Highlights of Malaysia Budget 2018
On 27 October 2017, YAB Dato’ Sri Mohd Najib Bin Tun Haji Abdul Razak, Malaysia Prime Minister has tabled Budget 2018 themed “Prospering an Inclusive Economy, Balancing Between Worldly and Hereafter, for the Wellbeing of Rakyat, Towards the TN50”.
The following is the summary of tax measures for Malaysia Budget 2018.
Goods and Services Tax
- It is proposed that the GST treatment on magazines, journals, periodicals and comics be harmonised with treatment on all types of books which are reading materials and be subjected to zero-rated supply. (From 1 January 2018)
- It is proposed that management and maintenance services supplied by housing developers to owners of stratified residential buildings will be treated as an exempt supply. (From 1 January 2018)
- It is proposed that all supplies made by Local Authorities will not be subject to GST (out of scope). GST relief will be given to Local Authorities on the acquisition of all goods excluding petroleum, commercial buildings or land and on the importation of motor cars. (Effective from 1 April 2018 or 1 October 2018, as opted by the Local Authorities)
- It is proposed that 100% GST relief be given for services of construction of school buildings and places of worship, financed through public donations. The GST relief is restricted to construction services for which the invoice has not been issued and subject to the following conditions:
- The approval under the Subsection 44(6) of Income Tax Act 1967 for their construction fund has been obtained;
- The approvals for development and construction by Local Authorities, the Ministry of Education Malaysia, or State Religious Councils (for surau or mosques) have been obtained;
- Construction of school building including hall and sport facilities are directly used for teaching and learning purposes;
- The relief does not apply to the purchase of commercial buildings; and
- Construction services contract signed on or after 1 April 2017.
(Effective for applications submitted to the Ministry of Finance from 27 October 2017)
- It is proposed that companies carrying out activities in the aviation, shipping and oil and gas industries be given relief from paying GST on the importation of big ticket items. The list of big ticket items and the terms and conditions of approval are to be stipulated by the Minister of Finance. (From 1 January 2018)
- It is proposed that companies involved in the oil and gas industry be given relief from payment of GST on the importation of goods under lease agreements into Malaysia from Designated Areas. The lease of goods and the terms and conditions of approval are to be stipulated by the Minister of Finance. (From 1 January 2018)
- It is proposed that cruise ship operators be given relief from payment of GST on handling services provided by sea port operators in Malaysia. (From 1 January 2018 to 31 December 2020)
- To ensure smooth and efficient management of appeals and operations of the Tribunals, as well as optimum use of resources, it is proposed that both Customs Appeal Tribunal (CAT) and Goods and Services Tax Appeal Tribunal (GSTAT) to be merged and all appeals relating to the decision of the Director General of Customs are to be heard by a single Tribunal which is CAT.
- As a measure to increase the disposable income of the middle income group and to address the rising cost of living, it is proposed that individual income tax rates for resident individuals be reduced by 2 percentage points for the 3 chargeable income bands below:
- RM20,001 to RM35,000, the rate is reduced from 5% to 3%
- RM35,001 to RM50,000, the rate is reduced from 10% to 8%
- RM50,001 to RM70,000, the rate is reduced from 16% to 14%
(Effective from YA 2018)
- To encourage Malaysian resident individuals to rent out residential homes at reasonable charges, it is proposed that 50% income tax exemption be given on rental income received by Malaysian resident individuals subject to the following conditions:
- Rental income received not exceeding RM2,000 per month for each residential home;
- The residential home must be rented under a legal tenancy agreement between the owner and the tenant; and
- Tax exemption is given for a maximum period of 3 consecutive years of assessment.
(From YA 2018 until YA 2020)
- To further encourage savings for the purpose of financing tertiary education of children, it is proposed that the resident individual income tax relief of up to RM6,000 for net savings in the SSPN be extended for another 3 years (From YA 2018 until YA 2020).
- To encourage women who have been on a career break to return to the workforce, it is proposed that their employment income up to maximum of 12 consecutive months to given individual income tax exemption. The incentive is available for women who return to the workforce after being on a career break for at least 2 years on 27 October 2017. (From YA 2018 until YA 2020).
Corporate Tax and Tax Incentives
- It is proposed that capital allowances will be given (initial allowance of 20% and annual allowance of 20%) on the following qualifying expenditure:-
- Expenditure incurred on the purchase of ICT equipment and computer software packages (Effective YA 2017)
- Development of customised software comprising of consultation fees, licensing fees and incidental fees related to software development (Effective YA 2018)
- It is proposed that the Thin Capitalisation Rules be replaced by the Earning Stripping Rules, a new method introduced by the Organisatoin for Economic Cooperation and Development (OECD) (Effective from 1 January 2019)
- It is proposed that double deduction be extended to the employer of persons who have been affected by accidents/critical illnesses and who are not certified by the JKM. Currently, double deduction is given on the remuneration payable by an employer in respect of the employment of a disabled person as certified by the Department of Social Welfare (JKM).
(Effective from YA 2018).
- To attract prospective angel investors to contribute to economic activities through capital injection in investee companies, it is proposed that the application period for Angel Investors to enjoy the tax incentive be extended for another 3 years. (Effective for applications submitted to the MOF from 1 January 2018 to 31 December 2020)
- To further encourange tour operating companies to boost tourism activities in conjuction with the Visit Malaysia Year 2020 compaign, it is proposed that current tax incentives for tour operating companies be extended for another 2 years (From YA 2019 until YA 2020)
- It is proposed that the application period for tax incentive for new and existing companies carrying out a new investment or which will be undertaking an expansion, modernisation or refurbishment of private healthcare services be extended for another 3 years. (For application submitted to MIDA until 31 December 2020)
- To build confidence of healthcare travelers on the level of safety and quality of services offered, it is proposed that company registered with the Malaysian Healthcare Travel Council (MHTC) that provides dental and ambulatory healthcare services be given double deduction for expenses incurred in obtaining certification for quality systems and standards from the approved certification bodies below (Effective YA 2018) :
- Malaysian Society for Quality in Health (Malaysia);
- Joint Commission International (United States of America);
- CHKS Accreditation Unit (United Kingdom);
- The Australian Council on Healthcare Standard (Australia); and
- Accreditation Canada (Canada).
- In order to further promote tourism sector and in line with the Visit Malaysia Year 2020 campaign, it is proposed that the application period for the existing tax incentives for investments in new 4 and 5 star hotels in Peninsular Malaysia, Sabah and Sawarak be extended for another 2 years until 2020. (For application submitted to MIDA until 31 December 2020)
- To promote growth in healthcare services and establish Malaysia as a healthcare hub for foreign patients, it is proposed that the level of tax exemption on income derived from the export of healthcare services to foreign clients either in Malaysia or from Malaysia be increased from 50% to 100% of the value of increased exports of services and to be set-off against 70% of statutory income. (From YA 2018 until YA 2020)
- To further ease financial burden of the original house purchasers and encourage the involvement of rescuing contractors to revive abandoned housing projects, it is proposed that the existing stamp duty exemptions be extended for another 3 years. (Loan agreements and memorandums of transfer executed from 1 January 2018 to 31 December 2020 for abandoned housing projects certified by the Ministry of Urban Wellbeing, Housing and Local Government.)
- To further promote development of the capital market and to make Malaysia’s capital market more competitive at the international level, it is proposed that the stamp duty exemptions be given on contract notes for trading of Exchange Traded Funds (ETF) and Structured Warrants (SW) by investors. (For the trading of ETF and SW executed from 1 January 2018 to 31 December 2020)
Safeguarding the Women and Family Wellbeing
Women play a very important role in the wellbeing of family and national development. Therefore, in recognising women’s contribution, the Government is pleased to announce 2018 as the Women Empowerment Year.
In this respect, several initiatives will be implemented as follows:
- Require at least 30% participation of women as board of directors in Government-linked companies (GLCs) and Government-linked investment companies (GLICs) as well as statutory bodies by end-2018;
- Propose maternity leave for the private sector to be increased from 60 days to 90 days as implemented by the public sector;
- A sum RM20 million is allocated to conduct women training and entrepreneurship programmes, which include Performance Empowerment Acceleration Knowledge (PEAK) Entrepreneur Programme under MyWin Academy; and
- To encourage women who have been on a career break for at least two years to return to the workforce, the Government proposes that their earnings on a maximum of 12 months consecutive salary received be given personal income tax exemption. The incentive is available for women who return to the workforce between the year of assessment 2018 to 2020.