Highlights of Budget 2017 (Part I)

Transcription

1 Tax alert Highlights of Budget 2017 (Part I) Volume 19, Issue October 2016 Volume 19, Issue 22 1

2 Highlights 6% GST rate maintained; a 1% reduction in the corporate income tax rate of SMEs on the first RM500,000 of their chargeable income; a novel proposal to reduce the corporate income tax based on increase in chargeable income; three new personal tax reliefs; and a 1% stamp duty rate increase for real estate over RM1 million Establishment of the Collection Intelligence Arrangement involving the IRB, Customs and Companies Commission for the sharing of data will be a game-changer for tax enforcement efforts M alaysia s Prime Minister and Finance Minister, YAB Dato Sri Mohd Najib bin Tun Abdul Razak, delivered his Budget 2017 Speech at the Dewan Rakyat on 21 October The theme of the speech was Ensuring Unity and Economic Growth, Inclusive Prudent Spending, Wellbeing of the Rakyat. The Prime Minister stated that the Government s bold measure to implement the Goods and Services Tax (GST) from 1 April 2015 has not only diversified the sources of the nation s revenue but has also assisted the Government to support its expenditure. This is especially crucial as the recent fall in global oil prices has resulted in an estimated loss of RM30 billion in Government revenue. As at 19 October 2016, the Government has collected RM30 billion in GST and GST collection is expected to increase by 1.82% to RM40 billion in 2017 from RM38.5 billion in The Prime Minister quashed any rumours of a GST rate increase and stated that the GST rate will remain at the current rate of 6%. The Prime Minister commended the contribution of small and medium enterprises (SMEs) to the nation. 36% of the country s gross domestic product (GDP), 65% of total employment and 18% of exports last year were all from SME businesses and the Government is confident that this contribution will increase. To assist SMEs to be more competitive, the Government proposes that the income tax rate of qualifying SMEs be reduced from 19% to 18% on chargeable income of up to RM500,000 from the year of assessment (YA) Further, to motivate and recognize the achievement of companies which are able to increase revenue and profits in these challenging economic times, the Government has introduced a novel proposal that will provide a limited corporate income tax rate reduction of between 1% and 4% on part of chargeable income, based on the increase in chargeable income. Details of these changes are provided within the Corporate income tax changes section. See also the Other initiatives section for other measures to boost SMEs. From a personal income tax standpoint, the Government has introduced three new measures. First, a tax relief named the tax relief for lifestyle, of up to RM2,500 per YA, was announced. This lifestyle tax relief combines the existing tax reliefs on the purchase of reading materials, computers and sports equipment with the purchase of daily newspapers, smartphones or tablets, internet subscription and gymnasium membership fees. This will be effective from the YA Second, a new tax relief of RM1,000 can be claimed by women with children up to two years of age, who purchase breastfeeding equipment. This relief can be claimed once in every two YAs, starting from YA Third, a new tax relief of up to RM1,000 can be claimed from YA 2017 on fees paid to child care centres and kindergartens, for children up to six years of age. This relief can be claimed by either parent. Volume 19, Issue 22 2

3 The notable revenue collection proposal in Budget 2017 is on stamp duty. Effective 1 January 2018, the stamp duty rate on instruments of transfer will be increased from 3% to 4% for real estate worth more than RM1 million. Whilst it is expected that the increased stamp duty will only apply to amounts in excess of RM1 million (and not on the entire value of the real property), we will need to read the wording in the Finance Bill in order to confirm this point. At the time of publication of this Alert, the Finance Bill has yet to be publicly released and as such, the input herein is from the Budget speech. A follow-up tax alert will be issued once the Finance Bill is released. In our view, one of the more interesting tax-related statements in the Budget Speech was the announcement that the Government intends to establish a Collection Intelligence Arrangement under the Ministry of Finance, involving the Companies Commission, Inland Revenue Board and Royal Malaysian Customs. This is to improve efficiency in tax enforcement and revenue collections. In keeping with the digital age and increased use of data analytics, the collaboration and information-sharing between these agencies will be a game-changer for tax enforcement and will be a powerful tool in the Government s arsenal to combat tax evasion. Volume 19, Issue 22 3

4 Corporate income tax changes Highlights Corporate income tax rate for SMEs reduced by 1% on the first RM500,000 of chargeable income, effective YA 2017 Corporate income tax rate reduction for all companies for YA 2017 and YA 2018 only, subject to and based on increases in chargeable income Corporate income tax rate for SMEs reduced by 1% on the first RM500,000 of chargeable income, effective YA 2017 Companies which are incorporated and tax-resident in Malaysia and which have a paid-up ordinary capital of RM2,500,000 or less at the beginning of a basis period for a YA are categorized as SMEs for corporate income tax (CIT) purposes. Limited liability partnerships (LLP) with a total capital contribution of RM2,500,000 or less also fall within the SME category. For YA 2016, SMEs are taxed at the rate of 19% on the first RM500,000 of chargeable income, with the balance taxed at 24%. To assist SMEs to be more competitive, the Government has proposed a 1% reduction in the CIT rate, from 19% to 18%, on the first RM500,000 of chargeable income. The concessionary tax rates for SMEs do not apply if the company is directly or indirectly related by more than 50% in terms of paid-up ordinary share capital, to another company that has a paid-up ordinary capital of more than RM2,500,000 at the beginning of a basis period for a YA. Similar limitations apply for LLPs which are SMEs. This proposal will be effective from YA Volume 19, Issue 22 4

5 Corporate income tax rate reduction for all companies for YA 2017 and YA 2018 only, subject to and based on increases in chargeable income Resident and non-resident companies are currently subject to CIT at the rate of 24% with effect from YA This rate also applies to other entities such as a SME (on chargeable income exceeding RM500,000), a business trust and a trust body. To reduce the cost of doing business and encourage businesses to strive to increase their revenue during the current challenging global economic climate, the Government has proposed a reduction in the CIT rate, based on the incremental chargeable income (as compared to the immediate preceding YA), as follows: % increase in chargeable income vs. preceding year Tax rate reduction (%) Tax rate on incremental chargeable income (%) < 5% NIL 24 (i.e. no change from present rate) 5% % % % % % 3 21 > 20% 4 20 This proposal is effective for YAs 2017 and 2018 only. An example to illustrate the impact of the above proposal is set out below : Chargeable income for YA 2016 (RM) Chargeable income for YA 2017 (RM) Increment in chargeable income (RM) 10 million 12 million 2 million (i.e. 20% increase) Based on the proposal, the CIT for YA 2017 on the incremental increase in chargeable income for the above company is 20% (i.e. 24% - 4%). So, instead of a CIT payable of RM2,880,000 for YA 2017 (RM12 24%), the company will have a CIT payable of RM2,800,000 [(RM10 24%) + (RM2 = RM2,400,000 +RM400,000)], thus achieving tax savings of RM80,000. The company s effective tax rate for YA 2017 is therefore 23.33% (RM2,800,000 / RM12 million x 100%) as a result of this new proposal. Volume 19, Issue 22 5

6 Tax and stamp duty incentives for selected industries Highlights Income tax exemption and stamp duty exemption for Islamic banking and takaful business transacted in foreign currencies extended to 31 December 2020 Application period for tax incentives for new 4- and 5-star hotels extended to 31 December 2018 Scope of products that qualify for tax incentives for halal industry players expanded Double deduction incentive for anchor companies under vendor development programmes (VDPs) extended to 31 December 2020 Double deduction incentive for the Structured Internship Programme expanded and extended to YA 2019 Tax deduction for sponsoring arts, cultural and heritage activities increased Stamp duty exemption for first residential home purchase extended Income tax exemption and stamp duty exemption for Islamic banking and takaful businesses transacted in foreign currencies extended to 31 December 2020 The Government has proposed to extend the full income tax exemption currently granted to Islamic banking and takaful business activities carried out in foreign currency through the International Currency Business Unit (ICBU). The incentive, which was due to expire in YA 2016, is extended to YA 2020 and is available to licensed Islamic banks, takaful companies and takaful units. Similarly, the current stamp duty exemption applicable on instruments pertaining to Islamic banking and takaful business activities transacted by ICBUs in foreign currencies is extended. This incentive, which is currently available for qualifying instruments executed up until 31 December 2016, is extended to cover instruments executed up until 31 December These proposals will maintain Malaysia s reputation as an international Islamic financial centre. Volume 19, Issue 22 6

7 Application period for tax incentives for new 4- and 5-star hotels extended to 31 December 2018 To ensure continued investment in hotels and to encourage tourism, the application period for the following incentives for new 4- and 5-star hotels has been extended. The incentives will now be available in respect of applications received by the Malaysian Investment Development Authority (MIDA) up to 31 December Peninsular Malaysia: 70% income tax exemption on statutory income for a period of five years or 60% investment tax allowance on qualifying capital expenditure incurred within a period of five years that can be set-off against up to 70% of statutory income Sabah and Sarawak: 100% income tax exemption on statutory income for a period of five years or 100% investment tax allowance on qualifying capital expenditure incurred within a period of five years that can be set-off against up to 100% of statutory income Scope of products that qualify for tax incentives for halal industry players expanded The Government aims to enhance Malaysia s competitiveness in the halal products industry. Currently, the tax incentives for halal industry players operating in Halal Parks, promoted by the Halal Development Corporation (HDC), include income tax exemption, import duty exemption on raw materials and double deduction on expenses incurred in obtaining international quality standards certification. The qualifying halal products are specialty processed foods, pharmaceuticals, cosmetics and personal care products, livestock and meat products and halal ingredients. To encourage further investments in the halal industry, the Government has proposed that the existing incentives be expanded to include the production of nutraceutical and probiotic products. This proposal applies to applications received by HDC from 22 October Double deduction incentive for anchor companies under vendor development programmes (VDPs) extended to 31 December 2020 The Government had introduced vendor development programmes (VDPs) to encourage the development of vendors that are of world standard and also to encourage the creation of new vendors among SMEs. The Government recognizes that a structured and comprehensive VDP requires anchor companies that are willing to incur high operating and development expenses. Such expenses may not qualify for a tax deduction under normal tax rules. To encourage anchor companies to develop more local vendors, qualifying operating expenses incurred by anchor companies in implementing VDPs are currently given a double deduction. The qualifying criteria to be eligible for the double deduction include signing a memorandum of understanding (MoU) with the Ministry of International Trade and Industry (MITI) between 1 January 2014 to 31 December 2016 and having the operating expenses certified by MITI before the anchor companies claim the tax deduction. The qualifying operating expenses are capped at RM300,000 per year for the three YAs. Volume 19, Issue 22 7

8 To boost the VDP programme, the Government has proposed that this incentive be extended for another four years, i.e. this incentive will now apply to anchor companies that sign the MoU with MITI from 1 January 2017 to 31 December Double deduction incentive for the Structured Internship Programme expanded and extended to YA 2019 To encourage more companies to participate in the Structured Internship Programme (SIP) approved by Talent Corporation Malaysia Berhad (TalentCorp), the current double deduction incentive that was effective up to YA 2016 is proposed to be extended for another three YAs, that is, until YA The approved SIP is made available to Malaysian students pursuing full-time degree and diploma courses in institutions of higher learning (IHL) that are registered with the Ministry of Higher Education or equivalent vocational level courses (Malaysian Skills Certificate Level 4 and 5) as recognized by the Malaysian Qualifications Agency or Department of Skills Development. The current double deduction incentive expires in YA The Government has also proposed that the approved SIP be expanded to include Malaysian students pursuing full-time vocational level courses (Malaysian Skills Certificate Level 3), thus allowing companies more flexibility in their hiring policies whilst still being able to enjoy the double deduction incentive. Tax deduction for sponsoring arts, cultural and heritage activities increased Currently, companies that sponsor local and foreign arts, cultural and heritage activities in Malaysia approved by the Ministry of Information, Communication and Culture are allowed a prescribed tax deduction amount. To further encourage arts, cultural and heritage activities in Malaysia, the Government has proposed a deduction of up to RM700,000 (from RM500,000) for sponsoring local arts, cultural and heritage activities and a deduction of up to RM300,000 (from RM200,000) for sponsoring foreign arts, cultural and heritage activities. This proposal is effective from YA Stamp duty exemption for first residential home purchase improved and extended Currently, individuals purchasing their first home at a price not exceeding RM500,000 enjoy certain stamp duty exemptions. Where the sale and purchase agreement is executed between 1 January 2015 and 31 December 2016, the instrument of transfer and loan agreement will qualify for a 50% stamp duty exemption. To continue to encourage home ownership and reduce the burden to the rakyat, the Government has proposed that a 100% stamp duty exemption be given on the instrument of transfer and the loan agreement for homes priced up to RM300,000. This applies for sales and purchase agreements Volume 19, Issue 22 8

9 executed from 1 January 2017 to 31 December 2018 for the purchase of a first home. For first homes priced between RM300,000 and RM500,000, the stamp duty exemption on the relevant instruments is limited to the first RM300,000 and the balance will be subject to the prevailing rates of stamp duty. No stamp exemption is given for homes priced over RM500,000. All Malaysian citizens who have yet to own a home will be eligible for this incentive. Volume 19, Issue 22 9

10 Goods and Services Tax (GST) Highlights Enhancement of GST relief for disabled persons Review of GST treatment in Free Zones Review of GST treatment under the Warehousing Scheme The GST announcements in the Budget 2017 are mainly intended to streamline certain provisions under the GST legislation. Revision of GST relief for persons with disability The Government proposes that the GST relief currently afforded to private charitable entities on the purchase of equipment for disabled persons, be extended directly to the said disabled persons. GST relief on the purchase of qualifying equipment will be available to valid OKU card holders from suppliers designated by the Social Welfare Department. The list of equipment eligible for the GST relief has also been expanded from 11 items to 31 items, to include equipment such as calipers, motorized wheelchairs, portable ramps, walking frames, special lenses and braille displays. Volume 19, Issue 22 10

11 Review of GST treatment in Free Zones The Government proposes to streamline the GST treatment in the Free Zones, as regulated under the Free Zones Act 1990, which consist of Free Commercial Zones (FCZ) and Free Industrial Zones (FIZ). Budget 2017 proposes that the GST treatment be determined as below: i) GST is not chargeable on the supply and removal of goods made within and between FCZ; ii) GST shall not be due and payable on goods imported into the FIZ; iii) GST is not chargeable on the supply and removal of goods made within and between FIZ; iv) GST is not chargeable on the supply and removal of goods made within FCZ and FIZ and vice versa; v) GST is suspended on the removal of goods from Free Zones to Designated Areas (i.e. Langkawi, Labuan and Tioman) and vice versa; and vi) GST is suspended on the removal of goods from Free Zones to an approved warehouse under the Warehousing Scheme and vice versa. However, the above GST treatment will not be applicable on the following supplies: a) Goods prescribed under the Free Zones (Exemption of Goods and Services) Order 1998; b) Goods and services prescribed under the Goods and Services Tax (Imposition of Tax for Supplies In Respect of Designated Areas) Order 2014 (for example, petrol, diesel and liquefied petroleum gas); and c) Any other goods prescribed by the Minister of Finance (for example, wine, spirit, beer, intoxicating liquor, malt liquor, tobacco and tobacco products) Review of GST treatment under the Warehousing Scheme To streamline the GST treatment between imported goods and goods from the Principal Customs Area (PCA) and to facilitate the GST administration under the Warehousing Scheme, the Government proposes that no GST shall be charged on goods from the PCA (inclusive of Approved Warehouses such as Licensed Manufacturing Warehouses and Duty Free Shops) deposited into and subsequently supplied within and between Approved Warehouses under the Warehousing Scheme. Volume 19, Issue 22 11

12 Other initiatives Highlights Encouraging investment in the digital economy Start-up and SME Promotion Year Encouraging investment in the digital economy The digital economy contributes nearly 16% to Malaysia s GDP. To enhance the digital economy, the Government has proposed to implement programmes such as the e-commerce ecosystem, Digital Maker Movement and Malaysia Digital Hub, to improve digital connectivity. The Government has also proposed to introduce the world s first Digital Free Zone where it will merge physical and virtual zones, with additional online and digital services to facilitate and encourage international e-commerce and to stimulate internet-based innovation. These new and exciting measures indicate the Government s strong focus on the digital economy to drive economic development. Start-up and SME Promotion Year SMEs contribute significantly to the nation s growth and the labour market. To further boost this segment of the economy, the Government has designated the year 2017 to be the Start-up and SME Promotion Year. Apart from the reduction in the corporate tax rate for SMEs, some of the other measures that are proposed to promote the growth and development of SMEs include: An allocation of RM75 million to implement programmes under the SME Master Plan Guarantees up to RM15 billion provided under the various schemes of Syarikat Jaminan Pembiayaan Perniagaan (SJPP) to be extended till 2025 A 2% rebate on interest rates charged to SME borrowers under the SJPP scheme Volume 19, Issue 22 12

13 EY 2017 Budget and Tax Conference How will the 2017 Malaysian Budget affect your company and business? Are there new incentives that your organization can take advantage of? Are there new taxes or regulations that you need to be mindful of? What are the latest developments in the tax arena that will impact how you manage tax risks? EY's senior tax professionals are ready to help answer these questions for you. They can explain and guide you through the salient issues of the Malaysian Budget 2017 and share practical insights on the latest tax developments. Participants at our Budget and Tax Conferences will be provided a copy of the Budget 2017 commentary, as well as opportunities for questions and answers. Mark these dates down for an insightful session on the Malaysian Budget 2017 and more! Kuala Lumpur Ipoh Penang Date: 27 October November November 2016 Venue: Connexion@Nexus (Bangsar Weil Hotel G Hotel Gurney South) Time: 9:00 a.m. 5:15 p.m. 9:00 a.m. 5:00 p.m. 8:30 a.m. 5:30 p.m Contact: Valerie Joshua / Ramlah Patricia Lau / Chang Wai Lim Shu Bei / Rachel Lau Abd Rahman Chien Tel: / Tel: Tel: Johor Bahru Malacca Kuantan Date: 1 November November November 2016 Venue: Renaissance Hotel, Johor Hatten Hotel, Melaka Zenith Hotel, Kuantan Bahru Time: 8:30 a.m. 5:30 p.m. 8:30 a.m. 5:30 p.m TBA Contact: Roslina Md Salleh / Lili Chan Lay Khim / Michelle Juliana Hanim / Eddie Eries Nazirah Abdul Hamid Tan Pau Choo Tel: Tel: Tel: Kuching Sibu Miri Bintulu Date: 1 November November November November 2016 Venue: Hilton, Kuching Tanahmas Hotel, Sibu Imperial Hotel, Miri Promenade Hotel, Bintulu Time: TBA 8:30 a.m. 5:00 p.m. 8:30 a.m. 5:00 p.m. 8:30 a.m. 5:00 p.m. Contact: Irene Foo / Anne Chong Ting Su Ding Belinda Ting / Ku Xiu Ting Fion Wong / Pao Nguk Eng / Lim Yan Ping Tel: Tel: Tel: Tel: Volume 19, Issue 22 13

14 Kota Kinabalu Tawau Sandakan Date: 2 November November November 2016 Venue: Le Meridien Kota Kinabalu Promenade Hotel, Tawau Four Points By Sheraton, Sandakan Time: TBA 8:30 a.m. 1:00 p.m 8:30 a.m. 1:00 p.m. Contact: Dora Wong /Jennifer Vun Chai Siew Moi / Alison Stephanie Au Chung Tel: Tel: Tel: In addition, Japanese seminars will be held as follows: Kuala Lumpur Penang Johor Bahru Date: 2 November November November 2016 Venue: EY office, Menara Milenium, Kuala Lumpur EY office, MWE Plaza, Georgetown EY office, Menara Pelangi, Johor Bahru Time: 9:30 p.m. 12:30p.m. 2:30 p.m. 4:30p.m. 2:30 p.m. 4:30p.m. Contact: Yoko Yamada Tel: Yoko Yamada / Lim Shu Bei Tel: / Yoko Yamada / Set Ying Ting Tel: / Volume 19, Issue 22 14

15 Important dates 27 October 2016 EY 2017 Budget and Tax Conference (Kuala Lumpur) 31 October th month revision of tax estimates for companies with April year-end 9 th month revision of tax estimates for companies with January year-end Statutory deadline for filing of 2016 tax returns for companies with March year-end 15 November 2016 Due date for monthly instalments 30 November th month revision of tax estimates for companies with May year-end 9 th month revision of tax estimates for companies with February year-end Statutory deadline for filing of 2016 tax returns for companies with April year-end For income tax enquiries: Dr. Lydia Shalani Thiagarajah lydia-shalani.thiagarajah@my.ey.com For GST enquiries: Dave Ananth dave.ananth@my.ey.com Tel: Publisher: Ernst & Young Tax Consultants Sdn. Bhd. Level 23A Menara Milenium Jalan Damanlela, Pusat Bandar Damansara Kuala Lumpur Tel: Fax: For subscription enquiries: Ramlah@ Rosliza Abdul Rahman ramlah.abdul-rahman@my.ey.com Tel: Volume 19, Issue 22 15

16 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young Tax Consultants Sdn. Bhd. All Rights Reserved. APAC no ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice.