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Highlights of Malaysia Budget 2016 in Malaysia

The following is the summary of Highlights of Malaysia Budget 2016, which were announced by YAB Dato’ Sri Mohd Najib Bin Tun Haji Abdul Razak, Malaysia Prime Minister and Minister of Finance on 23rd October 2015 in Parliament.

Malaysia Budget 2016

Budget 2016 Speech Text can be downloaded from the Official Website www.bnm.gov.my

 

Improvement on Goods and Services Tax

  1. Zero-rating of all types of controlled medicines under the Poisons List Group A, B, C and D as well as an addition of 95 brands of over-the-counter medicines including treatment for 30 types of illnesses such as cancer, diabetes, hypertension and heart disease. This is a double increase from 4,215 to 8,630 brands of medicines.
    • Zero-rating of the following food items:
    • Soybean-based milk and organic-based milk for infant and children;
    • Dhal or what is popularly known as Parpu in the north, such as chickpeas, green and white beans;
    • Lotus root and water chestnut;
    • Mustard seeds;
    • Jaggery powder; and
    • Dried mee kolok.
  2. To enable small-scale farmers to benefit from the Flat Rate Scheme, the Government proposes that the annual sales turnover threshold for registration under this scheme be reduced from RM100,000 to RM50,000.The requirement to maintain records will also be simplified. With the reduction in the threshold, more small-scale farmers will be able to register under the scheme and impose an additional 2% on sales value and this amount can be retained to offset against any GST paid on their input.
  3. Companies involved in maintenance, repair and overhaul (MRO) activities in the aerospace industry are allowed to participate in the Approved Trader Scheme which relieves them from paying GST on the imported goods.
  4. GST relief is also provided for reimportation of goods that were exported temporarily for the purpose of promotion, research or exhibition.
  5. For the oil and gas industry, GST relief is provided on the reimportation of equipment such as equipment for oil and floating platforms that are temporarily exported for the purpose of rental and leasing.
  6. GST relief is also provided on teaching materials and equipment procured by skills and vocational training providers conducting approved programmes under the National Skills Development Act 2006.
  7. Malaysian consumers will receive rebates equivalent to the amount of GST paid on prepaid telecommunication services or prepaid cards, which will be credited directly to their prepaid accounts. This measure will be effective from 1 January 2016 to 31 December 2016.

 

Individual Income Tax

  • Income tax rates for resident individuals whose chargeable income from RM600,001 to RM1,000,000 be increased by 1 % from 25% to 26% and chargeable income exceeding RM1,000,000 be increased by 3 % from 25% to 28% from Year of Assessment (YA) 2016 as follows:
    Chargeable Income (RM) Current Tax Rate (%) Proposed Tax Rate (%)
    1 – 5,000 0 0
    5,001 – 20,000 1 1
    20,001 – 35,000 5 5
    35,001 – 50,000 10 10
    50,001 – 70,000 16 16
    70,001 – 100,000 21 21
    100,001 – 250,000 24 24
    250,001 – 400,000 24.5 24.5
    400,001 – 600,000 25 25
    600,001 – 1,000,000 25 26
    Exceeding 1,000,000 25 28
  • The fixed income tax rate for non-resident individuals be increased by 3 % from 25% to 28% from YA 2016.
  • Tax relief for each child below 18 years of age is increased from RM1,000 to RM2,000 from year of assessment 2016;
  • Tax relief for individual taxpayer whose spouse has no income is increased from RM3,000 to RM4,000;
  • Tax relief for children who provide for their parents is given total tax relief of RM1,500 for the mother and RM1,500 for the father.The relief is subject to the condition that each parent does not have income exceeding RM2,000 a month and must be 60 years and above (From year of assessment 2016 until year of assessment 2020)
  • Increase the tax relief from RM6,000 to RM8,000 for each child above the age of 18 years who is studying at local or foreign institutions of higher learning, from year of assessment 2016.
  • Increase the tax relief from RM6,000 to RM8,000 for disabled child above the age of 18 years who is studying at local or foreign institutions of higher learning, from year of assessment 2016.
  • Tax relief on study fees be increased from RM5,000 to RM7,000 per year.
  • Employees be eligible to claim relief up to a maximum of RM250 per year on the contribution to SOCSO.

 

Corporate Tax

  • SMEs that incur expenditure on R&D projects up to RM50,000 for each year of assessment are eligible to claim double tax deduction automatically (YA 2016 to 2018);
  • Tax incentives on increased exports incentive to small and medium enterprises (SMES) to be given with the revised value added criteria as follows (YA 2016 to YA 2018):
    1. Exemption of statutory income equivalent to 10% of the value of the increased exports to manufacturers provided that the goods exported attain at least 20% value added; and
    2. Exemption of statutory income equivalent to 15% of the value of the increased exports to manufacturers provided that the goods exported attain at least 40% value

 

Other Tax Incentives

  • Tax deduction be given for five years on issuance costs of SRI Sukuk approved by, or authorized by or lodged with the Securities Commission of Malaysia (YA 2016 to 2020)
  • Double deduction or further deduction for retail bonds and retail sukuk be extended for another three years (YA 2016 to 2018) as follows:
    1. double deduction on additional issuance costs of retail bonds;
    2. double deduction  on  additional  issuance  costs  of  sukuk  under  the principles  of  Mudharabah,  Musyarakah,  Istisna’,  Murabahah  and  Bai’ Bithaman Ajil based on tawarruq; and
    3. further deduction  on  additional  issuance  costs  of  sukuk  under  the principles of Ijarah and
  • Tax exemptions on Certified Shariah-compliant fund management services to be extended for another 4 years (YA 2017 – 2020). Income exempted from tax are as follows:
    1. statutory income derived from business of providing fund management services to foreign investors in Malaysia;
    2. statutory income derived from business of providing fund management services to local investors in Malaysia; and
    3. statutory income derived from business of providing fund management services to business trusts or real estate investment trusts in Malaysia.
  • The following tax incentives given to investors in Real Estate Investment Trusts (REITs) be extended for another 3 years (From 1 January 2017 to 31 December 2019):-
    1. foreign institutional investors, particularly pension funds and collective investment funds receiving profit distribution from REITs listed on Bursa Malaysia are subject to final withholding tax at 10%; and
    2. non-corporate investors including resident and non-resident individuals and other local entities receiving profit distribution from REITs listed on Bursa Malaysia are subject to final withholding tax at 10%
  • Stamp duty exemption is provided to revive abandoned housing projects as follows to be extended for another 2 years (Loan agreements and memorandums of transfer executed from 1 January 2016 to 31 December 2017 for abandoned housing projects approved by Ministry of Housing and Local Government):
    • Rescuing Contractors:

      1. on instruments of loan agreements to finance the completion of abandoned housing projects; and
      2. on instruments of transfer of title for land and houses in abandoned housing

      The exemptions are given on the above instruments executed from 1 January 2013 until 31 December 2015.

    • Original house purchaser in the abandoned project:

      1. on instruments of loan agreements for additional financing; and
      2. on instruments of transfer of the

      The exemptions are given on the above instruments executed from 1 January 2013 until 31 December 2015.

    Abandoned housing projects must be certified by the Ministry of Housing and Local Government to be eligible for the above tax incentives.

  • 20% stamp duty exemption be extended for another of 2 years. This exemption be given to the targeted sector on the principal or primary instrument of financing in accordance to the Shariah for home financing product approved by the Shariah Advisory Council of the Bank Negara Malaysia or the Shariah Advisory Council of the Securities Commission Malaysia

 

BR1M will be increased in 2016 as follows:

  1. A new category will be introduced for all participants in the e-Kasih database, with monthly income below RM1,000, who will now receive BR1M of RM1,050;
  2. For households with monthly income of RM3,000 and below, BR1M will be increased from RM950 to RM1,000;
  3. For households with monthly income between RM3,001 and RM4,000, BR1M will be raised from RM750 to RM800;
  4. The Bereavement Scheme of RM1,000 will be continued;
  5. For single individuals aged 21 and above with monthly income not exceeding RM2,000, the assistance will be increased from RM350 to RM400.

 

Others

  • Social Security Organisation (SOCSO), the eligibility for mandatory contribution is increased from a monthly salary of RM3,000 to RM4,000.
  • Effective from 1 July 2016, the national minimum wage will be increased from RM900 to RM1,000 per month for Peninsular Malaysia and from RM800 to RM920 for Sabah, Sarawak and the Federal Territory of Labuan. The new minimum wage will be implemented in all sectors except for domestic services or domestic maids.