MALAYSIA: BUDGET 2016 HIGHLIGHTS

Transcription

1 MALAYSIA: BUDGET 2016 HIGHLIGHTS OCTOBER 2015 EXECUTIVE SUMMARY The 2016 Budget, with the theme of Prospering the Rakyat, was tabled in Parliament on 23 October 2015 by The Honourable Prime Minister and Minister of Finance YAB Datuk Seri Najib Tun Razak. Introduced at a time shrouded with the uncertainty of a sluggish global economy and stagnating oil & gas prices, the 2016 Budget is geared towards improving the lives of the Malaysian people whilst setting out the Government s proposed next steps towards achieving a developed nation status in line with Vision The 2016 Budget aims to prioritise the following: 1. Strengthening Economic Resilience 2. Increasing Productivity, Innovation and Green Technology 3. Empowering Human Capital 4. Advancing Bumiputera Agenda 5. Easing the Cost of Living of the Rakyat KEY CHANGES CORPORATE TAX PERSONAL TAX GOODS AND SERVICES TAX REAL PROPERTY GAINS TAX STAMP DUTY INCENTIVES The 2016 Budget which allocates RM267.2 billion, comprising Operating Expenditure of RM215.2 billion and Development Expenditure of RM52 billion, represents an increase of RM6.5 billion from the revised allocation of RM260.7 billion in The Government revenue collection in 2016 is estimated at RM225.7 billion which is an increase of RM3.2 billion from Based on the forecast of revenue and expenditure, the fiscal deficit is expected to reduce to 3.1% of GDP in 2016 (from the revised 3.2% deficit in the preceding year). The Government of Malaysia plans to implement several significant projects in a bid to boost domestic investment. These projects include the development of the Malaysian Vision Valley (a 108,000 hectare area from Nilai to Port Dickson), Cyber City Centre in Cyberjaya, an airport township (KLIA Aeropolis) and nine high impact investments in the healthcare, education, tourism, communication software and infrastructure sectors. Additionally, and in line with the theme of the 2016 Budget, the Government has taken further steps to alleviate the burden on the Rakyat by extending the existing list of zero-rated or exempted items under GST to cover basic necessities such as medicines and selected food products. The Government has also taken steps towards addressing the inequalities prevalent in Malaysia by extending a greater degree of assistance to the lower income classes via Bantuan Rakyat 1Malaysia (BR1M) subsidies. The higher income classes in Malaysia on the other hand will experience an increase in the rate of income tax by 1% to 3% for individuals with chargeable income exceeding RM600,000. The 2016 Budget, representing the first step of the 11th and final Malaysia Plan towards achieving developed nation status in 2020, is in line with the goal of creating sustainable growth through harnessing and increasing domestic demand, encouraging contributions from the external sector and bolstering economic fundamentals whilst ensuring the welfare of the Rakyat.

2 Malaysian Budget Highlights Outlined below are some of the key tax changes. Incentive for Issuance of Sustainable and Responsible Investments (SRI) Sukuk Incentive for Issuance of Retail Bond and Retail Sukuk Exemption on Income from Managing Shariah-Compliant Funds Incentive Period for Real Estate Investment Trusts (REITs) Automatic Double Deduction for Research and Development (R&D) project Allowance for Increased Exports Incentive to Small and Medium Enterprises (SMEs) CORPORATE TAX Tax deduction on expenses incurred on issuance of SRI Sukuk approved or authorised by or lodged with the Securities Commission to be extended for another 5 years to YA (Effective from YA 2016 to YA 2020) It is proposed that double deduction/further deduction on additional issuance costs for Retail Bond and Retail Sukuk be extended for another 3 years to YA (Effective from YA 2016 to YA 2018) It is proposed that the tax exemptions on statutory income derived from business of providing fund management services to foreign/local investors and business trusts/reits in Malaysia be extended for another 4 years to YA (Effective from YA 2017 to YA 2020) Currently, foreign institutional investors and non-resident investors receiving profit distribution from REITs listed on Bursa Malaysia are subject to final withholding tax at 10%. This tax incentive is extended for another 3 years. (Effective from 1 January 2017 to 31 December 2019) A double deduction is currently given on R&D project expenditures incurred by Companies under Section 34A of the Income Tax Act 1967 with approval from the Inland Revenue Board (IRB). It is proposed that Companies with paid-up capital not exceeding RM2.5 million be allowed to claim double deduction automatically for R&D project expenditures up to RM50,000 for each year of assessment. Companies are required to submit R&D project application to the IRB. (Effective from YA 2016 to YA 2018) Currently manufacturing companies are entitled to exemption of statutory income equivalent to 10% or 15% of the value of the increased exports provided that the goods exported attain at least 30% or 50% value added respectively. Companies which export agriculture products are given an exemption of statutory income equivalent to 10% of the value of the increased exports. It is proposed that SMEs be given lower value added criteria as follows: i. Exemption of statutory income equivalent to 10% of the value of the increased exports provided that the goods exported attain at least 20% value added; and ii. Exemption of statutory income equivalent to 15% of the value of the increased exports provided that the goods exported attain at least 40% value added. The above exemption is restricted to a maximum of 70% of the statutory income. (Effective from YA 2016 to YA 2018) This proposal is aimed at promoting the issuance of SRI Sukuk and to establish Malaysia as a regional issuance hub for SRI Sukuk. This proposal was previously announced in 2015 Budget. This proposal is aimed at further encouraging more investors involvement in the capital market. This proposal was previously announced in 2012 Budget. This proposal is aimed at further promoting business management activities of Shariah-compliant funds. The objective of this proposal is to further promote the development of REITs and boost the capital market as well as investment in real estate. The proposal is aimed at promoting R&D activities among companies with paid-up capital not exceeding RM2.5 million. This proposal is aimed at encouraging SMEs to expand their export markets.

3 2016 Malaysian Budget Highlights 3 Special Reinvestment Allowance (RA) Incentive Debt Owing Deduction for interest on Money Borrowed Special Allowances for Small Value Assets Industrial Building Allowance (IBA) Disposal of Parts of Assets Currently RA is given to a company that reinvests for the purposes of expansion, modernisation, automation or diversification for a period of 15 consecutive years beginning from the YA that the RA is claimed. The rate of RA is 60% of the qualifying capital expenditure and can be set off against 70% of the statutory income or 100% of statutory income provided in that YA the company achieve the productivity level as determined by the Minister of Finance. The eligible activities include manufacturing activities and selected agricultural activities. It is proposed that companies that have exhausted their RA claim be eligible for a special RA claim for capital expenditure incurred from YA 2016 until YA (Effective from YA 2016 to YA 2018) Currently, a debt owing to a person that arises in respect of services rendered or the use or enjoyment of any property dealt with at any time in the course of carrying on a business shall be treated as gross income of that person from a business. With the amendments, any sum received by a person in a relevant period in the course of carrying on a business from any services to be rendered or the use or enjoyment of any property to be dealt with subsequent to that relevant period, the sum shall be treated as the gross income of that person from the business in the relevant period that the sum is received. Conversely, such amount shall be deducted from gross income in the basis period where the amount is refunded. Currently, a taxpayer may only claim a deduction in respect of interest from money borrowed against business income when such interest is due to be paid. Therefore, the deduction would be given in the year the interest is payable. It is proposed that any claim for such deduction shall be made 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. Currently, a company resident in Malaysia which has a paid up capital not more than RM2.5 million is entitled to a full tax deduction in respect of small value assets costing not more than RM1,300 and up to a maximum of RM13,000 per YA. This special allowance is now restricted to companies that are resident and incorporated in Malaysia. Currently, IBAs may be claimed by a person who has incurred qualifying building expenditure and is the owner of the building which was in use as an industrial building at the end of the basis period for a YA. It is proposed that IBAs be allowed only to a person who owns a qualifying industrial building and uses it for purposes of his business as an industrial building. It is proposed that any part of an asset that ceases to be used for purposes of a business due to its replacement with a new part shall be deemed to have been disposed off if the part is depreciated separately under generally accepted accounting principles. This proposal is aimed at encouraging reinvestment among existing companies in the manufacturing and agriculture sectors which have exhausted their eligibility to qualify for RA. With this amendment, advance receivables for future services shall be taxed upfront. With this amendment, a deduction for money borrowed will only be allowed if it is claimed within 12 months from the end of the basis period when the sum is due to be paid. This amendment restricts the IBA claim to owner operators. Therefore industrial buildings leased by an owner to an operator would not be entitled to IBA.

4 Malaysian Budget Highlights Failure to Furnish Return or Give Notice of Chargeability under Section 112 Other Offences under Section 120(1) Review of Unit Trust Income Tax Deductions not allowed under Section 39 of Income Tax Act 1967 Deductions not allowed under Section 39 of Income Tax Act 1967 Withholding Tax Capital Allowance, Investment Tax Allowance and Reinvestment Allowance Not Claimable GST portion Increase in Income Tax Rates for Resident Individuals A person who fails to furnish a return under subsection 77(1) or 77A(1) for two or more years of assessment commits a criminal offence and on conviction shall be liable to a fine of not less than RM1,000 and not more than RM20,000 and/or to imprisonment for a term not exceeding 6 months. In addition, the Director General can impose a special penalty of treble the amount of tax charged on the chargeable income of a taxpayer, based on his best judgment. (Effective upon the coming into operation of the Finance Act) Any person who without reasonable excuse fails to furnish correct particulars as required by the Director General under paragraph 77(4)(b) or 77A(3)(b) shall be guilty of an offence. (Effective upon the coming into operation of the Finance Act) The tax rate on any income distributed by a unit trust to a unit holder which is a non-resident company is reduced from 25% to 24% for YA 2016 and onwards. It is proposed that any person, who is liable to be registered under the Goods and Services Tax (GST) Act 2014 but has failed to do so, will not be allowed an income tax deduction in respect of any input tax paid or to be paid thereon. Similarly, a taxable person who fails to register under the GST Act 2014 and has borne the output tax that should have been paid for another party, cannot claim an income tax deduction thereon. (Effective from YA 2015) It is proposed that a deduction cannot be claimed on any expense in relation to any remuneration or other income in respect of services performed or rendered in Malaysia by a public entertainer who is subject to withholding tax under Section109A of the Income Tax Act 1967 if such tax has not been deducted pursuant to that section. Where a person who is liable to be registered under the GST but fails to do so, he will not be entitled to claim Capital Allowances, Investment Tax Allowance and Reinvestment Allowance in respect of the GST portion of the plant or building expenditure. Similarly the claim for capital expenditure in respect of a promoted activity or promoted product should not include the GST portion of the capital expenditure if the taxable person fails to register for GST purposes. (Effective from YA 2015) PERSONAL TAX The income tax rates for resident individuals are to be increased as follows: Chargeable Income (RM) Current Tax Rate (%) Proposed Tax Rate (%) Increase (%) 1-5, ,001-20, ,001-35, ,001-50, ,001-70, , , , , , , , , ,001-1,000, Exceeding 1,000, The reduction of tax rate is in line with the reduction in the corporate income tax rate. This is to encourage compliance with the GST Act This is to clarify the position of Income Tax Allowances in respect of the GST portion of the capital expenditure. This proposal aims at strengthening the tax structure to be more progressive.

5 2016 Malaysian Budget Highlights 5 Increase in Income Tax Rates for Non-Resident Individuals Income tax rate for non-resident individuals are to be increased by 3%, from 25% to 28%. This proposal aims at strengthening the tax structure to be more progressive. Personal Tax Relief for Taxpayer whose Spouse has No Income and/or Pays Alimony to Former Wife Personal Tax Relief for Parental Care Personal Tax Relief for Children Below 18 Years of Age Personal Tax Relief for Children Studying at Tertiary Level Personal Tax Relief on Fees for Tertiary Education Personal tax relief for taxpayer whose spouse has no income and/or pays alimony to former wife is to be increased from RM3,000 to M4,000. Parental care 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 shared with other siblings provided that the total relief claimed shall not exceed RM1,500 for a mother and RM1,500 for a father. The claim is subject to the following conditions: i. Such taxpayer does not claim expenses on medical treatment and care of parents; ii. Parents are the legitimate natural parents and foster parents in accordance to the respective law subject to a maximum of 2 persons; iii. Parents aged 60 years and above; iv. Parents reside in Malaysia in the current year of assessment; and v. Parents have an annual income not exceeding RM24,000 per annum for each parent. (Effective from YA 2016 until YA 2020) Personal tax relief for children below 18 years of age is to be increased from RM1,000 to RM2,000. Personal tax relief for children or disabled children studying at tertiary level is to be increased from RM6,000 to RM8,000 per child/disabled child. Personal tax relief on fees for tertiary education is to be increased from RM5,000 to RM7,000 per annum. This proposal is to assist taxpayer whose spouse has no income and/or pays alimony to his former wife. This proposal is to reduce the burden of parental care cost. This proposal aims to alleviate the cost of living of taxpayer with child. This proposal is to reduce the costs of children s higher education. This proposal is to encourage life-long earning and support the nation s aspiration towards producing worldclass talents. Personal Tax Relief on Employees Contribution to Social Security Protection Scheme (SOCSO) Personal Tax Relief on Gratuity on Retirement or Termination of Employment Contract Employment Gross Income Personal tax relief on employees contribution to SOCSO pursuant to the Employees Social Security Act 1969 up to a maximum of RM250 per annum. With the introduction of the new paragraph 25D in Schedule 6, the Director General extend the exemption under that Schedule to any sum received by way of gratuity on retirement from an employment under any written law or termination of an employment contract other than paragraphs 25, 25A, 25B or 30A of that Schedule. The sums shall not exceed an amount ascertained by multiplying the sum of RM1,000 by the number of completed year of service of that individual. The proposed amendment provides that any gross income from an employment which is receivable in any year of assessment is taxed in the year it is received. It also provides that any income receivable by an employee who will be leaving Malaysia is deemed to have been received for the period before the employee leaves Malaysia. This proposal is to encourage more employees to voluntarily contribute to SOCSO. This proposal is to expand the exemption for gratuity. With this amendment, employment income will be taxed when it is received.

6 Malaysian Budget Highlights Time of Supply for Imported Services Penalty on Late Payment of GST Liability Additional Items to be Zero Rated Relief from GST Exempt from GST GST on Prepaid Telecommunication Services Flat Rate Scheme (FRS) Approved Trader Scheme (ATS) GOODS AND SERVICES TAX (GST) The time of supply for imported services shall be the earlier of: i. The date when payment is made; or ii. The date when invoice is issued. Penalty ranging from 5% to 25% shall be payable on the amount of overdue GST liability. The Government will widen the scope of items under GST (Zero Rated Supply) Order to include: i. All types of Controlled Drugs under the Poisons Groups A, B, C and D as well as an additional 95 brands of over-the-counter medicines and medical devices; ii. Organic-based milk and soy bean-based milk for infant and children of ages 0 to 36 months; iii. Dhal bean such as chickpeas, green and white beans; iv. Lotus root and water chestnut; v. Mustard seeds; vi. Jaggery powder; and vii. Dried mee kolok. GST relief will be extended to the following: i. Re-importation of goods which were exported temporarily for the following purposes: (a) Promotion, research or exhibition; (b) Rental and leasing of eligible equipment outside Malaysia. ii. Procurement of teaching materials and equipment by skills training providers that conduct accredited programs under the National Skills Development Act Domestic air transportation services for economy class passengers under the Rural Air Services within and between Sabah, Sarawak and Labuan will be exempted from GST. GST to be incurred between 1 January 2016 and 31 December 2016 on prepaid cards will be credited as a rebate. Threshold for registration under FRS will be reduced from RM100,000 to RM50,000 and the requirement to maintain records will also be simplified. The ATS has been extended to include companies involved in Maintenance, Repair and Overhaul (MRO) activities in the aerospace industry. Imported services will need to be accounted for earlier if the invoice is issued by the supplier of such services before payment. This penalty is in addition to the fine not exceeding RM50,000 or imprisonment for a term of not exceeding 3 years or both upon conviction for the offence of late payment of GST. To ease the burden of the Rakyat, the GST zero rating list has been expanded. To provide relief to companies when goods are re-imported. The exemption will benefit the Rakyat in the interior areas of East Malaysia. This rebate is intended to benefit the majority of mobile phone users in Malaysia. This will enable more smallscale farmers to benefit from the FRS although the details of the record keeping requirement have yet to be announced. To ensure that companies in MRO will be competitive and contribute to the rapid growth of the aerospace industry.

7 2016 Malaysian Budget Highlights 7 Additional Penalty on Failure to Furnish a Return REAL PROPERTY GAINS TAX Where a person fails to furnish a return, the Director General may impose an additional penalty on any additional tax payable by that person. (Effective upon coming into operation of the Finance Act) This proposal clarifies the power of the Director General to impose additional penalty in such a situation. GST Incurred Included as Part of Incidental Costs GST Incurred Excluded from Acquisition Price or Disposal Price Amendment of the Exemption Formula on a Part Disposal by Individuals Extension of Stamp Duty Exemption on Shariah Financing Instruments Extension of Stamp Duty Exemption to Revive Abandoned Housing Projects Incentive for the Establishment of Independent Conformity Assessment Laboratories (ICAB) GST incurred by a disposer who is not registered under the GST Act 2014, or who is registered 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. (Effective from YA 2015) The following GST incurred shall be excluded from the acquisition price or disposal price of an asset: i. Any GST incurred as input tax by the disposer if he is liable to be registered under the GST Act 2014 and has failed to do so, or if he is entitled to an input tax credit under that Act. ii. Any GST output tax which is borne by the disposer if he is registered or liable to be registered under that Act. (Effective from YA 2015) The formula for the exemption has been revised to : A x C B Where A is part of the area of the chargeable asset disposed; B is the total area of the chargeable asset; C is 10,000; or 10% of the chargeable gain, whichever is greater. (Effective upon coming into operation of the Finance Act) STAMP DUTY Currently, 20% stamp duty exemption is given on the principal/primary instrument of financing in accordance to the Shariah principles. This exemption is originally given from 2 September 2006 to 31 December This exemption is extended for another 2 years for housing financing instruments executed on or after 1 January 2016 but not later than 31 December 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. The Government has extended by an additional 2 years to 31 December 2017, the stamp duty exemption on the instruments of loan agreements and instruments for the transfer of title for land and houses for rescuing contractors and original house purchasers for abandoned projects which are certified by the Ministry of Housing and Local Government. The original exemption period was for instruments which are executed from 1 January 2013 to 31 December INCENTIVES ICAB companies that offer independent conformity assessment services to clients to test their products, materials, systems or services for conformance to international specifications or safety standards and other conformities are given the following incentives: i. For a new ICAB company: Income tax exemption of 100% on statutory income for a period of 5 years; or Income tax exemption equivalent to Investment Tax Allowance of 60% on qualifying capital expenditure for a period of 5 years to be offset against 100% of statutory income This proposal clarifies that GST incurred can be claimed as incidental costs under certain circumstances. This proposal clarifies the RPGT treatment of GST incurred by the disposer. Under this new formula, the disposer may potentially have a higher amount that is exempted from RPGT. This proposal is aimed at further encouraging Shariah financing and reducing the cost of home ownership. The object of this proposal is to further encourage rescuing contractors to complete abandoned housing projects and to reduce the financial burden of affected house purchasers. The incentives were previously offered to only companies investing in new or upgrading existing laboratories of international standard for testing of Medical Devices which had expired on 31 December 2012.

8 Malaysian Budget Highlights ii. For existing ICAB company: Income tax exemption equivalent to Investment Tax Allowance of 60% on qualifying capital expenditure for a period of 5 years to be offset against 100% of statutory income The incentives are now offered to 6 sectors including Medical Devices as mentioned earlier. Incentives for Food Production Projects Incentive for Tour Operating Companies The above incentives are given to the Machinery and Equipment, Electrical and Electronics, Chemicals, Aerospace, Medical Devices and Fresh and Processed Food sectors. Eligible activities are testing and calibration laboratories, certifications, inspections or Good Laboratory Practice. ICAB companies must obtain from the relevant accrediting bodies recognized by International Laboratory Accreditation Cooperation (ILAC), Department of Standards Malaysia, International Accreditation Forum and OECD Good Laboratory Practice Mutual Acceptance Data. (This incentive is for applications received by MIDA from 1 January 2016 to 31 December 2018) The tax incentives are given to both the company which invests in a subsidiary company engaged in an approved food production project (AFPP) and its subsidiary company undertaking the AFPP. Companies enjoy income tax exemption equivalent to the amount of investment made and tax exemption of 100% on its statutory income for 10 years (new project) or 5 years (expansion project). The extension now includes additional qualifying projects like planting of coconuts, mushrooms, and cash crops, rearing of deer, cultivation of seaweed, rearing of honey (bee and kelulut) and planting of animal feeds crops as approved by the Ministry of Agriculture and Agro-Based Industry. (The incentives are extended from 1 January 2016 to 31 December 2020) Tour Operating Companies are given 100% tax exemption on statutory income from packages of domestic and group inclusive tours. (The incentive is extended for 3 years from YA 2016 to YA 2018) The extension of the incentive is given to support the development and continuous growth of the agro-food sector and agro-based industry. The extension of the incentive is to encourage tour operators to promote Malaysia as a preferred tourist destination to foreigners and also boost domestic tourism. NB. The commentary above is based on information available as at 23 October 2015 and is subject to the issuance of the Finance Bill CONTACT BDO TAX SERVICES SDN BHD ( K) Level 8, Menara CenTARa, 360 Jalan Tuanku Adbul Rahman, Kuala Lumpur, Malaysia T: F: E: bdo@bdo.my BEH TOK KOAY Senior Advisor tkbeh@bdo.my NG SWEE WENG Senior Advisor swng@bdo.my DAVID LAI Head of Tax Advisory davidlai@bdo.my MOK CHEW YIN Head of Transfer Pricing and GST mokcy@bdo.my ONG ENG CHOON ongec@bdo.my WOON YOKE LEE woonyl@bdo.my CHRISTOPHER LOW chrislow@bdo.my BERNICE TAN bernice.tan@bdo.my PHILIP YEOH philipyeoh@bdo.my LEE BOON HOOI leebh@bdo.my TAN SIN HUAT Advisor shtan@bdo.my CHAN CHOW PONG Advisor chancp@bdo.my This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Tax Services Sdn Bhd to discuss these matters in the context of your particular circumstances. BDO Tax Services Sdn Bhd, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO Tax Services Sdn Bhd ( K) a Malaysian Limited Liability Company, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms.