Highlights of Malaysia Budget 2017 in Malaysia
On 21 October 2016, YAB Dato’ Sri Mohd Najib Bin Tun Haji Abdul Razak, Malaysia Prime Minister has tabled Budget 2017 themed “Ensuring Unity and Economic Growth, Inclusive Prudent Spending, Wellbeing of the Rakyat”.
The following is the summary of Highlights of Malaysia Budget 2017 which were announced in Parliament.
Goods and Services Tax
- To enable more disabled persons to benefit from the GST relief, it is proposed that the relief be given to the valid OKU card holders on the purchase of approved equipment from the suppliers designated by the Social Welfare Department. The list of equipment that are eligible for the GST relief under Item 7, First Schedule, Goods and Services Tax (Relief) Order 2014 will be widened. (Effective from 1 January 2017).
- To streamline the GST treatment in free zone, namely Free Industrial Zone (FIZ) and Free Commercial Zone (FCZ), it is proposed that the GST treatment be determined as follows:
- GST is not chargeable on the supply and removal of goods made within and between FCZ;
- GST shall not be due and payable on the goods imported into FIZ;
- GST is not chargeable on the supply and removal of goods made within and between FIZ;
- GST is not chargeable on the supply and removal of goods made within FCZ and FIZ; vice versa;
- GST is suspended on the removal of goods from free zone to Designated Areas i.e. Langkawi, Labuan and Tioman, vice versa; and
- GST is suspended on the removal of goods from free zone to an approved warehouse under the Warehousing Scheme, vice versa.
The above treatment shall not be applicable on the following supplies:
- Goods as prescribed under the Free Zones (Exemption of Goods and Services) Order 1998;
- Goods and services as prescribed under Goods and Services Tax (Imposition of Tax for Supplies in Respect of Designated Areas) Order 2014; and
- Any other goods prescribed by the Minister of Finance.
(Effective from 1 January 2017)
- To streamline the GST treatment between imported goods and goods from Principal Customs Area and to facilitate the GST administration under the Warehousing Scheme, it is proposed that no GST shall be charged on goods from Principal Customs Area which consist of the Licensed Manufacturing Warehouse, Excise Warehouse and Free Industrial Zone that are deposited into and supplied within or between warehouse under the Warehousing Scheme. (Effective from 1 January 2017).
- It is proposed that the tax rate for Small and Medium Enterprises (SME) be reduced by 1% from 19% to 18% on chargeable income up to RM500,000. (Effective from YA 2017)
- It is proposed that reductions in the income tax rate for the increase of chargeable income based on the percentage of increase in chargeable income as compared to the immediate preceding YA be given to the entities that fulfil the criteria.
The reduction of the income tax rate is as follows:
|Percentage of increase in chargeable income as compared to the immediate preceding year of assessment||Percentage point reduction||Income tax rate after reduction (%)|
|Less than 5.00||NIL||24|
|5.00 – 9.99||1||23|
|10.00 – 14.99||2||22|
|15.00 – 19.99||3||21|
|20.00 and above||4||20|
(Effective for YA 2017 and 2018)
- Lifestyle relief is introduced with a limit of up to RM2,500 per YA to provide flexibility for taxpayers to claim tax relief on the purchase of reading materials, computer and sports equipment. The scope of the lifestyle relief is expanded to include:-
- Purchase of printed daily newspaper;
- Purchase of smartphone or tablet;
- Internet subscription; and
- Gymnasium membership fee.
(Effective from YA 2017)
- A new tax relief of up to RM1,000 be given to tax resident individuals who enrol their children aged up to 6 years old in child care centres or kindergartens registered with the Department of Social Welfare or the Ministry of Education. This relief can only be claimed by either parent of the children. (Effective from YA 2017).
- A new tax relief of up to RM1,000 be provided for the purchase of breastfeeding equipment. The purchase can be made either in a complete set or separate parts consisting of breast pump (manual or electric), cooler bag, containers for collection and storage. Women taxpayers with children up to 2 years old are eligible to claim this relief. The relief is given once every 2 years from YA 2017.
Other Tax Incentives
- 100% stamp duty exemption be given on instrument of transfer and loan agreement for the purchase of first home priced not exceeding RM300,000. For the purchase of first home priced exceeding RM300,000 up to RM500,000, stamp duty exemption is limited to RM300,000 of the value of home and the remaining balance of the value of the home is subject to the prevailing rate of stamp duty. (For sale and purchase agreement executed from 1 January 2017 to 31 December 2018)
- Currently, companies that participate in the Structured Internship Programme (SIP) approved by the TalentCorp are eligible for double deduction on expenses incurred in implementing the programme. To encourage more companies to participate in SIP and contribute towards the employability of local graduates through an early exposure to the working environment, it is proposed that:-
- The current incentive be extended for a period of 3 years until YA 2019; and
- The programme be expanded to include Malaysian students pursuing full-time vocational level (Malaysian Skills Certificate Level 3).
- The application period for Pioneer Status or Investment Tax Allowance for investments in new 4 and 5 star hotels in Peninsular Malaysia, Sabah and Sarawak be extended for another 2 years (Effective for applications to be received by the Malaysian Investment Development Authority up to 31 December 2018).
- The existing tax incentives for Halal Industry Players be extended to include production of nutraceutical and probiotic products. The existing qualifying halal products are:-
- specialty processed food;
- pharmaceuticals, cosmetics and personal care;
- livestock and meat products; and
- halal ingredients.
(Effective for applications received by Halal Development Corporation from 22 October 2016)
- To further promote arts, cultural and heritage activities in Malaysia, it is proposed that the limit of tax deduction for a company that sponsors such activities be increased from RM500,000 to RM700,000 per year, where the deduction limit allowed for sponsoring foreign arts, cultural and heritage activities be increased from RM200,000 to RM300,000. (Effective from YA 2017).
- To further encourage the participation of anchor companies in developing more competitive local vendors, it is proposed that the incentive for anchor companies that implement Vendor Development Programme be extended for another 4 years to 31 December 2020.
- Tax exemptions for Islamic banking and Takaful business which operate International Currency Business Unit (ICBU) are to be extended for another 4 years to YA 2020 as follows: –
- Full tax exemption on income received by Islamic banks licensed under the Islamic Financial Services Act 2013 and financial institutions licensed under the Financial Services Act 2013 operating Islamic banking business transacted in foreign currencies including transactions with Malaysian residents;
- Full tax exemption on income received by takaful companies and takaful unit licensed under the Islamic Financial Services Act 2013 and Financial Services Act 2013 operating takaful business transacted in foreign currencies including transactions with Malaysian residents; and
- Full stamp duty exemption on instruments executed pertaining to Islamic banking and takaful activities transacted in foreign currencies.
BR1M will be increased in 2017 as follows:
|Household||e-Kasih||RM1,200 (2016 : RM1,050)|
|< RM3,000||RM1,200 (2016 : RM1,000)|
|RM3,001 – RM4,000||RM900 (2016 : RM800)|
|Single Individual||RM2,000 and below||RM450 (2016 : RM400)|
The Bereavement Scheme of RM1,000 will be continued.
Expansion of scope of royalty
Upon coming into operation of the Finance Act 2016, the existing definition of “royalty” be substituted with the following:
“royalty” includes any sums paid as consideration for, or derived from—
a. the use of, or the right to use in respect of any copyrights, software, artistic or scientific works, patents, designs or models, plans, secret processes or formulae, trademarks or other like property or rights;
b. the use of, or the right to use tapes for radio or television broadcasting, motion picture films, films or video tapes or other means of reproduction where such films or tapes have been or are to be used or reproduced in Malaysia or other like property or rights;
c. the use of, or the right to use know-how or information concerning technical, industrial, commercial or scientific knowledge, experience or skill;
d. the reception of, or the right to receive, visual images or sounds, or both, transmitted to the public by—
- i. satellite; or
- ii. cable, fibre optic or similar technology;
e. the use of, or the right to use, visual images or sounds, or both, in connection with television broadcasting or radio broadcasting, transmitted by—
- i. satellite; or
- ii. cable, fibre optic or similar technology;
f. the use of, or the right to use, some or all of the part of the radio frequency spectrum specified in a relevant licence;
g. a total or partial forbearance in respect of—
- i. the use of, or the granting of the right to use, any such property or right as is mentioned in paragraph (a) or (b) or any such knowledge, experience or skill as is mentioned in paragraph (c);
- ii. the reception of, or the granting of the right to receive, any such visual images or sounds as are mentioned in paragraph (d);
- iii. the use of, or the granting of the right to use, any such visual images or sounds as are mentioned in paragraph (e); or
- iv. the use of, or the granting of the right to use, some or all such part of the spectrum specified in a spectrum licence as is mentioned in paragraph (f); or
h. the alienation of any property, know-how or information mentioned in paragraph (a), (b) or (c) of this definition;.
The definition of “royalty” has been expanded significantly. The inclusion of “software” in the definition of royalty will affect many taxpayers due to the ubiquitous usage of software and information technology. In this regard, more clarification from the Inland Revenue Board is required.
Review of derivation of special classes of income
Upon coming into operation of the Finance Act 2016, income derived by a non-resident under Section 4A(i) and (ii) and deemed to be derived from Malaysia should be subject to withholding tax irrespective of whether the services were performed in Malaysia or outside Malaysia.
This amendment reverts taxpayers to the previous position prior to 21 September 2002 where a non-resident was subject to Malaysian withholding tax under Section 109B of the Income Tax Act 1967 in respect of income falling under Section 4A(i) and (ii) for both offshore and onshore services.
This amendment would lead to a significant increase in the cost of doing business as the payer would be compelled to bear the withholding tax and the non-deductibility of the withholding tax borne increases business costs further.
Redefinition of public entertainer
Upon coming into operation of the Finance Act 2016, the existing definition of “public entertainer” be redefined as follows:
“public entertainer” includes—
a. a compere, model, circus performer, lecturer, speaker, sportsperson, an artiste or individual exercising any profession, vocation or employment of a similar nature; or
b. an individual who uses his intellectual, artistic, musical, personal or physical skill or character in,
carrying out any activity in connection with any purpose through live, print, electronic, satellite, cable, fibre optic or other medium, for film or tape, or for television or radio broadcast, as the case may be.
This amendment seeks to widen the definition of public entertainer for the purposes of expanding the scope of withholding tax application on remuneration that is paid to the relevant non-residents persons falling within Section 109A of the Income Tax Act, 1967. The remuneration or other income of the non-resident public entertainer would only be subject to tax in respect of services performed in Malaysia.