7 November 27
Finance (No. 2) Bill 27 Highlights 2 CORPORATE TAX Notification of Change in Accounting Period Currently, there is no provision in the Income Tax Act 967 ( the Act ) requiring a company, limited liability partnership, trust body or cooperative society to notify the Inland Revenue Board ( IRB ) of any change in its accounting period. It is proposed that such entities shall notify the IRB in the prescribed form (CP24B) of the change in their accounting period by the prescribed due date as follows: (a) 3 days before the end of the new accounting period if the new accounts are prepared for a period of less than 2 months; or (b) 3 days before the end of the original accounting period if the new accounts are prepared for a period of more than 2 months. The following provisions have also been proposed for failure to comply with the notification requirement: (a) Any late filing penalty that has been imposed based on the accounting period prior to the new accounts shall continue to be recoverable; (b) Any amount of penalty that has been imposed on failure to pay any tax instalments or under-estimation of tax payable based on the accounting period prior to the new accounts shall continue to be recoverable; (c) Non-compliance with the notification requirement is an offence and upon conviction, the taxpayer would be liable to: fine between RM2 to RM2,; or imprisonment for a term not exceeding 6 months; or both the above fine and imprisonment term. The above proposals are effective from Year of Assessment ( YA ) 29 with the exception of item (c) which is effective on the coming into operation of the Finance (No. 2) Act 27. 2 Tax Deduction on Management Expenses for Takaful Business Taxation of takaful business is governed under Section 6AA of the Act. Currently, the tax deduction on management expenses for shareholders fund is restricted to an amount in connection with general takaful business carried out in accordance with the principle of wakalah. It is proposed that the scope of the deduction of management expenses be extended to an amount in connection with: (a) wakalah fee receivable in relation to the general fund, inward retakaful fund, offshore fund or family retakaful fund; (b) any other fee receivable in relation to the general fund, inward retakaful fund, offshore fund or family retakaful fund; or (c) any other fee receivable in relation to an investment fund from the family fund. 27 KPMG Tax Services Sdn. Bhd., a company incorporated under the Malaysian law and a member firm of the
Finance (No. 2) Bill 27 Highlights 3 The amount to be deducted in respect of the abovementioned items (b) and (c) shall be determined in accordance with the following formula: A x C B Where A is the total amount of gross income in respect of fee receivable excluding the gross income in respect of wakalah fee; B is the total amount of gross income in respect of fee receivable excluding the amount of gross income in respect of wakalah fee for commission; and C is the total management expenses incurred The above proposals are effective from YA 28. 3 Refund of Withholding Tax on Income Distributed by Real Estate Investment Trusts ( REIT ) or Property Trust Funds ( PTF ) to Unit Holders An approved REIT or PTF listed on Bursa Malaysia is exempted from income tax if in the basis period for a YA, at least 9% of its total income is distributed to unit holders. Distribution of such exempt income to a unit holder, other than a unit holder which is a resident company, is subject to withholding tax. To be in line with the current tax treatment for other withholding taxes deducted, it is proposed that refund of withholding tax be given to unit holders who are exempt from tax. The above proposal is effective on the coming into operation of the Finance (No. 2) Act 27. 4 Residual Expenditure ( RE ) for Asset Classified as Asset Held for Sale ( AHS ) The tax treatment for assets which are classified as AHS in accordance with generally accepted accounting principles was introduced in the 23 Budget and took effect from YA 23. For the purpose of computing the balancing allowance or balancing charge, whether the asset is sold or not in the basis period following the basis period for a YA in which the asset is classified as held for sale, it is proposed that the RE of the asset shall be determined as below: Qualifying cost Less: Initial allowance made RE Annual allowances made Notional allowance computed ** RM (XX) (XX) (XX) RM XX (XX) XX ** In the basis period in which the asset is classified as held for sale. This proposal provides clarity on the computation of RE of an asset in the YA following the basis period for the YA in which the asset is classified as held for sale. The above proposal is effective on the coming into operation of the Finance (No. 2) Act 27. 27 KPMG Tax Services Sdn. Bhd., a company incorporated under the Malaysian law and a member firm of the
Finance (No. 2) Bill 27 Highlights 4 5 Removal of Thin Capitalisation Legislation 2 Transactions in Which Disposal Price is Deemed Equal to Acquisition Price Thin capitalisation legislation was introduced in the 29 Budget but its implementation date had been deferred to January 28. Proposal has been made for the deletion of the above legislation. It is now proposed that the Earning Stripping Rules, advocated by the Organisation for Economic Cooperation and Development, will replace the existing thin capitalisation legislation. The above proposal is effective from January 28. REAL PROPERTY GAINS TAX ( RPGT ) Retention Sum Made by the Purchaser Currently, the purchaser of a Malaysian real property or shares in a real property company is required to retain part of the purchase consideration and pay it to the IRB. The retention sum is the lower of the whole amount of the money received or 3% of the total value of the purchase consideration. It is proposed that the retention sum be increased to the lower of the whole amount of the money received or 7% of the total value of the purchase consideration if the disposer is not a citizen and not a permanent resident. The above proposal is effective from January 28. Currently, the following transactions are treated as no gain and no loss position: (a) Transfer of chargeable assets between spouses; or (b) Transfer of chargeable assets owned by an individual, his wife or by an individual jointly with his wife or with a connected person to a company controlled by the individual, his wife or by an individual jointly with his wife or with a connected person, for a consideration consisting substantially (more than 75%) of shares in that company. It is proposed that the above transactions shall only be regarded as no gain and no loss position if the disposer is a citizen. With this proposal, if the disposer is not a citizen, the actual disposal price will be used in the computation of the chargeable gain/allowable loss. The above proposal is effective from January 28. 3 Disposal Date for Conditional Contracts Currently, the date of disposal for chargeable assets where the disposal is conditional shall be (a) the date of approval, if the acquisition or disposal requires the approval by the Government or a State Government or an authority or committee appointed by the Government or a State Government, or (b) the date when the last of all conditions to such approval is satisfied if the approval referred to in (a) above is conditional. It is proposed that the above treatment shall apply only to the approval by the Government or a State Government. 27 KPMG Tax Services Sdn. Bhd., a company incorporated under the Malaysian law and a member firm of the
Finance (No. 2) Bill 27 Highlights 5 Other than the above cases, the date of disposal shall be the date the contract was made. The above proposal is effective from January 28. 4 Rates of RPGT Currently, the chargeable gain derived from the disposal by an executor of the estate of a deceased is subject to the following RPGT rates: (a) 3% for disposal within 3 years after the asset; PERSONAL TAX Extension of Period for Resident Individual Income Tax Relief on Net Savings in Skim Simpanan Pendidikan Nasional ( SSPN ) To further encourage savings for the purpose of financing tertiary education of children, it is proposed that the tax relief of RM6, for net savings in SSPN be extended for another 3 years, until YA 22. The above proposal is effective from YA 28 to YA 22. (b) 2% for disposal in the 4 th year after the asset; (c) 5% for disposal in the 5 th year after the asset; and (d) % for disposal in the 6 th year after the asset or thereafter. It is proposed that the chargeable gain derived by an executor of the estate of a deceased who is not a citizen and not a permanent resident is subject to the following RPGT rates: (a) 3% for disposal within 5 years after the asset; and (b) 5% for disposal in the 6 th year after the asset or thereafter. With this proposal, RPGT exemption is no longer available for disposal in the 6 th year after the asset or thereafter. The above proposal is effective from January 28. 27 KPMG Tax Services Sdn. Bhd., a company incorporated under the Malaysian law and a member firm of the
Finance (No. 2) Bill 27 Highlights 6 2 Reduction of Resident Individual Income Tax Rates It is proposed that personal income tax rates for resident individuals at chargeable income bands between RM2, to RM7, be reduced by 2% as shown below: Tax Schedule Current (YA 27) Proposed (YA 28 onwards) Chargeable Income (RM) Tax Rate (%) Tax Payable (RM) Tax Rate (%) Tax Payable (RM) Tax Savings (RM) 5, 5, ** 5 5 2, 5, 5 ** 5 ** 75 3 ** 5 ** 45 3 35, 5, 9,5 8 6,2 6 5, 2, 6 2,4 3,2 4,8 2,8, 7, 3, 2 5,6 6,3 2 4,6 6,3,, 5, 24,9 36, 24,9 36,, 25, 5, 24.5 47,9 36,75 24.5 46,9 36,75, 4, 2, 25 84,65 5, 25 83,65 5,, 6, 4, 26 34,65 4, 26 33,65 4,,,, Every next RM 28 238,65.. 28 237,65.., ** Before tax rebate of RM4 for chargeable income up to RM35, 27 KPMG Tax Services Sdn. Bhd., a company incorporated under the Malaysian law and a member firm of the
Finance (No. 2) Bill 27 Highlights 7 GOODS AND SERVICES TAX ( GST ) Supplies to be Excluded in Determining the Value of Supplies for GST Registration Purpose To be in line with Section 2(6) of the GST Act 24, whereby any supply of capital assets due to cessation of business is excluded in determining the value of a person s supplies for GST registration purposes, it is proposed that the same shall apply in determining whether a person shall cease to be liable to be registered. Such assessment shall not be made more than 6 years from the date on which the tax was due and payable, except in the case of fraud and wilful default. The amount assessed shall be deemed due and payable whether or not the person appeals against the assessment, except to the extent that the assessment has been withdrawn or reduced. The above proposal is effective on a date to be appointed by the Minister of Finance. The above proposal is effective on a date to be appointed by the Minister of Finance. 3 Non-application of GST to Local Authorities 2 Power of the Director General to Assess a Person Other Than a Taxable Person It is proposed that the power of the Director General to assess the amount of tax and late payment penalty due and payable be expanded to cover any person other than a taxable person (i.e. any person who is not GST registered or is not liable to be GST registered). With this proposal, where any person other than a taxable person: (a) fails to furnish a declaration under Section 42 (e.g. failure to furnish GST-4 Form to account for GST on imported services); or (b) furnish a declaration which to the Director General appears to be incomplete or incorrect, the Director General may assess to the best of his judgment the amount of tax and late payment penalty (if any) due and payable from such person and notify such person of the assessment in writing. Currently, the supply of goods or services by the local authority (if GST registered) is subject to GST, unless it is in respect of its regulatory and enforcement functions. To harmonize the GST treatment with supplies made by the Federal Government and State Governments, it is proposed that GST shall not apply in relation to any supply of goods or services made by any local authority (i.e. out of scope). The above proposal is effective on a date to be appointed by the Minister of Finance. 4 Levy under the Pembangunan Sumber Manusia Berhad Act 2 It is proposed that any levy under the Human Resources Development Act 2 (Pembangunan Sumber Manusia Berhad Act 2) shall be treated as neither a supply of goods nor a supply of services. The above proposal is effective on a date to be appointed by the Minister of Finance. 27 KPMG Tax Services Sdn. Bhd., a company incorporated under the Malaysian law and a member firm of the
Finance (No. 2) Bill 27 Highlights 8 4 Rate of RPGT Currently, the chargeable gain derived by an estate of a deceased who is not a citizen and not a permanent resident is subject to the following rates of RPGT: (e) 3% for disposal within 3 years after the asset; (f) 2% for disposal in the 4 th year after the asset; (g) 5% for disposal in the 5 th year after the asset; and (h) % for disposal in the 6 th year after the asset or thereafter. It is proposed that chargeable gains derived by an estate of a deceased who is not a citizen and not a permanent resident is subject to the following rates of RPGT: (c) 3% for disposal within 5 years after the asset; and (d) 5% for disposal in the 6 th year after the asset or thereafter. With this proposal, RPGT exemption is no longer available for disposal in the 6 th year after the asset or thereafter. The above proposal is effective from January 28. Key Insights 27 KPMG Tax Services Sdn. Bhd., a company incorporated under the Malaysian law and a member firm of the