investment

Tax Allowances available for

new 4 & 5 star hotels


up to 31 December

2018


to 31 December

2020

Tour Operating Companies

100% tax exemption for Tour

Operating Companies

Available from YA

2016 to 2018 Extended to YA 2020

Medical tourism

(Investment Tax Allowance of

100% of qualifying capital

expenditure for a period of 5

years)***

Applications period

from 1 January 2015

to 31 December 2017

Extended to

application received

up to 31 December

2020



Angel Investor

Tax exemption on aggregate

income in the second YA

following the YA in which

investment is made


up to 31 December

2017


to 31 December

2020

*** It is proposed that this incentive be extended for another 3 years subject to the

following conditions:

i) At least 10% of the total number of patients receiving private healthcare

services are comprised of qualified healthcare travellers per year of

assessment; and

ii) At least 10% of the company’s gross income is derived from qualified

healthcare travellers for each year of assessment.

5. Review of Tax Incentives for Venture Capital

Current tax incentives Proposal

Venture Capital

Management

Corporation

(VCMC)

registered under

Securities

Commission (SC)

Tax exemption on

statutory income

derived from the share

of profits from a VCC

Expand to include income

received from management

fees and performance fee in

managing VCC funds

Venture Capital

Company (VCC)

registered under

SC

Tax exemption on

statutory income

derived from all sources

of income except

interest income or fixed

deposits. Exempted for

a period up to 10 years

or the lift span of fund

whichever lesser.

Tax deduction given to

companies or individuals with

business income investing into

VCC funds created by VCMC,

equivalent to the amount of

investment made, restricted to

a maximum of RM20 million

per year for each company or

individual.



Investor in a VC

A company or a

resident individual with

business income

investing in the VC will

be given tax deduction

equivalent to the value

of investment made.

Tax deduction will be given to

companies or individuals with

business investing in VCC

funds created by VCMC,

equivalent to the amount of

investment made, restricted to

a maximum of RM20 million

per year for each company or

individual.

Applications received by SC Malaysia from 1 January 2018 until 31 December 2018.

6. Green Sustainable and Responsible Investment (Green SRI) Sukuk Grant

It is proposed that income tax exemption be given to the recipients of the Green SRI

Sukuk grant. Effective for applications received by the SC from 1 January 2018 to 31

December 2020.

7. Income from managing Sustainable and Responsible Investment (SRI) Funds

It is proposed that income tax exemption be extended to fund managers of SRI funds

approved by the SC in respect of management fee income derived from managing

conventional and Shariah-compliant SRI funds.

Effective from YA 2018 to YA 2020.

F. Real Property Gain Tax (RPGT)

1. Increase in Retain Sum who is Non-Citizen or Non-Permanent Resident

A new s.21B(1A) introduced in the RPGT Act 1976 for disposal by non-citizen and

non-permanent resident individuals are subject to 7% retention sum (instead of 3%)

by the acquirer and remit to the IRBM within 60 days from the date of disposal.




2. No Gain / No Loss Transactions Treatment applicable to Non-Citizen

Under Subparagraph 3(2), Schedule 2, transaction in which disposal price is deemed

equal to acquisition price (no gain/no loss) is applicable for the following

circumstances:-

Transfer of asset:-

Between Spouse; or

By a connected person to a company controlled by the connected person, for a

consideration substantially (more than 75%) of shares in that company.

It is proposed that the disposer of the real properties must be a Citizen. Otherwise,

the transfer will subject to RPGT at the rate of 30% for disposal within 5 years and 5%

for disposal after 5 years.


3. RPGT rate applicable for an executor of a deceased person

An executor of a deceased person who is not a citizen and not a permanent resident

is subject to RPGT at the rate of 30% for disposal within 5 years and 5% for disposal

after 5 years.

G. Others

1. Maternity benefits

i. It is proposed that maternity leave for the private sector to be increase from 60

days to 90 days as implemented by the public sector;

ii. In respect of public sector, working women in their fifth month onwards of

pregnancy can leave work an hour earlier. Husbands are also allowed to leave

an hour earlier with a condition that the couple are working within the same

location.

This highlight is provided gratuitously and without liability. It is intended as a general guide only. Readers should seek appropriate professional

advice regarding any particular problems they encounter. Accordingly, Wanconnect Advisory PLT assumes no responsibility for any errors or

omissions it may contain, whether caused by negligence or otherwise, or any losses, however caused, sustained by any person that relies on it.

For further information, clarification or advice on any of the contents stated herein, please feel free to contact our team.

Song Liew CA(M), ACCA(UK)

Managing Consultant

licensed GST agent and tax consultant.

Corporate trainer for tax compliance workshop.

Rayce Heng Bac (Hons) Commerce

Tax Consultant

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