2015 MALAYSIAN BUDGET HIGHLIGHTS The 2015 Budget prpsals were presented t Parliament n 10 Octber 2014 by the Prime Minister. The 2015 Budget utlined seven main strategies: Strengthening ecnmic grwth Enhancing fiscal gvernance Develping human capital and entrepreneurship Advancing the Bumiputera agenda Uphlding the rle f wmen Develping a natinal yuth transfrmatin prgramme Priritising the well-being f the rakyat The 2015 Budget prpsals were presented against a backdrp f a very credible expected Grss Dmestic Prduct grwth f between 5.5% t 6% fr 2014. Grwth is prjected t remain strng int 2015 with the ecnmy expected t register a rate f grwth f between 5% t 6%. A key cncern is the Gvernment's fiscal deficit but a clear cmmitment has been made t reduce the prjected 2014 deficit f 3.5% t 3% in 2015. Against uncertain head-winds, the management f the Malaysian ecnmy will be premised n three strategic brad initiatives: Driving grwth with a slew f welfare initiatives t benefit a brad segment f the ppulatin, particularly the lwer incme grup; Grwth frm the increasingly imprtant Services Sectr; and Expansinary investment invlving a number f high-value infrastructure prjects which will invlve public/private sectr cllabratin. The intrductin f GST n 1st April 2015 frms an imprtant element f the Budget strategies, as GST, tgether with the cmmitment t cntinue with subsidy reductins are effrts designed t enhance fiscal cnslidatin. The prmtin f investments, particularly Freign Direct Investments remains a key plicy twards enhancing industrialisatin. Multinatinal cmpanies ( MNC ) will be ffered custmised incentives t lcate their peratinal centres i.e. Principal Hubs, details f which will be intrduced next year. There are few tax changes intrduced in the prpsals and the main changes are utlined hereunder:
Crprate Tax Autmatin f Labur Intensive Industries - T encurage autmatin in the manufacturing sectr, capital allwances f 200% will be given n the first RM4 millin f capital expenditure incurred frm 2015 t 2017 t autmate labur intensive industries (e.g. rubber prducts, plastics, wd, furniture and textile industries). Other industries will qualify fr the 200% capital allwance n the first RM2 millin f capital expenditure incurred frm 2015 t 2020. This incentive wuld be welcmed by cmpanies which may nt r are n lnger eligible t claim the reinvestment allwance. Islamic Financial Sectr - T maintain Malaysia s cmpetitiveness in the Islamic Financial sectr, the deductin fr expenses incurred n the issuance f apprved Islamic securities (i.e. sukuk issued under the Ijarah and Wakalah principles) will be extended frm the year f assessment ( YA ) 2015 t YA 2018. Additinally, the tax treatment accrded t cmpanies which establish a special purpse vehicle slely fr the issuance f Islamic securities under Sectin 60I f the Incme Tax Act 1967 ( ITA ) will be extended t REITs and Prperty Trust Funds apprved by the Securities Cmmissin. Human Capital Develpment - As part f the strategy t develp human capital, duble / further deductins are allwed fr prescribed perids f time in respect f the fllwing expenses subject t varius criteria: Schlarship (encmpassing curse fees, educatinal aid and cst f living expenses) awarded by cmpanies t Malaysian students pursuing full time vcatinal and technical curses in institutins recgnised by the Gvernment; Prescribed expenses incurred in implementing a minimum 10-week structured internship prgramme ( SIP ) apprved by TalentCrp fr Malaysian students pursuing full time vcatinal and diplma curses; Training expenses incurred by cmpanies fr emplyees t btain industry recgnised certificatins and prfessinal qualificatins frm accredited vcatinal and prfessinal bdies; The existing duble deductin accrded t cmpanies which are apprved by the Ecnmic Planning Unit t prvide training t unemplyed graduates under the Skim Latihan 1Malaysia will be extended t 31 December 2020. Related party transactins - In trend with the cntinued effrts t prevent tax avidance in the cntext f related party transactins, prvisins have been intrduced t ensure that passive surces f incme wing between related parties are brught t tax, regardless f whether the amunts have been paid. Where such amunts becme receivable in a particular year, the amunts are deemed t have been received in the fllwing year. This prvisin extends t transactins between individuals wh are relatives as well, and cvers bth passive incme as well as emplyment incme in such situatins.
Transfer Pricing In the cntext f related party transactins, in line with the persistent effrts t tighten the transfer pricing framewrk, the time bar fr issuing assessments/additinal assessments as a result f transfer pricing adjustments has been surprisingly extended t 7 years (as cmpared with the 5 year time bar currently applicable). This applies t bth the ITA as well as the Petrleum (Incme Tax) Act 1967 ( PITA ). Small Value Assets - The threshld fr the claim f capital allwances n small value assets has been increased. It is prpsed that 100% capital allwance, capped at RM13,000 (previusly RM10,000) can be claimed n assets each csting nt mre than RM1,300 (previusly RM1,000). The impact f this is minimal and will nly benefit small businesses. Reinvestment Allwance ( RA ) The RA prvisins have been clarified t state that: RAs which are clawed back shuld be treated as part f the business statutry incme in the basis perid fr the year f assessment in which the asset is dispsed f; and RA will nly be given against statutry incme in respect f a qualifying prject within a business rather than frm the business as a whle. Fr instance, where a manufacturing business undertakes a new prject which qualifies fr RA, the incme frm that prject must be segregated frm the rest f the manufacturing surce and the RA can nly be set ff against the incme frm that prject. This is anther attempt t minimise the impact f the RA and appears rather impractical in requiring a dissectin f prfits arising frm the prject frm the ttal business prfits. This will create an additinal cmpliance burden fr such businesses. Tax Administratin - The due date fr payment f mnthly tax instalments by a cmpany, limited liability partnership, trust bdy r c-perative sciety has been extended frm the 10 th t the 15 th f the mnth. The same changes have been intrduced in the PITA. Tax Incentives Investment Accunt Platfrm A new Investment Accunt Platfrm ( IAP ) invlving funding based n syariah principles will be intrduced in 2015. The IAP serves as a platfrm t attract investrs t invest in entrepreneurs and Small and Medium Enterprises ( SMEs ). T prmte investments in the IAP, individual investrs will be given an incme tax exemptin n prfits earned frm qualifying investments made thrugh the IAP fr 3 cnsecutive years starting frm the first year prfit is earned. This incentive will be effective frm 1 September 2015 (expected date f peratin f the IAP) t 31 August 2018. The ther criteria include the requirements that: The investment must be made fr a perid f 3 years starting frm the peratin date f the IAP; and The investment must be made in SMEs and venture cmpanies wned by Malaysian r lcally incrprated cmpanies carrying ut investment activities in Malaysia.
Private Healthcare T prmte Malaysia as a health care hub, the existing incentive (i.e. an exemptin n incme equal t an Investment Tax Allwance f 100% f qualifying capital expenditure incurred fr 5 years) which was due t expire n 31 December 2014 will be extended t applicatins submitted t the Malaysian Investment Develpment Authrity ( MIDA ) by 31 December 2017. The private healthcare centres must be licensed by the Ministry f Health and registered with the Malaysian Healthcare Travel Cuncil. Further, t qualify fr this incentive, at least 5% f the ttal patients must be made up f healthcare travellers wh are: Malaysia My Secnd Hme participants and their dependents; Expatriates hlding Malaysian wrk permits and their dependents; r Nn-Malaysian citizens. Ecnmic Crridrs - The areas within the Ecnmic crridrs which enjy special incentive packages will be widened t encmpass mre rural areas. These areas have nt been identified as yet. Industrial Area Management A 100% incme tax exemptin fr 5 years will be accrded t cmpanies which manage, maintain and upgrade industrial estates in less develped areas. The same activities which are carried ut in ther areas will be given a reduced 70% incme tax exemptin fr 5 years. The details f this incentive will be annunced in due curse. Principal Hubs - Custmised incentives fr Principal Hubs will be intrduced early 2015 t attract MNCs t set up their glbal peratinal centres in Malaysia. At present, we already have the Operatinal Headquarters incentive, the Internatinal Prcurement Centre incentive, the Reginal Distributin Centre incentive, the Treasury Management Centre incentive, etc. It will be interesting t see hw the Principal Hub incentive varies frm these existing incentives, and whether it wuld be better t ratinalise all these incentives int a single simplified incentive t attract glbal peratinal centres t Malaysia. Persnal Incme Tax Persnal Reliefs - With effect frm YA 2015, the fllwing persnal reliefs are increased: Persnal Relief Existing (RM) Prpsed (RM) Medical expenses fr the taxpayer, his/her spuse and children suffering frm serius diseases Maintenance csts f an unmarried child wh is physically r mentally disabled Cst f supprting equipment fr a disabled taxpayer, his/her spuse, children r parents 5,000 6,000 5,000 6,000 5,000 6,000
Cmputatin f chargeable incme - Effective frm the YA 2015, incme derived frm the withdrawal f a deferred annuity r a private retirement scheme which has been subject t withhlding tax will be excluded frm the determinatin f chargeable incme. Interest n lans t relatives - Sectin 29 f the ITA is amended t tax interest derived by an individual n lans t relatives when the interest is due t be paid. Bantuan Rakyat 1Malaysia ( BR1M ) BRIM handuts cntinue t be increased year n year with the fllwing increase prpsed fr 2015: Eligible recipients Husehlds with mnthly incmes nt exceeding RM3,000 Husehlds with mnthly incmes between RM3,000 t RM4,000 Single individuals aged 21 and abve with mnthly incmes nt exceeding RM2,000 Existing BRIM amunt (RM) Prpsed BRIM amunt (RM) 650 950 450 750 300 350 Electin nt t submit a tax return fr emplyment incme When this electin was intrduced in the YA 2014 under Sectin 77C f the ITA, this nly applied t individuals emplyed by the same emplyer fr at least ne year. With effect frm the YA 2015, this restrictin has nw been remved and the electin will be applicable regardless f the perid f emplyment with an emplyer. Real Prperty Gains Tax ( RPGT ) Self Assessment The plan unveiled by the Inland Revenue Bard (IRB) last year t intrduce self-assessment fr RPGT has been included in the Budget prpsals and will be implemented frm 2016. It is hped that the self-assessment prvisins will be carefully thught ut, and that the initial cnsultatin initiated by the IRB with the prfessinal bdies will cntinue befre the changes are made t the RPGT Act, 1976. Retentin sum n dispsal - With effect frm 1 January 2015, where a chargeable asset is dispsed f, and the cnsideratin cnsists whlly r partly f mney, the acquirer will nw be required t retain 3% (instead f the previus 2%) f the ttal value f the cnsideratin r the mney, whichever is the less. Gifts f prperty between spuses, parents and children and grandparents and grandchildren At present fr RPGT purpses, such gift transactins are treated as n gain/n lss transactins and the recipient is deemed t acquire the prperty at the dnr s acquisitin price where the prperty is transferred within five years f acquisitin. The Budget prpsals amend the relevant prvisins t take accunt f dnrs wh are nt citizens r permanent residents.
Stamp duty T encurage hme wnership, the present 50% stamp duty exemptin n instruments f transfer and lan agreements has been extended as fllws: T sales and purchase agreements executed between 1 January 2015 t 31 December 2016; and Fr the purchase f first residential prperty at a price nt exceeding RM500,000. Gds and Services Tax The basket f items that will be excluded frm GST is expanded t include varius ther basic fd prducts including, fruit, white bread, whlemeal bread, cffee pwder, etc. as well as Natinal Essential Medicines cvering almst 2,900 medicine brands, reading materials, newspapers, the first 300 units f electricity cnsumptin, RON 95 petrl, diesel and LPG. It is hped that the relevant gazette rders fr zer-rated and exempt supplies will be released as sn as pssible t enable taxpayers t prepare fr GST and implement their systems accrdingly. Others Sme changes (related mainly t deductins) were als intrduced fr the insurance and takaful sectrs which have nt been included here as their applicatin is limited nly t these industries. The ther measure t nte is that the maximum fines fr the fllwing ffences under the ITA will be increased frm RM2,000 t RM20,000 (upn prsecutin and cnvictin): Late r nn-submissin f tax returns pursuant t Sectins 77 and 77A and fr failure t give ntice f an individual s chargeability t tax pursuant t Sectin 77(3); Leaving Malaysia withut settlement f utstanding taxes; and Offences under Sectin 120 e.g. failure t furnish dcuments requested by the IRB, failure by an emplyer t submit infrmatin pertaining t the emplyees pursuant t Sectin 83 (i.e. Frm E, Frm EA, etc), failure t deduct mnthly tax deductins, failure t submit tax estimates as required under Sectin 107C, etc. Cnclusin The budget prpsals verall are smewhat cnservative withut bld measures t address fr example the high debt at bth public and private levels. As an pen ecnmy with high exprts, the Malaysian ecnmy will nt be insulated frm the external envirnment where a number f ecnmies, especially thse in the Eurzne remain weak. Furthermre, several f these measures are shrt-term and may nt arguably fix the lnger term weaknesses which may hld the natin back, fr instance the weaknesses in the educatin system which must be vercme t mve twards a develped natin. With the intrductin f GST, it is hped that in the lnger term, the tax rates will cntinue t be gradually lwered and that the tax incentive framewrk will be reviewed hlistically and simplified t make Malaysia mre cmpetitive reginally. TAXAND MALAYSIA in cllabratin with the Malaysian Internatinal Chamber f Cmmerce and Industry will hld its 2015 Annual Budget Seminar n Mnday, 27 Octber 2014 at the Maya Htel, Jalan Ampang, Kuala Lumpur. Please cntact jc@taxand.cm.my fr details.