Malaysia Budget 2014 Summary

INDIVIDUAL INCOME TAX

1.1  Monthly Tax Deduction (MTD) As Final Tax

With effect from YA 2014, employees whose total income tax is equivalent to the amount of monthly tax deductions (MTD) may elect not to submit tax return if:-

-     He has only one source of income i.e. employment income (without Benefits-In-Kinds and living accommodation)

-     Tax deducted by his employer in accordance with Income Tax (Deduction From Remuneration) Rules 1994

-     He was employed by the same employer for 12 months

-     His tax liability not borne by employer

-     Spouse did not elect for combine assessment.

(Note : For taxpayer elect not to submit their tax return and subsequently notify Inland Revenue RB that certain income has omitted, late filing penalty will be imposed.) 

1.2  Special Relief to Middle Income

For YA 2013, a special relief of RM2,000 will be provided to resident taxpayers with monthly income up to RM8,000. (aggregate income of up to RM96,000 a year). Tax saving is RM480.00

1.3  Reduction in individual tax rate (Effective from YA 2015)

Chargeable income (RM)	Current rate (%)	Proposed rate (%)	Reduction (%)
0-5,000	0	0	0
5,001-20,000	2	1	1
20,001-35,000	6	5	1
35,001-50,000	11	10	1
50,001-70,000	19	16	3
70,001-100,000	24	21	3
100,001 – 250,000	26	24	2
250,001 – 400,000	26	24.5	1.5
Above 400,000	26	25	1

  Tax saving after change in individual tax rate:-

Chargeable income (RM)	Current tax paid (RM)	Proposed tax paid (RM)	Tax saving (RM)
35,000	1,200	900	300
50,000	2,850	2,400	450
70,000	6,650	5,600	1,050
100,000	13,850	11,900	1,950
250,000	52,850	47,900	4,950
400,000	91,850	84,650	7,200

1.4Deferred annuity or Private Retirement Scheme

Currently, maximum deduction of RM3,000 given on payment for deferred annuity or Private Retirement Scheme (PRS).

Early withdrawal from Private Retirement Scheme (PRS) before the age of 55 (except due to death or permanent departure from Malaysia) is subject to withholding tax of 8%

Effective from YA 2014, the following changes:-

 - To define deferred annuity as those with Retirement Saving Standards (RSS) features set by Bank Negara Malaysia.

- To extend withholding tax of 8% to withdrawal of deferred annuity

- To extend non-application of withholding tax to permanent total disablement, serious disease and mental disability

- To extend deduction for deferred annuity to include deferred annuity on life of spouse

2.COMPANY INCOME TAX

     2.1  Reduction in Company Tax Rate  (Effective from YA 2016)

Company	Current tax rate	Proposed tax rate
Resident company with paid up capital < RM2.5 million   On first RM500,000 chargeable income   Subsequent balance	20%     25%	19%     24%
Resident company with paid up capital > RM2.5 million	25%	24%

2.2 Entertainment

 Section 18 of ITA "Entertainment" includes -

 (a)      the provision of food, drink, recreation or hospitality of any kind; or

(b)      the provision of accommodation or travel in connection with or for the purpose of facilitating entertainment of the kind mentioned in paragraph (a)

by a person or an employee of his in connection with a trade or business carried on by that person

It is proposed to include any expenses incurred by a person for purpose of promoting his business with or without consideration as entertainment.

(Effective from YA 2014)

 2.3    Basis period for a company, limited liability partnership, trust body or co-operative society

Any change of the accounting period of a company, limited liability partnership, trust body or co-operative society in a basis period for a year of assessment, the Director General is empowered to direct the basis period of such company, limited liability partnership, trust body or co-operative society.

 

A company, limited liability partnership, trust body or co-operative society which commences its operation, the basis period for the first year of assessment shall be the accounting period, even accounts ended 2^nd or 3^rd basis years.  

 

(Effective from YA 2014)

 

2.4 Compulsory Of Acquisition of Stocks In Trade
 
     Any amount arising from the disposal of its stock in trade by any element of   compulsion such as compulsory acquisition or forced sale is treated as gains or profits from a business.

Any debts owing from any stock in trade parted with any element of compulsion  will be treated as gross income of the business.

 (Effective from YA 2014)

 2.5 Interest Income Obtainable On Demand

Interest receivables shall be treated as income when it is received. Interest income treated as being received when it is obtainable on demand.

The bill introduce any loan between related parties, interest income deemed   obtainable on demand when interest is due to be paid.

 (Effective from YA 2014)

2.6 Interest Expenses Deduction

Any interest expense is allowed as a deduction from the gross business income of the company as it was incurred in the production of that income.

The bill introduce that interest payable shall be deducted when it is due to be paid and deduction to be given in the respective year of assessment.

 (Effective from YA 2014)

2.7  Deduction Not Allowed

The bill introduce that if a taxpayer fail to furnish information on any item of deduction claimed by the taxpayer as requested by Director of General Inland Revenue  (DGIR) under Section 81 of the Act within the specified or extended time, the item involved will be disallowed for tax deduction.

 (Effective from YA 2014)

  2.8  Director’s Liability
 
Currently, Company director with more than 50% of the ordinary share capital of the company is jointly liable for company’s tax or debt.

It is proposed that the threshold of 50% of the ordinary share capital of the company be reduced to 20%.

(Effective upon the gazetted of the Finance Act)

2.9  E-Filing Tax Return for Company
 
All Company must furnish their tax return through E-filing and the tax return must be based on the audited accounts prepared by a professional accountant.

 (Effective from YA 2014)

2.10 Estimated Tax payable for SME

Currently, where a SME (with paid up capital < RM2.5 million) first commences operations in a year of assessment, the SME not required to furnish an estimate of tax payable or make instalment payments for a period of two years beginning from the year of assessment in which the SME commences operations.

It is proposed a SME not required to furnish an estimate under Section 107C where the Company has no basis period for the first and second years of assessment, the company is not required to submit an estimate of tax payable for the first three years of assessment.

(Effective from YA 2014)

2.11 Loan or Advances to Director

A Company giving loans or advances from internal funds to a director of the company is deemed to derive interest income from such loan.

Interest income is the aggregate sum of monthly interest determined by the formula :
 

1	X A X B
12

Where	A	= amount loan/advances outstanding at end of month
	B	= average lending rate (ALR) at end of month

Where interest is charged on the loan, and:

-       Total interest payable is more than the deemed interest, the deemed interest is disregarded.

-       Total interest payable is less than the deemed interest, interest payable by director is disregarded.

(Effective from YA 2014)

2.12 Accelerated Capital Allowance : ICT Equipment

It is proposed that expenses on the purchase and installation of Information, technology and communication (ICT) equipment and software be given ACA with an initial allowance of 20% and an annual allowance of 80%.

(Effective from 2014 – 2016)

3.    Good and Service Tax

The current sales tax and service tax be abolished and be replaced by Goods and Services Tax (GST) at 6% to be effective from 1 April 2015.

 

3.1 Scope and charge

GST is charged on :

-     the taxable supply of goods and services

-     made in the course or furtherance of any business in Malaysia

-     by a taxable person.

 

GST is also charged on the importation of goods and services.

 

 

3.2  Zero Rate Supply

 

Zero-rated supply means goods and services sold by businesses are charged GST at zero rate. For businesses, GST paid on their inputs can be claimed as credits.

 

3.3 Exempt supply

 

Exempt supply means goods and services sold by businesses are exempted from GST. For businesses, GST paid on their inputs in making exempt supplies cannot be claimed as input tax credits.

 

3.4  GST registration threshold

 

Any business with annual sales value exceeding the prescribed threshold of RM500,000 are mandatorily required to be registered. However, businesses below the prescribed threshold are not required to register but may register on a voluntary basis.

 

Any late registration of GST will subject to penalty not more than 25% on the unpaid tax due. 

 

Any person refused to be registered, he shall be liable to a fine not exceeding RM50,000 or to imprisonment for a term not exceeding 3 years or to both.

 

 

3.5 Taxable Period

 

Taxable period is assigned by Director General. The taxable period depends on the amount of annual sales:-

 

Annual sales	Category	Taxable period
> RM5 Million	A	1 month
< RM5 Million	B	3 months

 

3.6 Tax Incentive Package in line with GST implementation

 

-       Expenses for GST related training of employees in accounting and ICT will be given further deduction under Section 33(1) with effect from YA 2014 to 2015

 

-       Effective from YA 2015, the following expenses incurred allow for tax deduction:-

 

Type of expenses	RM
Secretarial fee	Up to RM5,000
Tax filing fee	Up to RM10,000

4. REAL PROPERTY GAIN TAX

 

4.1Revised of RPGT rate

The Real Property Gains Tax rates on the gains from the disposal of residential and commercial properties be revised as follows:

 

Type of disposal	-	Company	Person other than company	Non-citizen or non PR
1 January	2013	2014
Disposal within 1 years	15%	30%	30%	30%
Disposal within 2 years	15%	30%	30%	30%
Disposal within 3 years	10%	30%	30%	30%
Disposal within 4 years	10%	20%	20%	30%
Disposal within 5 years	10%	15%	15%	30%
Disposal in the 6th year and thereafter	Nil	5%	Nil	5%

 

4.2 Penalty on RPGT

 

Currently, a person who disposes of a chargeable asset and is required to furnish a return to the Director General may furnish with the return a notification in the prescribed form (CKHT 3) that such disposal is not taxable or tax exempt.

 

If disposer provided incorrect or wrong information, assessment issued with an  increase equal to 10% of tax payable will be imposed.

 

It is proposed that the meaning of “Tax Payable” is amount of tax charged on chargeable gain excluding allowable loss. As such, the penalty is computed on the amount of tax charged on chargeable gain excluding allowable loss. 

 

4.3 Director’s Liability

 

Under Real Property Gain Tax Act, company director with more than 50% of the ordinary share capital of the company is jointly liable for company’s tax or debt.

 

It is proposed that the threshold of 50% of the ordinary share capital of the company be reduced to 20% in line with the Income Tax Act.

 

(Effective upon the gazetted of the Finance Act)