Summary of Malaysia Budget 2020
On 11 October 2019, YB Tuan Lim Guan Eng, Malaysia Finance Minister has tabled Budget 2020 themed “Driving Growth and Equitable Outcomes Towards Shared Prosperity”.
The following is the summary of tax measures for Malaysia Budget 2020.
Malaysia Budget 2020 – Personal Tax
- It is proposed that the income tax for resident individuals with chargeable income of more than RM2,000,000 be increased by 2% to 30%. The fixed income tax rate for non-residents shall be increased by 2% from 28% to 30%.
- To reduce the financial burden of married couples seeking fertility treatment, it is proposed that the scope of income tax relief on medical treatment expenses be expanded to cover the cost of fertility treatment.
- To reduce the financial burden of parents in providing childcare and early childhood education, it is proposed that individual tax relief be increased from RM1,000 to RM2,000.
- Taking into consideration that umrah and pilgrimage to holy places are performed for religious purposes, it is proposed that the individual income tax rebate equivalent to the amount of levy paid to be given and can be claimed twice in a lifetime.
The rebate is to be claimed with proof of boarding pass and subject to either umrah visa; or confirmation letter on pilgrimage to the holy place from a religious body recognised by the Committee for the Promotion of Inter Religious Understanding and Harmony Among Adherents, Department of National Unity and Integration, Prime Minister’s Department.
- To further inculcate the philanthropic culture among Malaysians and to streamline the tax treatment between individuals and companies, it is proposed that a tax deduction at an increased rate of 10% (previously 7%) be given also to individuals on contribution for charitable and sports activities as well as projects of national interest.
- To encourage more women who are on a career break to return to work, it is proposed that the existing tax incentive (income tax exemption for a period of 12 months) be extended for a period of 4 years.
Malaysia Budget 2020 – Corporate Tax
- To further support the growth of SME and to ensure the lower income tax rate benefits only the eligible SME, it is proposed that the chargeable income limit which is subject to 17% tax rate be increased from up to RM500,000 to up to RM600,000; and only companies with paid-up capital or LLP with capital contribution of up to RM2.5 million and having an annual sales of not more than RM50 million are eligible for this tax treatment.
- The value of each asset is increased from RM1,300 to RM2,000 for the purpose of claiming capital allowance by SME and non-SME, and the limit of qualifying capital allowance eligible to be claimed by non-SME be increased from RM13,000 to RM20,000 for each year of assessment.
- To enhance tax compliance and to ensure good governance while providing flexibility to taxpayers, it is proposed that tax deduction limit on expenses incurred on secretarial fee and tax filing fee be combined and allowed up to RM15,000 each year of assessment.
- In assisting technology-based companies and Small and Medium Enterprises to grow their businesses by raising additional capital through listing in ACE Market or LEAP Market, it is proposed that tax deduction of up to RM1.5 million be given on the following listing costs:
- fees to authorities;
- professional fees; and
- underwriting, placement and brokerage fees.
- It is proposed that the current income tax exemption on all income given to an approved religious institution or organisation registered under the Registrar of Societies Malaysia be extended to a religious institution or organisation registered as a Company Limited by Guarantee with the Companies Commission of Malaysia.
- To encourage local arts, cultural and heritage activities in the country, it is proposed that the tax deduction limit for companies sponsoring arts, cultural and heritage activities be increased up to RM1,000,000 a year. The tax deduction limit for sponsoring foreign arts, cultural and heritage activities remains up to RM300,000 a year.
- To further encourage the involvement of private sector in the implementation of Corporate Social Responsibility, it is proposed that the tax deduction under subsection 34(6)(h), ITA 1967 be enhanced to include:
- environmental preservation and conservation projects including forest, island, beach and national park; and
- maintenance and conservation projects for heritage buildings designated by National Heritage Department under the National Heritage Act 2005.
Malaysia Budget 2020 – Tax Incentives
- To encourage continuous investment in Malaysia, it is proposed that electrical and electronic (E&E) companies that have exhausted the eligibility period of 15 consecutive years to claim RA be given income tax exemption equivalent to Investment Tax Allowance of 50% on qualifying capital expenditure incurred within a period of 5 years. This allowance can be set-off against 50% of statutory income for each year of assessment.
- To encourage intellectual property development activities in Malaysia, it is proposed that income tax exemption of 100% up to 10 years be given on qualifying intellectual property income derived from patent and copyright software of qualifying activities.
- To further increase investment in renewable energy, it is proposed that existing tax incentives for green technology be extended for a period of 3 years. In addition, the new tax incentive for solar leasing activities is introduced with income tax exemption of 70% of statutory income for a period of up to 10 years of assessment for solar leasing companies certified by Sustainable Energy Development Authority (SEDA).
- To support Visit Malaysia Year 2020, it is proposed that licensed tour operators be given ACA on expenses incurred on the purchase of new locally assembled excursion bus with initial allowance of 20% and annual allowance of 40% to be fully claimed within 2 years; and excise duty exemption of 50% on the purchase of new locally assembled vehicles used as tourism vehicles.
- To promote Malaysia as the preferred destination for hosting international conferences and in conjunction with Visit Malaysia Year 2020, it is proposed that the income tax exemption of 100% of statutory income be expanded to any entities whose main activities are other than promoting and organising conferences provided that the organiser brings in at least 500 foreign participants annually.
- To encourage the organising of arts and cultural activities as well as international sports and recreational competitions, especially to attract foreign tourists in conjunction with Visit Malaysia Year 2020, it is proposed that the income tax exemption of 50% be given on statutory income of the company that organize arts and cultural activities approved by Ministry of Tourism, Arts and Culture; and international sports and recreational competitions approved by Ministry of Youth and Sports.
- To further promote the growth of tourism sector, it is proposed that the scope of current tax incentives be expanded to include integrated tourism and sports tourism project. In addition, to attract more investment in tourism projects, it is proposed that new investment for international theme park be given tax incentive as follows:
- Pioneer Status with a tax exemption of 100% of statutory income for 5 years; or
- ITA of 100% on the qualifying capital expenditure incurred within 5 years. This allowance can be set-off against up to 70% of statutory income.
- To further promote automation and enhance productivity and efficiency in the labour-intensive industry, it is proposed that:
- the incentive period for Category 1 and Category 2 below be extended for 3 years until the year of assessment 2023; and
- the scope of incentive for Category 2 is expanded to services sector.
Category 1: Labour-intensive Industry (rubber, plastic, wood and textile products)
Accelerated Capital Allowance (ACA) for automation equipment of 100% on the first RM4 million for qualifying capital expenditure incurred from year of assessment 2015 to year of assessment 2020 and can be utilised within 1 year.
Category 2: Industries other than Category 1
ACA for automation equipment of 100% on the first RM2 million for qualifying capital expenditure incurred from year of assessment 2015 to year of assessment 2020 and can be utilised within 1 year.
Companies in both categories are also eligible for income tax exemption equivalent to 100% of the ACA on automation equipment.
- To attract more angel investors to contribute towards economic activities through capital financing in investee companies, it is proposed that the tax incentive application period for angel investors be extended for a period of 3 years.
- To further encourage alternative financing through venture capital, it is proposed that the existing tax incentives for venture capital be extended for a period of 4 years. The qualifying investment period is extended until 31 December 2026.
- To increase the employability of local graduates through an early exposure to the working environment, it is proposed that the existing tax incentive be expanded to include Bachelor’s Degree, Diploma, Vocational (DKM Level 4 and 5) and SKM Level 3 students in all academic fields and be extended for a period of 2 years.
- To further increase Industry4WRD-ready workforce in line with industry needs, it is proposed that the existing tax incentive be extended for a period of 2 years.
- To encourage more employers to make PTPTN loan repayment on behalf of their employees, it is proposed that the existing tax incentive be extended for a period of 2 years.
- To further promote the development of REITs in Malaysia, it is proposed that the existing tax treatment be extended for a period of 6 years.
- To further promote the issuance of Sukuk under the principle of Wakalah, it is proposed that the existing tax incentives be extended for a period of 5 years
- To further encourage the issuance of SRI Sukuk, it is proposed that the existing tax incentive be extended for a period of 3 years.
- To further promote SRI fund management services, it is proposed that the existing income tax exemption be extended for a period of 3 years.
- To further promote Shariah-compliant fund management services, it is proposed that the existing income tax exemption be extended for a period of 3 years.
Real Property Gain Tax
- Budget 2020 improve the treatment of RPGT on disposal of real properties by Malaysian citizens and permanent residents after 5 years from the date of acquisition, it is proposed that the determination of market value as of 1 January 2000 for real properties acquired before year 2000 be amended to market value as of 1 January 2013 as the acquisition price for the disposal of real properties acquired prior to year 2013 for the purpose of RPGT computation. (for the disposal of real properties made from 12 October 2019)
- To assist Malaysians in obtaining financing facilities from financial institutions for the purpose of first home ownership under the Rent-to-Own (RTO) scheme managed by the National Housing Department (NHD), Ministry of Housing and Local Government [Kementerian Perumahan dan Kerajaan Tempatan (KPKT)], it is proposed that full stamp duty exemption be given on the instrument of transfer of first residential home priced up to RM500,000 for the following transactions:
- transfer of the residential home from a housing developer to a financial institution; and
- transfer of the residential home from a financial institution to buyer.
- Stamp duty remission of 50% on the instrument of real property transfer between parents and children and vice versa by way of love and affection is restricted to Malaysian citizen only.
- The maximum amount of stamp duty on foreign currency loan agreements be increased from RM500 to RM2,000.
- To encourage more stage performances to be held in conjunction with the Visit Malaysia Year 2020, it is proposed that full entertainments duty exemption be given on admission tickets for stage performances that include concerts, singing, music, dances and theatres including cultural and artistic performance by local and international artists held at any venue in the Federal Territory of Kuala Lumpur, Labuan and Putrajaya subject to approval by the relevant local authorities.
Introduction of Approved Major Exporter Scheme under Sales Tax Act 2018
Budget 2020 improve the existing drawback and exemption facility and to maintain the competitiveness of export-oriented companies in Malaysia, it is proposed that Approved Major Exporter Scheme be introduced under the Sales Tax Act 2018. Through this scheme, the approved traders and manufacturers of exempted goods are:
- eligible for full sales tax exemption on the importation and purchase of goods or raw materials, components and packaging materials; and
- not required to determine the number of goods to be exported at the time of importation or purchase of goods.
Sales tax shall be paid for:
- the portion of trading goods or manufactured exempted goods that are not exported or sold in the local market, based on the prescribed formula; and
- waste or refuse of raw materials, components and packaging materials used for the manufacturing of exempted goods that are disposed or sold in the local market.
Traders or manufacturers of exempted goods are eligible to apply for the scheme subject to the export of not less than 80% of their annual sales.
(Effective Date – From 1 July 2020)
Improvement on Group Relief Facility under Service Tax
Group relief is allowed for the taxable services under professional group provided by a company to a third party who is not within the same group of company. This facility is subject to a condition that the value of services provided to the third party does not exceed 5% of the total value of services provided by that company within 12 months.
(Effective Date – From 1 January 2020)
Service Tax Exemption on Provision of Training and Coaching Services for Disabled Person
Malaysia Budget 2020 mention that Service tax exemption is given on the training and coaching services to disabled persons with hearing, visual, physical, speech, mental, and learning disabilities provided by the service providers as follows:
- training and coaching centres registered with Ministry of Health Malaysia or Department of Social Welfare; or
- training and coaching centres endorsed by any national association for disabled persons registered with Registrar of Societies Malaysia.
(Effective Date – From 1 January 2020)