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Highlights of Malaysia Budget 2019

On 2 November 2018, YB Tuan Lim Guan Eng, Malaysia Finance Minister has tabled Budget 2019 themed “A Resurgent Malaysia, A Dynamic Economy, A Prosperous Society”.

The following is the summary of tax measures for Malaysia Budget 2019.

 

Personal Tax

• Income tax relief on contributions for Employees Provident Fund (EPF) and payment for life insurance premiums or takaful contributions of RM6,000 per year of assessment (YA) is to be increased to RM7,000 and separated as follows:

• Contribution to EPF – up to RM4,000;
• Takaful contributions or payment for life insurance premiums – up to RM3,000.For public servants under the pension scheme, a relief of up to RM7,000 on takaful contributions or payment for life insurance premiums is given.
  (Effective for YA 2019)
• Tax relief on net savings in the SSPN is to be increased from RM6,000 to RM8,000 annually. (Effective for YA 2019 and YA 2020)

 

Corporate Tax

• The income tax rate for SMEs and LLPs on chargeable income of up to RM500,000 is to be reduced from 18% to 17%.
• The surrendering of losses is to be allowed only after the 12th month period of surrendering company commencing its operations and is limited up to 3 consecutive YAs; and the claimant company which has unutilised ITA or unabsorbed pioneer losses will not be eligible to claim the group relief.
• The ability to carry forward unutilised business losses, capital allowances, reinvestment allowances, investment allowances, pioneer losses and investment tax allowances will be limited to 7 YAs.
• Special Voluntary Disclosure Programme will be offered to taxpayers who voluntarily declare any unreported income and the penalty rates will be as follows:
  

  Disclosure period	Penalty rate on tax payable
  3 November 2018 until 31 March 2019	10%
  1 April 2019 until 30 June 2019	15%

  For disclosures made after 30 June 2019, the penalty rates will range from 80% to 300%.

• Labuan International Business Financial Centre (Labuan IBFC) tax treatment to be restructured as follows:
  • Abolishment of election for tax at RM20,000;
  • Abolishment of restriction on transactions conducted in RM and transactions between Labuan entity and resident of Malaysia;
  • Imposition of new conditions;
    • Labuan IBFC activity is subjected to conditions as determined by a committee;
    • Income from intellectual property assets held by Labuan entity is subjected to tax under Income Tax Act 1967; and
    • Resident who transacts with Labuan entity is entitled for tax deduction on expenditure incurred (limited to 3% of allowable expenditure)

(Effective from 1 January 2019)

 

Tax Incentives

• Employers who have made payments of PTPTN loans on behalf of their full-time employees are eligible for a tax deduction on the repayment amount (provided no repayment of PTPTN loans by the employees to the employers). (Effective from 1 January 2019 to 31 December 2019)
• Further deduction on the remuneration paid by employers to full time senior citizens above 60 years old or ex-convicts whose monthly remuneration does not exceed RM4,000. (Effective from YA 2019 to YA 2020)
• Income tax deduction to be given for contributions to any social enterprise subject to a maximum of 10% of the aggregate income of a company or 7% of the aggregate income of a person other than a company. (Pending effective date)
• Companies that produce environmentally-friendly plastics based on bio-resin and biopolymer will be granted for the following tax incentive (pending effective date):
  • Pioneer Status of 70% on statutory income for a period of 5 years; or
  • Investment Tax Allowance of 60% on qualifying capital expenditure for a period of 5 years.
• Incentive for Industry4WRD

1. Tax deduction on expenses for Industry4.0 (I4.0) Readiness Assessment (I4.0-RA)
Tax deduction on the readiness assessment expenses of I4.0-RA of up to RM27,000 paid to the Malaysian Productivity Corporation.

2. Tax deduction for implementation of Industry4WRD Vendor Development Program
An anchor company which develops local vendors in I4.0 is eligible to claim a double deduction on costs of product development, upgrading capabilities of vendors and skill training of vendors, as verified by the Ministry of International Trade and Industry (MITI).

The qualifying operating expenditure is up to RM1 million per year for 3 YAs.

3. Income Tax Incentive for Human Capital Development

• Double deduction on scholarships provided by companies to Malaysian students pursuing studies at technical and vocational levels, diplomas and degrees in the fields of engineering and technology. (Effective from YA 2019 to YA 2021)
• Tax deduction on expenses incurred by companies participating in the National Dual Training System Training Scheme for the I4.0 program approved by the Ministry of Human Resources. (Effective for programmes implemented from 1 January 2019 to 31 December 2019)
• Tax deduction on expenses for development of new I4.0 technology and engineering courses by the Private Higher Education Institutions. The new courses must be verified by Ministry of Education. (Effective from YA 2019 to YA 2021)
• Double deduction on expenditure incurred by a company in upgrading and developing its employees technical skills in I4.0 technology for training programmes approved by the Malaysian Investment Development Authority (MIDA); (Effective for companies participating in the Readiness Assessment Intervention Plan from 1 January 2019 to 31 December 2019)
• Double deduction on expenditure incurred by a company in conducting internship programme approved by the Ministry of Human Resources for undergraduate students in fields of engineering and technology. (Effective from YA 2019 to YA 2021)
• Tax deduction on equipment and machinery contributed by companies to Skills Development Centres, Polytechnics or Vocational Colleges certified by the Ministry of Human Resources or the Ministry of Education. (Effective for contributions made from 1 January 2019 to 31 December 2021)

 

Sales and Services Tax

• To assist the problems faced by small manufacturers who purchase their products from importers instead of other registered manufacturers, the Government will introduce a credit system for Sales Tax deduction starting 1 January 2019.
• The Government will grant Service tax exemptions for specific business-to-business services for registered Service Tax entities. This will prevent the increase in the cost of doing business as a result of compounded taxation and protect the competitiveness of our local service industry.
• To ensure that our local service providers are not unfairly disadvantaged against their foreign competitors, Service Tax be imposed on the taxable services imported into Malaysia. The imposition of Service Tax on imported services will be carried out in 2 phases, services imported by Malaysian businesses from 1 January 2019 while services imported by Malaysian consumers from 1 January 2020.
• Excise duty at the rate of RM0.40 per litre be charged on sugar sweetened beverages based on the sugar content as follows:
  • Fruit juices and vegetable juices under the tariff heading of 20.09, which contains sugar exceeding 12 grams per 100 millilitres; and
  • Beverages under the tariff heading of 22.02, which contains sugar exceeding 5 grams per 100 millilitres. (Effective 1 April 2019)

 

Stamp Duty

• The rate of stamp duty on transfer of property is to be restructured as follows:
  

  Property value (RM)	Current rate	Proposed rate
  First RM100,000	1	1
  RM100,001 to RM500,000	2	2
  RM500,001 to RM1,000,000	3	3
  RM1,000,001 and above	3	4

• First-time buyers of homes priced up to RM500,000 are exempted from stamp duty of up to RM300,000 in respect of the instrument of transfer and loan agreement. (extended for two years until 31 December 2020)
• Stamp duty exemption given for the purchase of a first home priced between RM300,001 and RM1 million from any housing developer for a period of six months from 1 January 2019 to 30 June 2019.
• Stamp duty exemption given on insurance policies/certificates under the Perlindungan Tenang insurance products with annual premium/ contribution not exceeding RM100. (Effective for policies/certificates issued from 1 January 2019 to 31 December 2020)

 

RPGT

• The rate of RPGT on gains from the disposal of real properties or shares in real property companies in the sixth and subsequent years of disposal are revised as follows:
  • Company, non-citizen, and non-permanent resident individual – increased from 5% to 10%.
  • Malaysian citizen or permanent resident – increased from 0% to 5%.

The increased tax rate does not apply to the disposal of low cost, medium low and affordable residential homes at valued below RM200,000 by Malaysian citizens.