Volume 4 - Issue 3-24 October Budget 2017 Malaysia

Transcription

1 Volume 4 - Issue 3-24 October 2016 Budget 2017 Malaysia

2 Budget 2017 Three themes embody Malaysia s Budget 2017: Economic growth; Prudent spending; and Wellbeing of her rakyat (citizens) Amid a challenging global macro-economic environment, Budget 2017 proposes five strategies to strengthen the Malaysian economy and address structural issues that are hampering Malaysia s long-term growth potential. Despite declines in oil-related revenue, fiscal consolidation is on-track as the Government targets to narrow its budget deficit to 3.0% of GDP. Dato In the face of challenging global externalities, our commitment to fiscal discipline would be one of the key ingredients to sustainable growth. Abdul Rauf Rashid Malaysia Managing Partner, EY strategic initiatives Rakyat first Accelerating economic growth Empowering human capital Strengthening inclusive development Improving public service delivery 1 RM b % % Budget allocation Budget deficit e 2017f Operating expenditure (RM b) 300 Did you know? e 2017f 1 Excludes contingency reserves Government revenue RM b Government debt/gdp ratio e 2017f Operating and development expenditure e CAGR : -1.6% Development expenditure (RM b) Notes: *Numbers may not add up due to rounding. e = Estimate f = Forecast 100 CAGR : 5.1% e 2017f Sources: World Bank data Malaysia Bank Negara Malaysia (BNM) annual reports Budget speeches from 2010 to 2017 Ministry of Finance (MoF) economic reports Page 1

3 Economic directions Despite global external challenges, Malaysia s economy is anticipated to grow at 4.5% in The private sector continues to steer Malaysia s domestic demand with the bulk of private investment driven by ongoing infrastructure projects. Looking ahead into 2017, Malaysia s growth is expected to be modest, subject to better growth in world trade, particularly the US, developing economies and emerging markets. Malaysia s real GDP is expected to register % Real GDP vs. CPI 8 growth of 4% to 5% in 2017, driven by growth in private consumption at 6.3% and investment at 6 GDP: 4-5% 5.8%. 4 2 Malaysia s CPI, although contained at 2.0% to CPI: 2-3% 2.5%, may face inflationary pressures with the 0 impact of the lower ringgit on the costs of -2 imported business inputs and consumer goods e 2017f RM b Trade (goods and services) Export: RM806b Import: RM712b Total trade stands at RM1.52 trillion. While exports and imports have been increasing steadily, the trade balance remains in surplus, albeit a lower surplus, with tepid global demand. China and ASEAN countries continue to be Malaysia s key trading partners. 2017f 2016e RM b Net international reserves RM405b* As of 14 October 2016, Malaysia s total net international reserves amounted to 8.5 months of retained imports and was 1.2 times the shortterm external debt. 2016* *As of 14 October % Agriculture Mining and quarrying Growth by sectors Manufacturing Construction Services e 2017f The services and manufacturing sectors continue to be the major contributors to Malaysia s economic growth. In 2017, all sectors are expected to continue their positive growth track. Growth in the construction sector continues to be propelled by the rail infrastructure projects, urban housing and affordable housing segments. Sources: Budget 2017 speech, Malaysia s Ministry of Finance (MoF) Asian Development Outlook (ADO) 2016 Update BNM annual reports MoF economic reports Page 2

4 Selected sector initiatives Agriculture and produce RM1.3b subsidy for paddy price, seeds and fertilisers including cultivation of hill paddy RM286m to increase the production of palm oil, rubber, cocoa and pepper RM260m for Rainy Season Assistance of RM200/mth for three months to 440,000 rubber smallholders RM250m for rubber production incentive for rubber smallholders RM250m for monthly living allowance of RM200 to RM300 to 57,000 fishermen RM140m to implement the Distribution of Necessary Goods Programme; open 4 MyFarmOutlets and upgrade 150 Agrobazaar Rakyat 1Malaysia RM100m to improve the quality of palm oil products, replant oil palm and upgrade estate roads RM100m for the Youth Agropreneur Development Programme to produce entrepreneurs involved in the production of high-value agricultural products RM50m for scientific research to enhance the quality of palm oil products RM30m to be provided by the Malaysian Palm Oil Board (MPOB) for the replanting of oil palm by smallholders RM20m to upgrade roads in smallholders oil palm estates Education RM7.4b allocated to 20 public universities RM1.4b to four university hospitals RM300m to five research universities RM100m research fund for higher education institutions RM4.3b to continue providing scholarships through the Public Service Department (RM1.6b), Majlis Amanah Rakyat (MARA), (RM2b), Ministry of Higher Education (RM250m), Ministry of Health (RM208m), Ministry of Education (RM194m), Ministry of Human Resources (RM28m) and Ministry of Youth and Sports (RM21m) RM1.1b for hostel meal assistance programme RM1.1b for additional payment assistance for school fees; textbook assistance and per capita grant assistance RM600m special fund for improvement and maintenance of schools RM570m to reconstruct 120 destitute schools as well as upgrade 1,800 science laboratories RM478m to complete construction of 227 primary and secondary schools RM340m to provide free tablets to assist teaching (by MCMC) RM300m for the 1Malaysia Supplementary Food Programme for primary school students RM300m to replace book vouchers with student debit cards to purchase books, stationery, computer devices and internet access Income tax and stamp duty exemption for International Currency Business Units ( ICBU ) which operate Islamic banking and takaful business activities transacted in foreign currencies to be extended to the year of assessment 2020 Insurance credit facilities with coverage valued up to RM1b by EXIM Bank to small medium enterprises (SMEs) Financial services and capital market RM3b to fund managers licences under the Securities Commission to invest in potential small and mid-cap companies RM200m financing as well as insurance credit facilities with coverage value up to RM1b for SMEs from EXIM Bank RM165m for one-off increase in Private Retirement Scheme (PRS) incentive to RM1,000 for PRS contributors RM75m initial funding through the Capital Market Development Fund to establish a Capital Market Research Institute Special step-up end-financing scheme for PR1MA houses, in collaboration with BNM, EPF and banks Page 3

5 Selected sector initiatives Information and communication technology (ICT) More competitive and advanced broadband infrastructure : initially higher speed for the same price and within two years, double the speed with a 50% price reduction Increase ethernet broadband speeds in public universities to a maximum of 100 Gbps Introduction of new location categories such as the Malaysian Digital Hub and the introduction of Digital Free Zones RM1b to widen the coverage as well as enhance the quality of broadband, to reach up to 20 Mbps throughout the nation RM162m for the Malaysia Digital Economy Corporation (MDEC) to implement digital programmes e.g. e-commerce ecosystem and Digital Maker Movement Infrastructure RM4.6b to maintain state roads under Sistem Maklumat Rekod-Rekod Jalan Raya Malaysia (MARRIS) RM2.1b for infrastructure and socioeconomic development in five economic corridors namely Iskandar Malaysia, Northern Corridor Economic Region (NCER), East Coast Economic Region (ECER), Sabah Development Corridor (SDC) and Sarawak Corridor of Renewable Energy (SCORE) RM1.2b to build and upgrade 616km of village roads and bridges RM495m to continue 69 flood mitigation projects RM114m to upgrade Sarawak interior roads under the Jiwa Murni Programme RM100m to install 97,000 street lights and 3,000 LED lights in 7,500 villages nationwide National Blue Ocean Strategy (NBOS): Build four Urban Transformation Centres (UTC) in Negeri Sembilan, Perlis, Pulau Pinang and Selangor Build three Rural Transformation Centres (RTC) in Selangor, Sabah and Sarawak Provide job centres in every UTC for job matching Increase four buses for mobile Community Transformation Centre (CTC) in the interiors Implement NBOS initiatives: 1Malaysia English, coding in schools; volunteering for international professional, Global Entrepreneurship Community II Transportation and logistics RM55b (estimated) for the implementation of the new East Coast Rail Line (600km) project connecting Klang Valley to the East Coast RM1.1b to increase the frequency of Electric Train Service (ETS) via the purchase of 19 train sets RM100m to restore the East Coast railway line along Gua Musang Tumpat Build and upgrade infrastructure: Jalan Lok Kawi Pengalat Papar in Sabah; Jalan Kampung Keruak Gua Musang Kuala Berang; Batang Lupar Bridge, Sri Aman To create Sea Basing in the East Coast of Sabah waters and Helicopter Forward Operating Base RM60m to provide grant of RM5,000 to purchase new vehicles and offer individual taxi permits to 12,000 taxi drivers RM60m for a launch grant to make the SOCSO scheme available to individual taxi drivers earning less than RM3,000/mth Utilities RM732m to clean water supply to 5,200 houses and upgrade FELDA water supply RM665m to address water supply issues: States Water Supply Plan RM500m to establish Water Supply Fund RM460m to provide electricity supply to 10,000 houses in rural areas RM124 m electricity subsidy Repowering of the Sandakan Power Station Project Page 4

6 Selected sector initiatives Pharmaceutical / Healthcare Build and upgrade new hospitals and clinics in Perlis, Kuching, Mukah, Jempol, Muar and Johor Bahru Allocations of: RM4.5b for the operations of 340 1Malaysia Clinics, 11 1Malaysia mobile clinics, 959 health clinics and over 1,800 rural clinics RM4b for the supply of drugs, consumables, vaccines and reagents to all government hospitals and health facilities RM536m to upgrade hospital facilities including cardiology treatment equipment and the purchase of 100 ambulances RM80m for initiatives to prevent and control contagious diseases, i.e., dengue and Zika and expand the National Community Health Empowerment Programme RM70m medical assistance to underprivileged patients Real estate (incl. housing) Stamp duty exemption on instruments of transfer and loan agreement for first-homeownership for the period 1 January 2017 until 31 December 2018: Houses priced below RM300, % exemption; and Houses priced from RM300,000 to RM500,000 exemption on first RM300,000 with balance subject to normal stamp duty rates Rate of stamp duty on instruments of transfer of real estate exceeding RM1m will be increased to 4% effective 1 January 2018 (from the current 3%) RM200m to build 5,000 units of MyBeautiful New Home through the NBOS for B40 at RM40,000 to RM50,000 per unit the Government will finance RM20,000 while the remainder will be paid by installments by the owners RM710m to build 9,850 new units and complete 11,250 People s Housing Programme (PPR) houses RM200m to build 5,000 People s Friendly Home units under Syarikat Perumahan Negara Bhd (SPNB) with a subsidy of RM20,000 per unit Allocations for Second-Generation House infrastructure development of: RM200m to FELDA; RM100m to FELCRA; RM100m to RISDA Guarantee up to RM15b provided under various schemes of Syarikat Jaminan Pembiayaan Perniagaan (SJPP) is extended until year % rebate on interest rate charged to SME borrowers under SJPP scheme (limited to total accumulated funding of RM1b) Proposed reduction in corporate tax rate for SMEs on first RM500,000 of chargeable income, from 19% to 18%, with effect from the year of assessment 2017 Small and medium enterprises (SMEs) RM300m to Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN) to assist small-scale entrepreneurs to develop their businesses including a new scheme, TEMANITA for women micro entrepreneurs RM200m for the Entrepreneurship and Business Premises Financing Programme through Perbadanan Usahawan Nasional Berhad (PUNB) RM200m for Working Capital Guarantee Scheme (WCGS) specifically for startups RM200m loan financing by EXIM Bank to SMEs RM150m for business financing programmes through Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN) and Amanah Ikhtiar Malaysia (AIM) RM120m for MARA entrepreneurship programmes such as halal industry enterprises, youth entrepreneurship development and training RM100m Export Fund under Unit Peneraju Agenda Bumiputera (TERAJU) for Bumiputera companies to penetrate international markets RM100m to implement entrepreneurship programmes under AIM RM100m to revitalize eusahawan and erezeki programmes under the Malaysia Digital Economy Corporation (MDEC) RM100m to SME Bank to increase opportunities for Bumiputera entrepreneurs RM100m to enhance the viability of entrepreneurs and to expand their business capacity through SME Bank RM100m for Peneraju Skil dan Iltizam, Peneraju Profesional as well as Peneraju Tunas through the Bumiputera Education Steering Foundation Page 5

7 Selected sector initiatives Tourism and hospitality Pioneer Status and Investment Tax Allowance application period for new 4 and 5 star hotels extended by two years, to 31 December 2018 Increase in tax deduction from RM500,000 to RM700,000 to encourage private sponsorship of local and foreign arts, culture and heritage shows and performances Extend evisa to countries in the Balkans and South Asia regions RM400m to intensify promotion and improve tourism facilities via clean air and ecotourism initiatives Extend the double tax deduction for the Structured Internship Programme until Year of Assessment 2019 for students pursuing tertiary education. The double deduction will be expanded to include Malaysian students pursuing full-time vocational level education (Malaysia Skills Certificate Level 3) Matching grants to Technical Vocational Education and Training (TVET) institutions which successfully obtain assistance in the form of equipment from industries Training and education RM4.6b to enhance capacity of TVET institutions RM400m to transform nine Institut Pendidikan Guru (IPG) campuses into polytechnics and vocational colleges, including one for Technical Vocational Education and Training (TVET) trainers RM270m to upgrade teaching equipment in TVET institutions RM360m for the Skills Development Fund Corporation RM50m to enhance graduate employability by extending the 1Malaysia Training Scheme (SL1M) for 20,000 graduates Sports development RM450m for hosting the 29 th SEA Games and 9 th Para ASEAN Games in 2017 RM122m to build and upgrade Youth & Sports Complex, 1Malaysia Futsal Complex and Community Sports Complex RM54m for the Athlete and Paralympic Athlete Preparation Programmes RM50m for the construction of Football Academy Phase II in Gambang, Pahang RM70m for the Elite Sports Podium Development Programme Various sectors RM522m allocated to the Malaysian Investment Development Authority (MIDA) to focus on certain identified industries, i.e., chemicals, electrical and electronics and R&D activities The proposed formation of the Collection Intelligence Arrangement, bringing together the Inland Revenue Board, Customs and Companies Commission of Malaysia, spells a new age of transparency and information exchange in tax enforcement and combating of inappropriate behavior. This is consistent with international trends as governments increase their focus on effective collections of revenue amid tough economic conditions. More than ever, businesses will need to do the right thing and follow through to ensure their reportings are consistent and accurate across multiple interfaces. Yeo Eng Ping Asean Tax Leader, EY Page 6

8 Towards tax transparency: BEPS Today s international tax conversations are focused on the impact of the Organisation for Economic Cooperation and Development (OECD) s Base erosion and profit shifting (BEPS) initiative on cross-border supply chains. BEPS seeks to ensure that tax is paid in the jurisdiction where economic activities take place by combating tax mitigation measures that exploit gaps and mismatches in tax rules; aggressive transfer pricing strategies and the use of tax treaties that shift profits to low or no-tax locations. The resultant international tax changes will transform the global tax environment in which multinationals (MNCs) operate. Businesses that do not attempt to anticipate the impact of these changes may struggle to adapt to new approaches and comply with new rules. Now is the time to evaluate the potential BEPS pressure points for your business and develop plans for ensuring that your business models and structures are aligned with the new global tax mindset. How will BEPS impact your business? Significant BEPS recommendations What to expect from BEPS? Mandatory annual country-by-country reporting for large multinational groups meeting certain thresholds Tighter rules on transfer pricing arm slength-principle 1 compliance and documentation Limit interest deductions Neutralise the effect of hybrid mismatch arrangements 2 Lower the permanent establishment 3 thresholds for taxable presence in a country Enhanced substance required to access tax treaty benefits 4 Increased reporting obligations Increased scrutiny on intangible property ownership and financing structures A greater emphasis on a transaction s substance and its alignment with the business More complex transfer pricing rules Stricter limitations on access to treaty benefits resulting in denial of treaty protection in certain cases The need for more proactive engagement with tax authorities to avoid and resolve disputes as well as gain certainty Increased use of cross-border dispute resolution channels How should companies prepare for BEPS? Understanding Tax planning Operational considerations Tax authorities Communication Know and understand what the current discussions and recommendations are and how these impact the company Build consideration of potential BEPS impacts into current tax planning Re-examine supply chains Analyse current and future financing arrangements Consider Advance Pricing Arrangements 5 (APAs) and other early engagements with tax authorities Share updates on the changing global tax environment frequently with management, the audit committee and other affected stakeholders Page 7

9 Towards tax transparency: BEPS CbC Reporting and Transfer Pricing documentation The IRB has indicated its intention to introduce CbCR (Country-by-Country Reporting) and enhanced local transfer pricing documentation requirements, in line with the OECD s recommendations. CbCR at a glance What is CbCR? CbCR is an annual three-tiered filing which includes Country-by-country report: contains financial and tax data by tax jurisdiction; Master file: contains an analytical overview of a reporting entity s global operational model; and Local file: contains detailed information on specific inter-company transactions and assesses material transfer pricing positions according to the arm s-lengthprinciple Who is it applicable to? Any MNC with a total consolidated revenue equal to or above 750m (estimated at RM3.48b on 7 October 2016) When must the first CbC report be filed in Malaysia? Expected to be in respect of the fiscal year starting 1 January 2017 to be filed no later than 31 December Some other countries would require filing by 31 December 2017, in respect of the fiscal year starting 1 January How will it be filed? CbC report filed annually with ultimate parent s home tax authority; Master and local files are filed directly with the value-originating country tax authorities i.e. local tax administrations in local jurisdictions Why is it being implemented? Where will the filed tax information be circulated? Allows tax administrators a holistic view of company transfer pricing strategies and other BEPS identified risks CbC report to be shared via the treaty network by the ultimate parent s home tax authority Master and local files retained by the relevant value-originating tax authorities Note: The CbC report will automatically be shared with foreign tax administrators according to the Multilateral Competent Authority Agreement (MCAA) which Malaysia has signed. Immediate actions required Whilst Malaysia is only expected to require CbC reports to be filed starting from 31 December 2018, various other jurisdictions require these to be filed by 31 December Malaysian companies operating in such jurisdictions would need to appoint a surrogate parent, in an appropriate jurisdiction, to file a CbC report on behalf of the Group. Companies may need to notify the tax authorities in certain jurisdictions in which they operate of the identity of the surrogate parent. This may need to be done as early as 31 December Notes: 1 The standard adopted by the OECD and in many jurisdictions mandates that the result related parties obtain from an intercompany transaction approximates the result that uncontrolled parties would have obtained had they undertaken the same transaction under the same circumstances. 2 Arrangements exploiting differences in the tax treatment of instruments, entities or transfers between two or more countries 3 Term used in tax treaties to recognise the existence of a taxable presence in a particular jurisdiction. The source jurisdiction (i.e. country in which the income arises) is generally only permitted to tax business income of a non-resident that is attributable to a permanent establishment (provided that the non-resident has access to an applicable tax treaty). 4 Recommendations include the introduction of tax treaty provisions to prevent double non-taxation and new tests that need to be met to qualify for tax treaty benefits. 5 An arrangement between a taxpayer and at least one tax authority specifying the pricing method that will be applied in relation to related-company transactions over a period of time. Source of definitions: OECD Tax Glossary EY Worldwide Transfer Pricing Reference Guide ( ) Page 8

10 Key personal tax and corporate tax proposals Enhancement in tax enforcement There is a proposal to establish a Collection Intelligence Arrangement under the Ministry of Finance, involving the Companies Commission of Malaysia, Inland Revenue Board and Royal Malaysian Customs. This should result in greater efficiency in tax enforcement and revenue collections. In keeping with the digital age and increased used of data analytics, the collaboration and information sharing between the agencies will be a game-changer for tax enforcement. Personal tax Tax relief for lifestyle Several existing tax reliefs for the purchase of reading materials, sports equipment and computers and subscription to broadband internet will be combined into a new tax relief known as lifestyle relief. The lifestyle relief will also include purchase of printed daily newspapers, smartphones / tablets, internet subscription and gymnasium membership fees. The lifestyle relief will be capped at RM2,500 per year of assessment and is effective from the year of assessment Tax relief for fees paid to child care centres and kindergartens New tax relief of up to RM1,000 for a parent who enrols his/her child of up to six years of age in child care centres or kindergartens registered with the Department of Social Welfare or the Ministry of Education This relief is effective from the year of assessment Corporate tax Reduction of corporate tax rate for qualifying small and medium enterprises ( SMEs ) A company with a paid-up capital of up to RM2.5m or a limited liability partnership ( LLP ) with a total contribution of capital of up to RM2.5m is categorised as an SME for income tax purposes. Qualifying SMEs are currently subject to income tax at the preferential tax rate of 19% on their first RM500,000 chargeable income. The remaining chargeable income will be subject to income tax at the prevailing tax rate of 24%. It is proposed that the preferential tax rate for qualifying SMEs on the first RM500,000 of chargeable income be reduced from 19% to 18% This proposal is effective from the year of assessment Reduction of income tax rate for increased chargeable income Tax rate reduction of between 1% to 4% for companies (including SMEs), on incremental chargeable income: % increase in chargeable income vs preceding year Tax rate reduction (%) Tax rate on incremental chargeable income (%) < 5% NIL 24 5% % % % % % 3 21 > 20% 4 20 This is applicable for the years of assessment 2017 and Expansion of the scope of halal products eligible for tax incentives for halal industry players It is proposed that the existing tax incentives be extended to include production of nutraceutical and probiotic products by halal industry players in Halal Parks. This is applicable to applications received by the Halal Development Corporation ( HDC ) from 22 October Note: At the point of publication, the Finance Bill 2016 is not yet available. The above are based on the 2017 Budget speech. Page 9

11 Stamp duty, Goods & Services Tax (GST) and other proposals Stamp duty on instrument of transfer of real estate The rate of stamp duty on instruments of transfer of real estate worth more than RM1 million, will be increased from 3% to 4% effective from 1 January Review of GST treatment under the Warehousing Scheme To streamline the GST treatment between imported goods and locally-sourced goods, it is proposed that no GST be charged on locally-sourced goods which are deposited into Approved Warehouses and subsequently supplied within and between such Approved Warehouses under the Warehousing Scheme. Effective from 1 January Enhancement of GST relief for persons with disability Review of GST treatment in Free Zones It is proposed that the GST relief currently provided to private charitable entities on the purchase of equipment for disabled persons, be extended to disabled persons who purchase such equipment directly. GST relief on the purchase of qualifying equipment will be available to valid Orang Kurang Upaya ( OKU ) card holders who purchase such equipment from suppliers designated by the Social Welfare Department. The list of equipment eligible for the GST relief has also been extended from 11 items to 31 items. This proposal is effective from 1 January To streamline the GST treatment in the free zones which consist of Free Industrial Zones ( FIZ ) and Free Commercial Zones ( FCZ ), several special GST treatments have been proposed. This proposal is effective from 1 January Note: At the point of publication, the Finance Bill 2016 is not yet available. The above are based on the 2017 Budget speech. Aside from Malaysia s broadband speed upgrade, initiatives to establish the Malaysia Digital Hub and the world s first Digital Free Zone is a clear signal of the Government s focus in accelerating the growth of Malaysia s digital economy. Amarjeet Singh Malaysia Tax Leader, EY Page 10

12 Contacts Dato Abdul Rauf Rashid Malaysia Managing Partner, EY Asean Assurance Leader, EY Tel: Yeo Eng Ping Asean Tax Leader, EY Tel: Amarjeet Singh Malaysia Tax Leader, EY Tel: 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. Anil Kumar Puri International Tax Services, EY Tel: anil-kumar.puri@my.ey.com ey.com/my Pearlene Cheong Research and Content, EY Tel: pearlene.cheong@my.ey.com Page 11