TaxPlanning: Budget 2020 and the taxpayer

This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on October 28, 2019 - November 03, 2019.
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How does Budget 2020 impact the rakyat? Let’s start from the perspective of the rakyat, then zoom out to how it affects business — in particular Visit Malaysia Year 2020 — and the economy at large.

 

THE IMPACT ON THE MAN IN THE STREET

 

1. Income tax scale rates

The income tax scale rates remain at 0% to 28% for the first RM2 million in chargeable income. The tax bands remain unchanged.

However, a significant move was made: resident individuals who have chargeable income exceeding RM2 million will be taxed at 30%. The fixed rate for non-resident individuals is accordingly increased to 30% from 28% to be on a par with the top rate.

It has since been disclosed that 2,000 persons fall into this category of taxpayers and that the 2% increase will bring in tax revenue of RM100 million. This works out to an average of RM50,000 from each of the 2,000 super-taxpayers.

I applaud this move as it is definitely in the right direction. So, the top 0.1% pays a little more to help fund public expenditure. I have no doubt that they will not, indeed should not, begrudge this sharing of wealth with the community to which they belong.  

 

2. For homeowners

RPGT

The Real Property Gains Tax (RPGT) issue of zero-rating was top most on many people’s minds. There was strong public opinion for the reinstatement of the zero rate for real properties held for more than five years.

In the end, as a compromise, the Minister of Finance introduced a higher baseline as the deemed acquisition price. Thus, instead of the market value as at Jan 1, 2000, the baseline has been moved to Jan 1, 2013 — a full 13 years later. This will substantially bring down the quantum chargeable to RPGT. Boleh tahan lah!

 

Stamp duty exemption for RTO

The Rent-to-own (RTO) scheme was introduced to help Malaysians obtain financing to own their homes. Stamp duty exemption will be put in place for the instruments relating to the first home under the RTO. This is a good start.

The 50% remission in stamp duty for the transfer of properties between parents and children has been tweaked so that it is only applicable to citizens.

 

3. For parents

The current tax relief of RM6,000 for medical expenses related to serious diseases has been broadened to include the cost of fertility treatment. This is timely and will help married couples realise their dream of parenthood. This is also in line with the current efforts to increase the population in view of the rapidly ageing one in Malaysia.

The tax relief for childcare and kindergarten expenses has been increased from RM1,000 to RM2,000 in 2020. This is certainly welcomed.

 

4. Exemption for certain early PRS withdrawals

The exemption for early withdrawals (before the age of 55) from a Private Retirement Scheme (PRS) has been extended to withdrawals for healthcare and housing.

 

5. Investing in REITs

Investors in real estate investment trusts (REITs) will continue to enjoy the preferential 10% tax on the distributions received from REITs. The tax treatment has been extended until 2025.

 

6. Donations

The threshold for approved cash donations has been standardised at 10% (currently 7% for persons other than companies) of aggregate income. This means individuals can donate up to 10% of their aggregate income and be eligible for a tax deduction.

 

7. Tax rebate on departure levy for pilgrimage

The departure levy on an individual leaving Malaysia (with effect from Sept 1) will be allowed as a tax rebate where the individual embarks on umrah or religious pilgrimage provided that it has been duly certified by the relevant religious bodies/committee.

My reading of the law says all religions recognised by the Committee for the Promotion of Inter-Religious Understanding and Harmony among Adherents will qualify for the rebate. It is restricted to only two pilgrimages (presumably in one’s lifetime).

 

THE IMPACT ON DOING BUSINESS IN MALAYSIA

 

1. No change to tax rates for companies

The headline tax rate for companies, trusts and limited liability partnerships (LLPs) remains at 24%. The two-tier rates of 17% and 24% for companies and LLPs with lower paid-up ordinary share capital (see next item) remain unchanged.

 

2. SMEs

The definition of small and medium enterprises (SMEs) has been tweaked: a company or LLP with the paid-up ordinary share capital of no more than RM2.5 million and deriving gross business income of not more than RM50 million in the year of assessment.

The 17% tax rate for SMEs is now applicable on the first RM600,000 (up from RM500,000) of its chargeable income. This means a further tax savings of RM7,000.

Technology-based companies and SMEs listing on the ACE (Access, Certainty, Efficiency) and LEAP (Leading Entrepreneur Accelerator Platform) markets on Bursa Malaysia will be allowed a tax deduction of up to RM1.5 million of their listing costs (specified). The deduction is available only for three years, from YA2020 to YA2022.

 

3. Capital allowance

The threshold for small-value assets (SVA) is now set at RM2,000 (up from RM1,300) per asset. SVAs are eligible for 100% capital allowance. The annual total is capped at RM20,000 (up from RM13,000) for non-SMEs. SMEs will continue to enjoy 100% capital allowance for all of its SVAs without being restricted to RM20,000 a year.

 

4. Intra-group service

Currently, there is relief from service tax on intra-group services, provided that no such service is provided to third parties.

Now, a de minimis of 5% has been introduced for services rendered to third parties. That means services rendered to third parties may be up to 5% of the total value of the services provided by that company within 12 months and still not incur service tax on intra-group services.

 

5. Secretarial and tax fees deduction

The tax-deductible secretarial fee of RM5,000 and tax filing fee of RM10,000 will be combined into a global total of RM15,000 for tax deduction for each year of assessment. This is simpler and more flexible.

 

6. PTPTN payment deduction

Employers that pay their employees’ National Higher Education Fund Corporation (PTPTN) loans payable in 2019 are eligible for tax deduction. This has been extended to payments made in the next two years (until 2021).

 

7. Double deduction for structured internship programme

This has been expanded in scope and extended for two years until 2021.

 

8. Tax deduction for sponsorship of local artistes

The amount deductible for the sponsor has been increased to RM1 million from RM700,000. The deduction in respect of sponsorship of foreign artistes remains at RM300,000.

 

THE IMPACT ON TAXPAYERS IN GENERAL

1. Penalty for late payment of tax

Good news, the penalty for late payment of tax — previously at 10% for the first 60 days and 5% if payment is made after 60 days — has been reviewed. It is now just 10%, and no more 5% after 60 days. This is equitable and most welcomed because that was another penalty on top of a penalty.

 

2. Right of appeal

A taxpayer aggrieved by a tax assessment must lodge an appeal within 30 days of the service of the notice. Currently, where a taxpayer is late in appealing, he has to apply to the Director-General of Inland Revenue (DGIR) for an extension of time to file his appeal. If the DGIR is not inclined to grant the extension, he will forward the case to the Special Commissioner of Income Tax (SCIT) for consideration. The SCIT’s decision is final and there will be no further appeal.

Now, the law will be amended to allow taxpayers seven years to ask the DGIR for an extension of time to appeal. This exercise will no longer involve the SCIT. The amendment, as drafted, does not indicate whether the extension will likely be granted if the application is made within seven years.

 

3. Double-tax cases

If certain income has been taxed in Malaysia and again in another country with which Malaysia has entered into a double-taxation treaty, there is an avenue for resolution of disputes between the tax authorities of both countries as to how each country should tax the said income. This is called the mutual agreement procedure (MAP).

There is now a proposed amendment to allow the DGIR to raise an additional assessment “at any time” in consequence of an MAP. This runs contrary to the statutory time bar of five years for normal cases.

 

4. Visit Malaysia Year 2020

For those in tourism-related businesses, there are a few measures to boost Visit Malaysia Year 2020:

•    Tourism vehicles — accelerated capital allowance is given to claim the qualifying capital expenditure in two years of assessment and exemption from excise duty.

•    Businesses are encouraged to host and organize conferences in Malaysia between 2020 and 2025. If they bring in at least 500 foreign participants a year, they will be given a tax exemption of 100% of their statutory income.

•    Companies that organise arts and culture activities, international sports and recreational competitions to attract foreign tourists will get a tax exemption of 50% of their statutory income. This is available during year of assessment (YA) 2020 to 2022.

•    Entertainment duty of 5% is exempted for admission tickets for stage performances in Kuala Lumpur during Visit Malaysia Year 2020.

 

How does Budget 2020 propose to stimulate the economy on the whole?

The budget offers or extends tax incentives to the following:

•    Electrical and electronic sector for YA2020 and 2021;

•    Development of intellectual property: income from patents, copyright software of qualifying activities for YA2020 to 2022;

•    Green technology incentive extended to YA2023;

•    Tourism projects incentive to develop integrated and sports tourism projects;

•    Automation;

•    Angel investing; and

•    Venture capital investing.

 

May you derive some benefits from Budget 2020!


Yong Siew Chuen has wide experience in Malaysian taxation. She now focuses on tax training and coaching. Comments: [email protected].