Tax Update 18 October 2010

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Brandon Randall
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Tax Update 18 October 2010 PERSONAL TAX Relief for EPF & Life Insurance Existing EPF relief of maximum RM 6,000 is to be extended to include employees contributions and self-employed, contributed to

Tax Relief on Medical Expenses and Care for Parents To less burdening of financing expenses on medical treatment and care for parents, it is proposed that the existing tax relief of up to RM 5,000 be

1 Tax Update 18 October 2010 PERSONAL TAX Relief for EPF & Life Insurance Existing EPF relief of maximum RM 6,000 is to be extended to include employees contributions and self-employed, contributed to the Private Pension Fund which to be set up by the Government in year The fund is to provide an option for the Malaysian to invest for their old age. Tax Relief on Medical Expenses and Care for Parents To less burdening of financing expenses on medical treatment and care for parents, it is proposed that the existing tax relief of up to RM 5,000 be extended to include medical expenses and care for parents who suffer from diseases or physical or mental disabilities from year of assessment 2011 onwards. Such treatment/expenses provided include treatment and care at home, day/home care centre, caretakers & other daily needs. COMPANY TAX Estimate of Tax Payable The empowerment given to the DGIR to direct companies, trust bodies and cooperative societies to make payment by instalments for a YA be extended from before the 6th month of the basis period for the YA to any time during the basis period for the YA. The amount directed by the DGIR is deemed to be the revised estimate for the purposes of determining the penalty for under-estimation of tax. Where the direction is made before the 9th month of the basis period, revision of estimate of tax payable in the 6th month and/or 9th month of the basis period may be furnished with effective from YA Penalty on Incorrect Returns for Failure to Remit Outstanding Withholding Tax (WT) Due The DGIR be empowered to impose penalty for incorrect returns under Section 113(2) of the Income Tax Act 1967 (ITA 1967) if a deduction on the payments made to non-residents which attract WT under Sections 107A, 109, 109B or 109F is claimed and the outstanding WT due is not paid by the due date for submission of the tax return that relates to such claim with effective from 1 January 2011 for YA 2011 and subsequent YA.

2 Review of Tax Treatment for Discount or Premium Expenses on Bond The discount or premium expenditure incurred by a company (non-financial institution) in the issuance of bond that could not be deducted in full against gross income from a source consisting of discount or premium shall be allowed as deduction in arriving at the adjusted income of that company from any source or sources consisting of business. However, the proceeds from issuance of the bond are utilised wholly for the production of gross income from that business source(s). The bond issued or subscribed is not stock in trade of a business of the company. The proposal is effective from YA Deductible Permitted Expenses of Investment Holding Companies, Close- End Fund Companies and Unit Trusts Income distributed by a unit trust (which includes Real Estate Investment Trust) is deemed to be dividend income for the purposes of computing the amount of deductible permitted expenses of investment holding companies, close-end fund companies and unit trusts with effective from YA Recovery from Persons Leaving Malaysia The DGIR be empowered to issue a certificate to restrain a person from leaving Malaysia if he fails to pay the penalty for late payment of tax instalments under Section 107B and Section 107C of the ITA Effective upon coming into operation of the Finance (No. 2) Act Utilisation of Tax Paid in Excess The DGIR may utilise any excess of tax paid by a person under the ITA 1967 for payment of any other debt due and payable by that person (including any amount of instalments which are due and payable) under the ITA 1967, the Petroleum (Income Tax) Act 1967 (PITA) or the Real Property Gains Tax Act 1976 (RPGT Act). Likewise, any excess of tax paid by the person under the PITA or the RPGT Act may be utilised for payment of tax which is due and payable under the ITA 1967, RPGT Act and PITA. Effective upon coming into operation of the Finance (No. 2) Act Dividend Paid in Excess of 108 Balance or Revised 108 Balance Where a company pays a dividend in excess of the 108 balance or the revised 108 balance, the excess together with any late payment penalty of 10% shall be a debt due to the Government; or which is not entitled to deduct tax, issues a dividend certificate showing tax has been deducted or deemed deducted from a dividend payment, that amount purportedly deducted shall be increased further by an amount of up to 100%, and the total amount shall be a debt due to the Government. The above debt due to the Government be recoverable as if it were tax due and payable under the ITA 1967 with effective from YA 2008.

3 Recovery of Amount in Excess of 108 Balance or Revised 108 Balance Where a company fails to render a statement, i.e. Form R for YA 2008 to YA 2014 (if applicable) and the DGIR computes and serves a written requisition in the prescribed form showing the amount of excess (please refer to B8 above), that amount of excess shall be increased further by an amount of up to 100%, and the total amount shall be a debt due to the Government; or receives an amount of tax discharged, remitted or refunded by the IRB exceeding its 108 balance or revised 108 balance, the excess together with any late payment penalty of 10% shall be a debt due to the Government. The above debt due to the Government be recoverable as if it were tax due and payable under the ITA 1967 with effective from 9 January INDIRECT TAX Increased and Widened of Service tax It is proposed that the service tax to be increased by 1%, i.e. from 5% to 6%. It is proposed that service tax to be widen on paid television broadcasting services. In another words, the service tax will be charged on the monthly subscription fees paid for the television broadcasting services such as Astro with effective from 1 January Abolishment of Import Duty To further boost the tourism industry, it is proposed that import duty on approximately 300 goods (with duty of between 5% to 30%) to be abolished. This abolishment is effective from 15 October Exemption on Stamp duty To ensure every citizen owns a residential property, it is proposed that an exemption on stamp duty up to 50% on instrument of transfer of property and 50% on loan agreement for a resident property price not exceeding RM 350,000 (existing is RM 250,000) will be given to first-time house buyers. This exemption is applicable for sales and purchase agreements executed from 1 January 2011 to 31 December Excise Duty Exemption On National Vehicles For Disabled Persons To reduce the financial burden of the physically disabled person who wish to own vehicles to facilitate their mobility, it is proposed that 100% exemption of excise duty be given on national vehicles purchased by physically disabled persons subject to the terms and conditions. The exemption is also extended to disabled persons who have hearing and speaking disabilities. Application can be applied to the Ministry of Finance from 18 October 2010.

4 Sales tax to be exempted on mobile phones It is proposed that all ordinary mobile phones to be fully exempted from sales tax. This exemption will be effective from 4:00 p.m., 15 October 2010 onwards. Extension and Enhancement of Tax Incentives for Hybrid Cars For promoting Malaysia as a regional hub for hybrid cars and as incentives for local manufactures and assemblers of such cars, it is proposed that full exemption of import duty and excise duty be given on new CBU hybrid cars. This incentive is also extended to electric cars, hybrid and electric motorcycles. The application of such incentive to be applied to Ministry of Finance from 1 January 2011 to 31 December TAX INCENTIVE Extension of Application Period For Tax Incentives For The Generation of Energy From Renewable Sources To advance green technology and ensure sustainable environment, pioneer status and investment tax allowance for the generation of energy from renewable sources and energy for own consumption, it is proposed that the application be extended from 31 December 2010 until 31 December For those application in respect of non-energy generating companies which import or purchase equipment to generate energy from renewable sources for consumption of third parties, it is proposed to be extended until 31 December Extension of Application Period For Tax Incentives For Energy Conservation To encourage the efficient utilization of energy, the current tax incentives for energy conservation services and for companies which incurred capital expenditure for own consumption, it is proposed to extend from 31 December 2010 to 31 December Whereas, companies importing or purchasing locally for third party consumption is to be extended to 31 December Extension of tax Incentive Period For Reduction of Greenhouse Gas Emission To overcome global warming, companies which committed in reducing greenhouse gas (GHG) emission was granted tax exemption on income received from the sale of Certified Emission Reductions (CERs) from Clean Development Mechanism (CDM) projects to be extended for another 2 years, i.e. Year of Assessment 2011 and 2012.

5 Extension of Tax Incentives Application Period for Food Production To further stimulate investments in agro-food and agro based industry and to encourage investors in high scale agriculture projects, it is proposed that the application for the tax incentive for food production activities be extended for another 5 years, i.e. from 1 January 2011 until 31 December Extension of Application Period for Tax Incentive for Last Mile Network Facilities Provider for Broadband Those companies that invest in last mile broadband infrastructure are allowed to enjoy the existing incentive as the application period for the tax incentives be extended for another 2 years from 1 January 2011 until 31 December Reminder Deadline Type of returns 31 October 2010/ Year End 30 November 2010 / Year End Form CP November December 2011 Form CP 204A (6 th revision) Form CP 204A (9 th revision) 30 April May January February 2011 Forms C & R 31 March April 2010 Form B (Business sources income) N/A N/A For further enquiries, please contact the following :- Patrick Teo Chin Keong Tax Director patteo.tax@k-konsultgroup.com.my K Y Chan Tax Manager chanky.tax@k-konsultgroup.com.my Tel : Fax : Disclaimer All rights reserved. No part of this publication may be reproduced or transmitted by any or other means, including electronic, mechanical, photocopying and recording or in any information storage and retrieval system, without the prior written permission of the publishers. The above contains information in summary form and are therefore intended for general guidance only. They are not intended to be a substitute for detailed research or the exercise of professional judgement. Neither K-Konsult Taxation Sdn Bhd nor any other member of K-Konsult Group can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any materials in the above. On any specific matter, reference should be made to appropriate advisor.

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