budget seminar 2014

LOH BOON HOW, CHARTERED ACCOUNTANT

Malaysia Budget 2014 Highlight

B.H. Loh & Associates

Real Property Gain Tax

Act (RPGT)1976


RPGT Penalty

Current provision (Sec 14 & 15, RPGT 1976)If disposer provides incorrect notification

(CKHT 3) to acquirer resulting in no retention made, penalty will be charged at 10% of tax payable,

Proposal (Sec 14(5), 15(4) & 29(4), RPGT 1976)Tax payable means amount of tax charged on

chargeable gain excluding allowable loss. (Coming into operation of this Act)


RPGT calculation

RM RMSales 180,000

Purchase cost 100,000Incidental cost 30,000 (130,000)Net profit 50,000Waiver (RM10,000 or 10%, whichever the higher)

(10,000)

Chargeable gain 40,000


Purchase of property

Raise the minimum price of property that can be purchase by foreigner to 1 million ringgit from RM500,000.

Prohibited developers from implementing projects that have features of Developer Interest Bearing Scheme (DIBS) to prevent developers from incorporating interest rates on loans in house prices during the construction periods.


Director’s liabilities

Director’s liabilities (Para 5(4)(b), Sch 1 RPGT)Current provisionCompany director with more than 50%

ownership jointly liable for company’s tax or debt.

ProposalCompany director with not less than 20%

ownership jointly liable. (W.e.f coming into operation of this Act)


Real Properties RPGT current rates

Companies

Citizen Individu

al

Non-citizen

Individual

Within 2th years

15% 15% 15%

In 3th years 10% 10% 10%In the 6th year and subsequent years

0% 0% 0%


Real Properties RPGT proposed rates

Companies Citizen Individual

Non-citizen

individual

Within the 3rd years

30 30 30

In the 4th year 20 20 30In the 5th year 15 15 30In the 6th year and subsequent years

5 0 5

W.e.f 1st Jan 2014


Good And Service Tax (GST)


Good and Service Tax (GST)

The GST will be effective from 1 April 2015 and fixed at 6%. GST replaces current sales tax (10%) and service tax (6%).

ExemptionThe GST will not impose on basic food

items such as rice, sugar, salt, piped water supply, 200 units of electricity /month.


Good and Service Tax (GST)

The GST will not impose on the issuance of passports, licenses, health services and transportation service such as bus, train, LRT, Taxi and highway tolls.

Sales, purchase and rental of resident properties and selected financial services are exempted from GST.


Incentive to accommodate GST

1. The deduction allowed (w.e.f 2015)Secretarial fees up to RM5,000Tax filing fees up to RM10,000

2. Further deduction for resident company on expenses in relation to training of full-time employee in accounting and ICT for the implementation of GST. (W.e.f YA 2014 – YA 2015)


Incentive to accommodate GST

Accelerated capital allowance on capital expenditure incurred on ICT equipment used for business. (W.e.f YA 2014 – YA 2016)

(Initial allowance 20% and annual allowance 80%)One-off assistance of RM300.00 to

households who are BR1M recipients to cope with GST.


Income Tax Act 1967

(Corporate tax)


Basis period of business

Basis period of business(Sec 21A(3) ITA 1967)Current provision Basis period may be directed by DGIR

if taxpayer with 12 months accounts ending on other than 31st December fails to make up account on the same day the following year.



ProposalDirection on basis period applicable to all 12

months account which fails to close account at normal date. (W.e.f YA 2014)

Current provision (Sec 21A(4))Taxpayer commences operation in basis year

and makes up 12 months accounts ending other than 31 December, shall have no basis period for the first year. (W.e.f YA 2014)



ProposalAccounting period shall be the basis period

for the first year of assessment where the account prepared for :

Period < 12 months ending in that basis yearAny period of months ending in the following

basis year,Period > 12 months ending in the following 2

basis years (W.e.f YA 2014)


Basis period of business (First commence)

More that 12 months

YA months

Filing deadline

1/2/13 – 30/4/14 2014

15 30/11/14

1/5/14 – 30/4/15 2015

12 30/11/15Less that 12 months

YA Months

Filing deadline

1/5/13 – 31/3/14 2014

11 31/10/14

1/4/14 – 31/3/15 2015

12 31/10/15


Basis period of business (First commence)

More that 12 months YA Months Filing deadline

1/11/13 – 30/4/15 2015

18 30/11/2015

1/5/15 – 30/4/16 2016

12 30/11/2016Overlapping period

(change of accounting)YA Filing

deadline1/1/13 – 31/12/13 2013 31/07/20131/1/14 – 31/12/14 2014 31/03/20161/10/14 – 30/9/15 2015 31/03/2016


Basis period of business (Change of accounting period)

Less that 12 months

YA months

Filing deadline

1/1/13 – 31/12/13

2013

12 31/07/2014

1/1/14 – 30/09/14

2014

9 30/04/2015

1/10/14 – 30/9/15

2015

12 30/04/2016


Business income

Current provision (Sec 24(1), ITA 1967)Business income arises from any stock in

trade sold (or disposed of by requisition or compulsory acquisition),

Proposal (Sec 24(1)(aa)Debt owing from any stock in trade parted

with by any element of compulsion including on requisition or compulsory acquisition shall be treated as gross business income. (W.e.f YA 2014)


Interest obtainable on demand

Interest obtainable on demand (Sec 29(3) ITA 1967)Current provisionInterest receivable shall be treated as income

when received,Interest income treated as being received when

obtainable on demand,ProposalLoan between related parties –Interest deemed obtainable on demand when

interest is due to be paid (W.e.f YA 2014)


Deductible expenses

1) Minimum wage (Income tax rules)Further deduction to employer who pays

minimum wage to employeeThe employer includes SME and cooperative

society,The difference between wage paid (For

example) in Jan 2014 and Dec 2013.Full time employee but excluding domestic

servant. (W.e.f 1/1/2014 – 31/12/2014)


Deductible expenses

Minimum wage for employee in Peninsular Malaysia is RM900.00. Further deduction for employee in Selangor who pays minimum wage to employee A. RMWage paid on 31st Jan 2014 900.00Less : Wage paid on 31st December 2013

550.00

Amount of further deduction for 1 month

350.00

Total amount of further deduction for a year is RM350 x 12 = RM4,200


Deductible expenses

2) Flexible work arrangement (FWA) (Income tax rules)Further deduction for company on expenses

incurred for (a) training program for employee (FWA)(b) consultation for preparation structure (FWA)Malaysia resident company approved as FWA

status by the Talent Corporation Malaysia Berhad.


Deductible expenses

Effective for applications received by Talent Corporation Malaysia Berhad from 1/1/2014 – 31/12/2016.


Deductible expenses3) Entertainment (Sec 18, ITA 1967)The definition of entertainment previously

as provision of food, drink, recreation and hospitality of any kind and accommodation or travel,

The definition of entertainment expanded to any expenses incurred for the promotion of a business with or without consideration. The deduction would be 100% or 50%. (W.e.f 2014)


Deductible expenses

4) Interest obtainable on demand (Sec 33(4), ITA 1967)

Current provisionDeduction allowed includes any sum payable by

way of interest in arriving at adjusted business income.

ProposalInterest payable shall be deducted when it is

due to be paid,Deduction to be given in the respective YA.

(W.e.f YA 2014)


Deductible expenses

5) Approved organisation (Sec 44(6) & 44(7))Current provisionDeduction is allowed on donation made to an

approved building fund used for construction, improvement or maintenance of building,

ProposalDeduction is extended to fund for the

purchase of a building, (W.e.f 2014)


Double deduction

1. Venture development program (VDP) (Income Tax Rules)

VDP is a structured program to develop new vendor or strengthening existing vendor company at domestic and international level,

Double deduction given to anchor company on operational expenses in related to VDP for 3 YAs, (1/1/2014 – 31/12/2016)


Double deduction

Expenditure must be verified by MITI and incentive shall not exceed RM300,000 each year,

Qualifying expenses : product development, R & D, innovation, quality improvement, capacity improvement and human capital development. (W.e.f 1/1/2014 – 31/12/2016)


Not deductible expenses

Deduction not allowed (Sec 39(1A), ITA 1967)The deduction not allowed if information

required by DGIR under Sec 81 – power to call for information is not furnished within specified or extended time. (W.e.f YA 2014)


Capital expenditure

Accelerate Capital Allowance (ACA)A person incurs capital expenditure to

purchase ICT equipment to be used in his business is entitle to claim an initial allowance 20% & annual allowance 80%.

Effective for YA 2009 – YA 2013, to extend the incentive for another 3 YAs. (W.e.f – YA2014 – YA2016)


Capital expenditure

Conversion to Limited Liability Partnership (LLP) Proposal 1) Para 38B and 40 Sch 3, ITA 1967Control transfer provisions apply on assets

transferred,


Capital expenditure

2) Para 76A, Sch 3, ITA 1967LLP is not entitled to claim allowances for the

YA in which conversion takes place unless no allowance has been claimed by the partners or the company for that YA. (W.e.f coming into operation of this act)


Permitted expenses

Permitted expenses (Sec 60F, 60H and 63B)Current ProvisionDeduction allowed on fraction of expenses

incurred by company in accordance with a specified formula :

Permitted expenses = A x B / 4C“C” in the formula differs from one section to another.


Permitted expenses

ProposalTo clarify the gross income in “C” as mentioned in the formula refers to gross income whether exempt or not. (W.e.f YA 2014)


Estimation of tax payable

Estimation of tax payable (Sec 107C(4A))Current provisionUpon commencement SME need not submit

estimate of tax payable (CP 204) for 2 years,Proposal (Sec 107C(4A)(c))Where company has no basis periods for 1st and following YA : -Estimate of tax payable is not required for

first 3 YAs and


Estimation of tax payable

Paid up capital of company is not more than RM2.5M at commencement date and at beginning of 2 following YAs. (W.e.f YA 2014)


Return of income

Return of income (Sec 77A, ITA 1967)Current provisionCompany must furnish tax return within 7

months after closing of account either manually or through E-filing.

ProposedE-filing of tax return compulsory for

companyTax return must be based on audited accounts (W.e.f YA 2014)


Corporate Tax rates

Corporate income tax rate be reduced by 1% from 25% to 24%,

Income tax rate for small and medium companies will be reduced by 1% from 20% to 19%. (W.e.f YA 2016)


Right of appeal

Right of appeal (Sec 99, ITA 1967)Current provisionAn appeal can be made on any assessment by

way of Form Q,ProposalNot applicable to :Deemed assessment andDeemed amended assessment


Right of appeal

Except where the taxpayer is appealing against a deemed assessment on the issue of a tax treatment in Public Ruling. (W.e.f coming into operation of this act)


Disposal of appeal

Disposal of appeal (Sec 102, ITA 1967)Current provisionAppeal via Form Q and Mutual Agreement

Procedure (MAP) may be made concurrently,ProposalAppeal via Form Q will be suspended if

applicant invokes MAP on the same issue


Disposal of appeal

Taxpayer may request to forward Form Q to SCIT within 1 month after determination of MAP,

Form Q will be forwarded to SCIT within 3 months after the request. (W.e.f coming into operation of this Act)


Power to disregard transaction

Power to disregard transaction (Sec 140(2A), ITA 1967)Current provisionDGIR has power to disregard or vary

transaction and make adjustment to counter effect of such transaction by issuing assessment or additional assessment.


Power to disregard transaction

Proposal DGIR may also demand payment of

withholding tax by way of notice.


Income Tax Act 1967

(Individual tax)


Fund Manager Of REIT and BT

ProposalExemption from tax on fee received by a

fund manager approved by the Securities Commission who manages shariah compliant investment of Real Estate Investment Trust (REIT) and Business Trust (BT)


Monthly tax deduction (MTD)

Monthly tax deduction (Sec 77C, ITA 1967)MTD as final tax and individual taxpayer may elect not to submit tax return if :1. He has only one source of income i.e

employment income (without BIK and living accommodation)

2. Tax deducted by his employer in accordance with Income Tax (Deduction From Remuneration) Rules 1994



3. He was employed by the same employer for 12 months,4. His tax liability not borne by employer,5. Spouse did not elect for combine assessment. (w.e.f YA 2014)



ProposalThe individual deemed to have made an

election not to submit return if no return is furnished by 30 April,

MTD deemed as tax payable for that year of assessment,

DGIR may raise assessment under Sec 90(3) - assessment or Sec 91 – additional assessment and the deemed final tax will be disregarded (W.e.f YA 2014)


Middle Income Individual

Middle income individual (Income tax rules)The exemption given to an individual who is

resident in Malaysia from the payment of income tax,

His aggregate income shall not be more than RM96,000,

RM2,000 chargeable income is exempt, (w.e.f YA 2013 only)


Loan to director

Loan to director (Sec 140B, ITA 1967)A company which gives loans / advances from

internal funds to a director is deemed to derived interest income from such loan.

Interest income is the aggregate sum of monthly interest determined by the formula :

1 /12 x A x B


Loan to directorWhere A = amount loan / advances outstanding at end of month, B = average lending rate (ALR) at end of month,Where interest is charged on the loan, and1) Total interest payable is more than

deemed interest, the deemed interest is disregarded,

2) Total interest payable is less than deemed interest, the interest payable is disregarded (w.e.f YA 2014)


Deemed interest

Gentlemen Sdn. Bhd. has provided an advance of RM30,000 to director A on 1/3/2014,

The calculation of interest income deemed received by Gentleman Sdn. Bhd. for the year of assessment 2014 is based on the average lending rate published by Bank Negara Malaysia (Example : 3% throughout 2013)


Deemed interest

Month Monthly interest Deemed interest

March 100,000 x 3% x 1/12 250April (100,000 – 10,000) x 3% x 1/12 225May 90,000 x 3% x 1/12 225Jun 90,000 x 3% x 1/12 225July 90,000 x 3% x 1/12 225August 90,000 x 3% x 1/12 225Sept (90,000 + 30,000) x 3% x 1/12 300Oct 120,000 x 3% x 1/12 300Nov 120,000 x 3% x 1/12 300Dec 120,000 x 3% x 1/12 300Total interest income under 4(c) 2,575


Director’s liabilities

Director’s liabilities (Sec 75A, ITA 1967)Current provisionCompany director with more than 50%

ownership jointly liable for company’s tax or debt.

ProposalCompany director with not less than 20%

ownership jointly liable. (W.e.f coming into operation of this Act)


Deferred Annuity And PRS

Deferred Annuity And PRS (Sec 2, Para 6(1)(l))Current provisionMaximum deduction RM3,000 given on

payment for any deferred annuity or Private Retirement Scheme (PRS) ,

Withholding tax on withdrawal before 55 years old of contribution to PRS except due to death or leaving Malaysia.



ProposalTo define deferred annuity as those with

Retirement Saving Standard (RSS) features set by BNM,

To extend withholding tax to withdrawal of deferred annuity,

To extend non-application of withholding tax to permanent total disablement, serious disease and mental disability (w.e.f YA 2014)



Deferred Annuity and PRS (Amendment Para 6(1), Sec 109G and Part XVI, Sch 1)To extend deduction for deferred annuity to

include deferred annuity on life of spouse. (w.e.f coming into operation of this act)



A relief a one-off incentive of RM500 within a year for those who age from 20 to 30 years, has invested at least RM1,000 in PRS fund and the incentive for 5 years. (W.e.f 1/1/2014)


Personal tax rate

Personal income tax rates be reduced by 1% to 3% for all tax payers,

Chargeable income subject to the maximum rate will be increased from exceeding RM100,000 to exceeding RM400,000,

Current maximum tax rate at 26% to 24%. (W.e.f YA 2015)


Stamp Act 1949


Person to compound duty

Person to compound duty (Sec 9, ITA 1967)Current provisionBanker, dealer, insurer, ROC and TNB

authorized to compound duty on documents like cheques, contract notes, policies and Article of Association.


Person to compound duty

ProposalThe authorized person shall keep and retain

books, records and documents in connection with the authorization for 7 years.


Thank You

budget seminar 2014

Business

pays minimum

income tax

current provisioncompany

monthly tax

gross income

income tax

withholding

tax payable