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1 HIGHLIGHTS OF THE 2016 BUDGET AND FINANCE BILL November 2015

2 Copyright November 2015 by the Malaysian Institute of Accountants (MIA). All rights reserved. Permission is granted to make copies of this work provided that such copies are for use in academic classrooms or for personal use and are not sold or disseminated and provided that each copy bears the following credit line: Copyright (Month and Year) by the Malaysian Institute of Accountants (MIA). All rights reserved. Used with permission of MIA. Contact for permission to reproduce, store or transmit this document. Otherwise, written permission from MIA is required to reproduce, store or transmit, or to make other similar uses of, this document, except as permitted by law. Contact Photo credit: Front cover page - photo subscribed from Fotolia ( on 1 February 2011.

3 Introduction On 23 October 2015, the Honourable Prime Minister and Minister of Finance, YBhg. Dato Seri Mohd Najib bin Tun Haji Abdul Razak tabled the 2016 Budget with the theme of Prospering the Rakyat in Parliament. The 2016 Budget aims to prioritise the following: Strengthening Economic Resilience; Increasing Productivity, Innovation and Green Technology; Empowering Human Capital; Advancing Bumiputera Agenda; and Easing the Cost of Living of the Rakyat Budget is the first Budget in a series of five budgets under the 11 th and final Malaysia Plan towards transforming the nation into a high-income advanced economy. To this extent, the Government has announced various tax initiatives and some of the key measures are as below: Review of individual income tax rates for high income earners; Review of reliefs; New tax incentives and revision to existing tax incentives; Tax treatment for Goods and Services Tax (on input and output tax) from the perspective of income tax and real property gains tax; and New offences and penalties for failure to furnish the income tax return. The purpose of this publication is to provide professional accountants with an update on the tax proposals introduced. This publication contains a summary of the salient tax proposals of the 2016 Budget and Finance Bill, divided into the following key areas: 1. Personal Tax 2. Corporate Tax 3. Tax Incentives 4. Stamp Duty 5. Real Property Gains Tax (RPGT) 6. Goods and Services Tax (GST) 7. Tax Administration 8. Others (Petroleum Income Tax and Labuan)

4 CONTENTS Page Personal Tax 1 Corporate Tax 3 Tax Incentives 12 Stamp Duty 16 Real Property Gains Tax (RPGT) 17 Goods and Services Tax (GST) 18 Tax Administration 22 Others (Petroleum Income Tax and Labuan) 23

5 1. PERSONAL TAX Changes to Income Tax Rates a. The income tax rates for the following resident individuals: and Structure Chargeable income Present tax rate % Proposed tax rate % RM 600,001 1,000, Exceeding 1,000, Schedule 1 Part 1, Paragraphs 1 and 1A of the Income Tax Act 1967 (ITA 1967) Year of Assessment (YA) 2016 These rates also apply to clubs, trade associations and the estate of a deceased person (domiciled in Malaysia). b. The non-resident income tax rate has been increased from 25% to 28%. Increase in Tax Relief for Spouse Who Has No Income and/or Pays An Alimony to Former Wife The tax relief is increased to RM4,000 from RM3,000. Section 45A and 47 of the ITA 1967 Tax Relief for Parental Care New tax relief is introduced where taxpayer is allowed to claim RM1,500 for a mother and RM1,500 for a father. This relief can be equally apportioned with other siblings provided that the total relief claimed shall not exceed RM1,500 for a mother and RM1,500 for a father. Section 46(1)(o) of to YA 2020 However, the claim is subject to the following conditions: taxpayer does not claim expenses on medical treatment and care of parents; parents are the legitimate natural parents and foster parents in accordance to the respective law subject to a maximum of 2 persons; parents aged 60 years and above; 1

6 parents are resident in Malaysia in the current YA; and parents have an annual income not exceeding RM24,000 per annum for each parent. Increase in Tax Relief for Children Below 18 Years of Age This existing child relief is increased from RM1,000 to RM2,000 for each child below 18 years of age. Section 48(2)(a) of Review of Tax Relief for Children 18 Years of Age and Above and Studying at Tertiary Level This existing child relief is increased from RM6,000 to RM8,000 per child. Section 48(3)(a) of Increase in Tax Relief on Fees for Tertiary Education This existing education fees relief is increased from RM5,000 to RM7,000 per year. Section 46(1)(f) of the ITA 1967 Tax Relief on Employees Contribution to Social Protection (SOCSO) pursuant to Employees Social Security Act 1969 New tax relief is introduced for the eligible employees to claim relief of up to a maximum of RM250 per year. Section 46(1)(n) of Change to Basis Period to which Employment Income is related Any gross income from employment income which is receivable for any particular period shall be treated as income in the year of receipt and taxed accordingly. Section 25 of Exemption for Gratuity on Retirement or Termination of Employment Contract A new paragraph under Schedule 6 of is introduced. Sums received by way of gratuity on retirement from an employment specified under any written law or termination of a contract of employment (other than the employment gratuity which is currently fully exempted) would qualify for an exemption of RM1,000 for each completed year of service. Paragraph 25D, Schedule 6 of 2

7 2. CORPORATE TAX Special Reinvestment Allowance Companies which have completed their eligibility to qualify for RA Paragraph 2B, (RA) Incentive for Manufacturing incentive i.e. 15 years, a special RA be given for reinvestments made in Schedule 7A of and Selected Agriculture Sectors a period of 3 YAs as tabulated below: RA period ended Special RA is given in respect of the capital expenditure incurred by a company in the YAs specified below YA 2015 or prior to YA 2015, YA 2017, YA 2018 YA 2017, YA 2018 YA 2017 YA 2018 Qualifying expenditure incurred from until YA Redefinition of RA Incentive The following definitions have been expanded in Paragraph 9 of Schedule 7A of ITA 1967: Term Automating Definition A process whereby manual operations are substituted by mechanical operations with minimal or reduced human intervention. Paragraph 9, Schedule 7A of Diversifying Expansion Machinery Enlarge or vary the range of product of a company related to the same industry. An increase of a product capacity or expansion of factory area. A device or apparatus consisting of fixed and moving parts that work together to perform function in respect of a manufacturing activity, which is directly used in carrying out that activity in a factory. 3

8 Modernising An upgrading of manufacturing equipment and process. Plant Simple An apparatus used in respect of a manufacturing activity, which is directly used in carrying out that activity in a factory. An activity which does not need special skills/machines/ apparatus or equipment especially produced or installed for carrying out that activity. Debt Owing in respect of Services and Use of Enjoyment of Property Currently, where a debt is owing to a person that arises in respect of any services rendered or the use or enjoyment of any property dealt with at any time in the course of carrying on a business, the amount of the debt shall be treated as gross income of that person from the business for the relevant period. Sections 24(1)(b) and (c) of the ITA 1967 With the amendments, where a debt is owing to a person that arises in respect of any services rendered or to be rendered or the use or enjoyment of any property dealt or to be dealt with at any time in the course of carrying on a business, the amount of the debt shall be treated as gross income of the relevant person from the business for the relevant period. In addition, the new provision also applies to the case when no debt is owing to a person in respect to such services or property, but sums are received in the course of carrying on a business for any services to be rendered or for the use or enjoyment of any property to be dealt with, such sums shall be treated as gross income from the business in the relevant period. Section 24(1A) of the ITA

9 Another new provision is introduced to state that if the above amount or Section 34(7A) part of the sum is subsequently refunded, such amount shall be allowed of the ITA as a deduction from the relevant gross income Submission of Written Notice for Interest Deduction on Money Borrowed The new provision is introduced such that where the interest is due to be paid in any following year of assessment, the taxpayer is required to notify the Inland Revenue Board (IRB) in writing for a deduction of that sum not later than 12 months from the end of the basis period for the year of assessment when the sum is due to be paid. Section 33(5) of the ITA 1967 Upon receipt of the notice, the IRB may revise the assessment accordingly. Tax Incentive for Issuance of Sustainable and Responsible Investment (SRI) Sukuk Tax deduction be extended for 5 years on issuance costs of SRI Sukuk approved by, or authorized by or lodged with the Securities Commission. To be gazetted by way of statutory order. to YA 2020 SKI Sukuk refers to the financing of projects with the following objectives: a. preserve and protect the environment and natural resources; b. conserve the use of energy; c. promote the use of renewable energy; d. reduce greenhouse gas emission; or e. improve the quality of life for society. Income Tax Exemption on Sukuk The tax exemptions are amended as follows: a. to replace Islamic Securities with Sukuk ; b. to replace approved by the Securities Commission with approved or authorized by, or lodged with, the Securities Commission ; and c. to replace Labuan Offshore Financial Services Authority with Labuan Financial Services Authority. Paragraphs 33A(b), 33B and 35(b), Schedule 6 of Upon coming into operation of the Finance Act. 5

10 Double Deduction and Further The following incentives will be extended for another 3 years: Deduction on Additional Issuance Costs of Retail Bonds and Retail Sukuk a. double deduction on additional issuance costs of retail bonds; b. double deduction on additional costs of sukuk under the principles of Mudharabah (principles of profit sharing), Musyarakah (profit and loss sharing), Istisna (purchase order), Murabahah (cost plus sale) and Bai Bithaman Ajil (deferred payment sale) based on tawaruqq (tripartite sales); and c. further deduction on additional issuance costs of sukuk under the principles of Wakalah (agency) and Ijarah (leasing). To be gazetted by way of statutory rules. to YA 2018 Automatic Double Deduction for Research and Development (R&D) Project A double deduction is currently given on R&D project expenditures incurred by Companies under Section 34A of with approval from the Inland Revenue Board (IRB). To be gazetted by way of statutory order. to YA 2018 Companies with paid-up capital not exceeding RM2.5 million are to be allowed to claim a double deduction automatically for R&D project expenditures up to RM50,000 for each year of assessment. However, companies are still required to submit R&D project application to the IRB. Extension of Tax Incentive Period for Real Estate Investment Trusts (REITs) The current tax incentives for the following investors in REITs is extended for another three years: a. Foreign institutional investors, particularly pension funds and collective investment funds receiving profit distribution from REITs listed on Bursa Malaysia are subject to final withholding tax at 10%; and b. Non-corporate investors including resident and non-resident individuals and other local entities receiving profit distribution from REITs listed on Bursa Malaysia are subject to final withholding tax at 10%. To be gazetted by way of statutory order. 1 Jan 2017 to 31 Dec

11 Industrial Building Allowance (IBA) No IBA can be claimed for a YA in respect of expenditure incurred in relation to the following buildings or part of the buildings owned and used by the person for letting purposes including the business of letting: a. Licensed private hospital, maternity home and nursing home; b. Building used for research; c. Warehouse; d. Building used for approved service project; e. Hotel; f. Airport; g. Motor racing circuit; h. Building used as living accommodation of employees of persons carrying on manufacturing, hotel, tourism business or approved service project; i. Building used for the provision of child care facilities for individual employed by him for his business; and j. Approved school or educational institution. Paragraph 16B, Schedule 3 of the ITA 1967 Redefinition of Small and Medium Enterprises for Special Allowances for Small Value Assets Currently, a small and medium enterprise (SME) is entitled to claim 100% capital allowance on small value assets costing not more than RM1,300 each without any restriction on the total amount of qualifying plant expenditure incurred in a basis period for each year of assessment. Paragraph 19A(3), Schedule 3 of For this purpose, such SME company must also be incorporated in Malaysia. Deemed Disposal on Replacement of Part of an Asset Where any part of an asset is replaced with a new part which is depreciated separately in accordance with the general accepted accounting principles (GAAP), such part is deemed to have been disposed of in that basis period for that year of assessment. Paragraph 61B, Schedule 3 of the ITA 1967 The qualifying expenditure of the part shall be determined in accordance 7

12 with the GAAP and the residual expenditure shall be reduced by the amount of allowances i.e. initial allowance and annual allowance made prior to the deemed disposal. Tax Treatment for Assets Classified as Assets Held For Sale for the purpose of Reinvestment Allowance The definition of disposed of be amended to include the words ceased to be used. Paragraph 9, Schedule 7A of Non-Deductibility of Goods and Services Tax (GST) No tax deduction for any input tax paid or to be paid by a person, who is liable to be registered under the Goods and Services Tax Act 2014 (GSTA 2014) but has failed to do so or if he is entitled to the input tax credit under the GSTA Subsection 39(1)(o) of the ITA 1967 YA 2015 No tax deduction for any amount of GST output tax paid or to be paid which is borne by a person who is registered or liable to be registered under the GSTA Subsection 39(1)(p) of the ITA 1967 Deductibility of Payments Made to Public Entertainers and Penalty for Incorrect Return The new provision is introduced to govern the deductibility of payments made to public entertainers. No deduction for any payment made to a public entertainer in respect of the services performed or rendered in Malaysia if the payer fails to remit the withholding tax under Section 109A of and penalty under Section 109(2) of to Director General. Subsection 39(1)(q) of the ITA 1967 In addition, the Director General is empowered to impose a penalty for incorrect return under Section 113(2) of if a deduction on the above expense is made in the income tax return and the withholding tax and penalty relating to such expense are not paid by the due date for submission of the income tax return. 8

13 Section 91 of The new provision is introduced to empower the Director General to Subsection Assessments and Additional make assessment or reduced assessment at any time with regard to an 91(6) of the Assessments in Certain Cases adjustment made on input tax paid or to be paid under the GSTA ITA 1967 YA 2015 The assessment or reduced assessment will be issued for the year of assessment to which the adjustment relates, or if such year cannot be ascertained, the year of assessment in which the Director General discovers the adjustment. Tax Treatment for Input Tax under GSTA 2014 into the ITA 1967 and Promotion of Investments Act 1986 (PIA 1986) Any GST input tax paid or to be paid by a person to be excluded from the amount of qualifying expenditure for the purpose of claiming capital allowances (CA), reinvestment allowance (RA), investment allowance for service sector (IA) under and investment tax allowance (ITA) under PIA 1986 if the person is: a. liable to be registered under the GSTA 2014 and has failed to do so; or b. entitled under the GSTA 2014 to credit on that amount as input tax. Paragraphs 2E and 67D, Schedule 3 of the ITA 1967 Paragraph 1D(1), Schedule 7A of the ITA 1967 Paragraph 1A(1), Schedule 7B of the ITA 1967 Section 29P of the PIA 1986 YA

14 Tax Treatment for Adjustments The relevant new provisions are introduced in Schedule 3, Schedule 7A of Input Tax under and Schedule 7B of and PIA and PIA 1986 Any adjustment to the qualifying expenditure of an asset as a result of any adjustment to input tax under the GSTA 2014 shall only be made at the end of the period of adjustment related to the asset as provided under the GSTA 2014 except in the case of a disposal of asset. In that situation, the adjustment shall be made in the year of assessment in which the disposal is made. Any adjustment resulting in an additional amount shall be deemed to be part of the qualifying expenditure incurred and the residual expenditure should include that additional amount. Any adjustment resulting in a reduced amount shall reduce the expenditure incurred and residual expenditure should exclude that reduced amount. The excess amount shall be part of the statutory business income. The above adjustments shall also apply to controlled transfer assets for qualifying expenditure under Schedule 3 and capital expenditure under Schedule 7A of. Paragraphs 67D(2) to 67D(5), Schedule 3 of the ITA 1967 Paragraphs 1D(2) to 1D(5), Schedule 7A of the ITA 1967 Paragraphs 1A(2) to 1A(4), Schedule 7B of the ITA 1967 Section 29Q of the PIA 1986 YA 2015 Changes in Definition for Section 60I of Company that Establishes Special Purpose Vehicle Section 60I of be amended has follows: a. To substitute the word Islamic securities with the word Sukuk ; b. To amend the definition of special purpose vehicle by substituting the word approved by the Securities Commission or Labuan Financial Services Authority with the word lodged with the Securities Commission or approved by the Labuan Financial Services Authority. Section 60I of Upon coming into operation of the Finance Act. 10

15 Section 154 of - Power to Makes Rules An amendment of Section 154 of to empower the Minister to make rules implementing or facilitating mutual administrative assistance arrangement under Section 132B of. Paragraph 154(1)(c) of Upon coming into operation of the Finance Act. Section 108 balance The Section 108 balance as at 31 December 2013 is reduced by any tax discharged or remitted in relation to the tax charged on the chargeable income of a company for the year of assessment 2000 (current year basis) and prior years of assessment or any tax refunded, on the day the tax is discharged, remitted or refunded. Section 108 of Where the tax discharged, remitted or refunded exceeds the balance as at 31 December 2013, such excess is due and payable within thirty (30) days upon the service of a written requisition by the IRB. A 10% penalty will be imposed for the late payment. Any unpaid amount including the penalty shall be a debt due to the Government. 11

16 3. TAX INCENTIVES Extension of Tax Incentives for The existing tax incentives for Tour Operating Companies is extended for To be Tour Operating Companies another 3 years on the following: gazetted by a. 100% tax exemption on statutory income derived from the business way of of operating packages within Malaysia participated by not less than statutory 1,500 local tourists per year; and order. a. 100% tax exemption on statutory income derived from the business of operating packages to Malaysia participated by not less than 750 inbound tourists per year. to YA 2018 Review of Tax Incentive for Food Production Projects The following existing incentives for companies involved in carrying out qualifying food production projects are extended for another 5 years: a. tax deduction equivalent to the amount of investment made into a subsidiary for that YA whose carrying out the new food projection; and b. a company carrying out: i. a new food production project is given 100% income tax exemption of statutory income for 10 YAs; or ii. an expansion of an existing food production project is given 100% income tax exemption of statutory income for 5 YAs. To gazetted way statutory order. be by of Applications received by the Ministry of Agriculture and Agro-Based Industry from 1 Jan 2016 to 31 Dec The exemption period for (i) and (ii) will commence from the first YA in which the company derives statutory income. The list of qualifying food production projects is extended to include: a. planting of coconuts, mushrooms and cash crops; b. rearing of deer; c. cultivation of seaweed; d. rearing of honey (bees and kelulut); and e. planting of animal feed crops as determined by the Ministry of Agriculture and Agro-Based Industry and approved by the Minister of Finance. 12

17 Extension of Tax Exemption on Income from Managing Shariah- Compliant Funds Another 4 year tax exemption is extended to a company who provides Shariah-compliant fund management services and certified by the Securities Commission Malaysia on the statutory income derived from the business of providing fund management services as follows: a. foreign investors in Malaysia; b. local investors in Malaysia; and c. business trusts or real estate investment trusts in Malaysia. To be gazetted by way of statutory order. YA 2017 to YA 2020 Allowance for Increased Exports Incentive to Small and Medium Enterprises (SMEs) Currently, manufacturing companies are given an exemption of statutory income equivalent to 10% or 15% of the value of increased exports provided that the goods exported attain at least 30% or 50% value added respectively. Agriculture companies are given an exemption of statutory income equivalent to 15% of the value increased exports. To be gazetted by way of statutory order. to YA 2018 To encourage SMEs to expand their export markets, the tax exemption will be given to SMEs with the revised value added criteria as tabulated below: Value added of goods Tax exemption on statutory income exported attain at least equivalent to 20% 10% of the value of the increased exports 40% 15% of the value of the increased exports The above exemption is restricted to 70% of the statutory income. 13

18 Tax Incentives for the ICAB is a company that offers independent conformity assessment Establishment of Independent services to its clients to test their products, materials, systems or services Conformity Assessment Bodies for conformance to international specifications or safety standards and ( ICAB ) other conformities. Tax incentive was previously given to laboratories that tested medical devices but this had expired in 31 December Currently, there is no tax incentive for companies carrying out independent conformity assessment activities. To be gazetted by way of statutory order. Applications received by Malaysian Investment Development Authority (MIDA) from 1 Jan 2016 to 31 Dec To encourage the development of independent conformity assessment services in Malaysia, it is proposed that the following incentives be given: Income tax allowance Income tax exemption New ICAB Investment Tax Allowance of 60% on qualifying capital expenditure for a period of 5 years. The allowance can be offset against 100% of the statutory income. Exemption of 100% on statutory income derived from qualifying activities for a period of 5 years. Existing ICAB Investment Tax Allowance of 60% on qualifying capital expenditure for a period of 5 years. The allowance can be offset against 100% of the statutory income. 14

19 The above incentives are given to the following: Qualifying sectors Qualifying activities a. Machinery and Equipment; b. Electrical and Electronics; c. Chemicals; d. Aerospace; e. Medical Devices; and f. Fresh and Processed Food. a. Testing Laboratories; b. Calibration Laboratories; c. Certifications; d. Inspections; or e. Good Laboratory Practice. Accredited by a. Department of Standards Malaysia; b. Accrediting bodies recognised by the International Laboratory Accreditation Cooperation (ILAC) under Mutual Recognition Arrangement; c. International Accreditation Forum (IAF) under Multi-Lateral Agreement; or d. OECD Good Laboratory Practice Mutual Acceptance Data. 15

20 4. STAMP DUTY Extension of Stamp Duty Exemption to Revive Abandoned Housing Projects The existing stamp duty exemption for the rescuing contractors and the original house purchasers of abandoned projects approved by Ministry of Housing and Local Government is extended for another 2 years as follows: Loan agreements and instruments Rescuing Loan agreements to finance the completion contractors of abandoned housing projects; and Instruments of transfer of title for land and houses in abandoned housing projects. To be gazetted by way of statutory order. For loan agreements and memorandum of transfer executed from to 31 Dec Original house purchaser in the abandoned project Loan agreements for additional financing; and Instruments of transfer of the house. Extension of Stamp Duty Exemption on Shariah Financing Instruments The existing 20% stamp duty exemption is given on the principal/primary instrument of financing in accordance to the Shariah principles until 31 December The stamp duty exemption is extended for another 2 years. The home financing product must be approved by the Shariah Advisory Council of Bank Negara Malaysia and the Shariah Advisory Council of the Securities Commission Malaysia. To be gazetted by way of statutory order. For housing instruments executed on or after 1 Jan 2016 but not later than 31 Dec

21 5. REAL PROPERTY GAINS TAX (RPGT) Additional Penalty on Failure to Furnish RPGT Return The new provision is introduced where the DGIR is empowered to impose an additional penalty on any additional RPGT payable in the case where the RPGT return has not been furnished by the disposer. Section 29(5) of the RPGT 1976 Upon coming into operation of the Finance Act. GST Incurred Included as Part of Incidental Costs GST incurred by a disposer who is not liable to be registered under the GSTA 2014, or who is registered person but is not entitled to an input tax credit on the GST incurred shall be part of the incidental cost of acquisition or disposal of an asset. Paragraph 6(1), Schedule 2 of the RPGT 1976 YA 2015 GST Incurred Excluded from Acquisition Price or Disposal Price The following GST incurred shall be excluded from the acquisition price or disposal price of an asset: a. Any GST incurred as input tax by the disposer who is liable to be registered under the GSTA 2014 and has failed to do so, or if he is entitled to an input tax credit under that Act. b. Any GST output tax which is borne by a disposer who is registered or liable to be registered under that Act. Paragraph 7, Schedule 2 of the RPGT 1976 YA 2015 Exemption Formula on a Part Disposal by Individuals (Revision) An amendment is made to the formula to allow the taxpayer who disposes part of a chargeable asset. The formula in computing the exemption be amended as follows: A/B x C where, A : is part of the area of the chargeable asset disposed; B : is the total area of the chargeable asset; C : is RM10,000 Paragraph 2, Schedule 4 of the RPGT 1976 Upon coming into operation of the Finance Act. or 10% of the chargeable gain, whichever is greater. 17

22 6. GOODS AND SERVICES TAX (GST) Additional Goods subject to GST The scope of items under GST (Zero Rated Supply) Order to include: at Zero Rate a. All types of controlled drugs in the Poisons Groups A, B, C and D under the Poison Act 1952, certain additional over-the-counter medicines registered by the Drug Control Authority, and certain additional drugs under the National Essential Medicines List classified as medical devices; b. Food products which include: Milk for infant and children for ages 0 to 36 months to include soy bean-based milk and organic-based milk; Dhal beans such as chickpeas, green and white bean, lentils and, pigeon peas; Mustard seeds; Jaggery Powder; Lotus root; Water chestnut; and Dried mee kolok. To be gazetted by way of statutory order. Prepaid Telecommunication Services or Prepaid Cards Malaysian consumers of prepaid telecommunication services or prepaid cards will be given rebates which are equivalent to the amount of GST paid, which will be credited directly to their prepaid accounts. to 31 Dec 2016 Domestic Air Passenger Transportation Services in Sabah, Sarawak and Labuan Exemption of GST on the domestic air transportation services for economy class passengers under the Rural Air Services within and between Sabah, Sarawak and Labuan. To be gazetted by way of statutory order. 18

23 GST Special Schemes a. Approved Trader Scheme ( ATS ) To be gazetted by The eligibility for ATS be extended to include companies carrying out way of maintenance, repair and overhaul ( MRO ) activities solely in the statutory aerospace sector, which comply certain conditions and which have order. obtained certain approvals. b. Flat Rate Scheme ( FRS ) For FRS registration purposes, the threshold of annual sales turnover be reduced from RM100,000 to RM50,000. The requirements for record keeping will also be simplified. GST Relief Relief from payment of GST on the following supplies: a. Procurement of Goods by Skill and Vocational Training Centres The procurement of teaching materials and equipment, as approved by MOF, by skills training providers that conduct approved and accredited programs under the National Skills Development Act 2006 To be gazetted by way of statutory order. b. Re-importation of goods which are temporarily exported by local businesses for the purpose of promotion, research or exhibition c. Re-importation of goods which are temporarily exported for the purpose of rental and lease of eligible equipment outside Malaysia. Among the eligible equipment are equipment used in the upstream oil and gas industry. The list of equipment and conditions are as approved by Ministry of Finance. 19

24 Time of Supply of Imported The time of supply for imported services shall be earlier of: Services a. The date when payment is made by the recipient; or b. The date when any invoice is issued by the supplier who belongs in a country other than Malaysia or who carries on business outside Malaysia. Penalties for Late Payment of GST where no prosecution is initiated under Section 41 of the GSTA 2014 Furnishing of Returns and Payment of Tax Amendment to Section 41 of the GSTA 2014 by introducing subsections 41(8), (9), (10) and (11) of the GSTA 2014 to include: Offence Payment which is late but made up to 30 days from the due date Penalty 5% of the tax due and payable Subsections 41(8), (9), (10) and (11) of the GSTA days from the due date additional 10% penalty days from the due date additional 10% penalty, subject to a maximum penalty of 25% of the amount of tax due and payable Subsections 43(1) and (8) of the GSTA 2014 Power to Assess Amendment to subsections 43(1) and (8) of the GSTA 2014 to empower the Director General to assess and recover the amount of tax and the penalty under the new subsection 41(8) of the GSTA Subsections 43(1) and (8) of the GSTA 2014 Section 51 of the GSTA Payment by Instalments Amendment to Section 51 of the GSTA 2014 by introducing subsection 51(1A) of the GSTA 2014, where the tax is allowed to be paid by instalments, the penalty under subsection 41(8) shall cease to be calculated from the date the Director General allows the payment by instalment. Subsection 51(1A) of the GSTA

25 Subsection 69(5)(c)(ii) of the To substitute the word venturer with the word venture operator. Subsection GSTA 2014 Joint Venture 69(5)(c)(ii) of the GSTA Section 70 of the GSTA 2014 Warehousing Scheme The Warehousing Scheme previously only allowed for the disregarding of supplies of goods within the warehouse, except for the last supply of such goods which are removed before the duty point Subsection 70(1) of the GSTA 2014 An amendment to subsection 70(1) of the GSTA 2014 to include the following scope of warehousing scheme: a. GST on the imported goods to be suspended when deposited in the warehouse; and b. supplies of goods made between the warehouses to be disregarded. Subsection 86(2) of the GSTA 2014 Return or Disposal of Movable Goods To substitute the word 112(1) with the word 105(2). Subsection 86(2) of the GSTA 2014 Paragraph 94(b) of the GSTA 2014 Penalty for Offences by Authorised and Unauthorised Persons Amendment to Paragraph 94(b) of the GSTA 2014 to insert after the word to collect any tax the word or penalty. Section 94(b) of the GSTA 2014 Subsection 122(1) of the GSTA 2014 Court Order Amendment to subsection 122(1) of the GSTA 2014 to include: a. after the word amount of tax the word or any penalty ; and b. after the word and the tax the word or penalty. Subsection 122(1) of the GSTA

26 7. TAX ADMINISTRATION Return Form of Employer (Form An employer which is a company must furnish the Form E to the IRBM on Subsection E) an electronic medium or by way of electronic transmission. 83(1B) of the ITA 1967 Submission of Tax Estimates A company must furnish the estimate of tax payable (Form CP 204) and revised estimate tax payable (Form CP204A) to the IRB on an electronic medium or by way of electronic transmission. Subsection 107C(7A) of Review of Provision on Tax Offences The following provisions have been introduced: a. Failure to furnish income tax return for 2 YAs and above without reasonable excuse would be subject to the following upon conviction: a fine of RM1,000 to RM20,000 or imprisonment of not more than 6 months or both; and a special penalty equal to three times of the income tax payable based on the Director General s best judgement. Subsection 112(1A) of Upon coming into operation of the Finance Act. b. Failure to furnish the correct particulars as required by the Director General in the income tax return without reasonable excuse would be subject to a fine of not less than RM200 and not more than RM20,000 or imprisonment for a term not exceeding six months or both. Section 120(1)(h) of 22

27 8. OTHERS (PETROLEUM INCOME TAX AND LABUAN) PETROLEUM INCOME TAX Amendment to Section 2 of the Petroleum (Income Tax) Act 1967 (PITA 1967) With the introduction of Goods and Services Tax on 1 April 2015, the definition of input tax and output tax to be inserted to have the same meaning assigned to them in the GSTA Section 2 of the PITA 1967 YA 2015 Non-Deductibility of Goods and Services Tax (GST) The new provisions are introduced i.e. Paragraphs (p) and (q) after subsection 18(1)(o) of the PITA 1967 on the following: YA 2015 No tax deduction for any input tax paid or to be paid by a person, who is liable to be registered under the GSTA 2014 but has failed to do so or if he is entitled to the input tax credit under the GSTA Section 18(1)(p) of the PITA 1967 No tax deduction for any amount of GST output tax paid or to be paid which is borne by a person who is registered or liable to be registered under the GSTA Section 18(1)(q) of the PITA 1967 Deductions Not Allowed for Failure to Furnish Information to Director General The deduction shall not be allowed if the chargeable person fails to provide the information requested within the time specified in the notice or such any period as may be allowed by the Director General. Section 18(1A) of the PITA 1967 Director General has a Power to Make Assessment Arising from Input Tax Adjustment under GSTA 2014 The new provision is introduced to provide that the Director General is empowered to make an assessment or a reduced assessment at any time for input tax adjustment on the following: in the year of assessment to which the adjustment relates; or if such year cannot be ascertained, the year of assessment in which the Director General discovers the adjustment. Section 39(6) of the PITA 1967 YA

28 Amendment to the PITA 1967 There are new provisions be introduced arising from GST implementation Paragrap First Schedule Deductions such as the exclusion of GST input tax from qualifying expenditure and hs 1A and for Capital Expenditure on adjustment to input tax under the GSTA A, First Exploration Schedule Second Schedule Capital of the Allowances and Charges PITA 1967 Paragrap hs 2B and 45A, Second Schedule of the PITA 1967 YA 2015 LABUAN Power to Call for Information under Mutual Administrative Assistance Arrangement The Director General is empowered to require any person to furnish information for compliance with the mutual administrative assistance arrangement entered into by the Government of Malaysia with a foreign government. Mutual administrative assistance arrangement means an arrangement between the Government of Malaysia with the Government of any territorial outside Malaysia with a view to the mutual administrative assistance in tax matters which includes simultaneous tax examinations, automatic exchange of information or tax administrations abroad. Section 22 and 22A of the Labuan Business Activity Act, 1990 Upon coming into operation of the Finance Act. The above definition is in line with the definition under Section 132B of. 24

29 Chartered Accountants Malaysia and MIA The Chartered Accountant Malaysia or C.A.(M) is a designation conferred by the Malaysian Institute of Accountants ( MIA ) to a professional in accountancy, business and finance with a recognised accountancy qualification and relevant work experience. C.A.(M) are the industry captain, corporate leaders and decision makers that play a significant part in nation building. MIA was established under the Accountants Act 1967 as the statutory accountancy body that regulates, develops, supports and enhances the integrity and status of the profession while upholding the public interest. Working closely alongside strategic business partners and stakeholders, MIA connects its members to a wide range of continuous professional development programme, updates and networking opportunities. Presently, there are close to 32,300 members making their strides across all industries in Malaysia and around the world. Vision To be a globally recognised and renowned institute of accountants committed to nation building. Mission To develop, support and monitor quality and expertise consistent with global best practice in the accountancy profession for the interest of stakeholders. Objectives 1. Develop and enhance the competency of accountancy professionals to meet market demand. 2. Advance and enhance the status of members and the accountancy profession in Malaysia. 3. Regulate the practice of the accountancy profession in Malaysia consistent with global standards and best practices. DISCLAIMER STATEMENT Disclaimer 1. This document contains general information only and MIA is not, by means of this document, rendering any professional advice or services. This document is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a professional advisor. 2. Whilst every care has been taken in compiling this document, MIA makes no representations or warranty (expressed or implied) about the accuracy, suitability, reliability or completeness of the information for any purpose. 3. MIA, its employees or agents accept no liability to any party for any loss, damage or costs howsoever arising, whether directly or indirectly from any action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it.

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