2011 Budget Proposals affecting Individual and Companies
1.
Section 2 Subsection (1) and (10) of Income Tax Act (ITA)
The budget proposed to change the Labuan Offshore Business Activity Tax Act 1990 (LOBATA)
to Labuan Business Activity Act 1990 (LBATA) and Offshore Companies Act 1990 to Labuan
Companies Act 1990.
Introducing new definition for Labuan business activity and Labuan Company by deleting
definition of offshore business activity and offshore company.
New Definition for Labuan business activity and Labuan Company:
“Labuan business activity” has the meaning assigned to it in the Labuan Business Activity
Tax Act 1990 [Act 445];
“Labuan company” means a Labuan company incorporated under the Labuan Companies Act
1990 [Act 441] and includes a foreign Labuan company registered under that Act, Labuan
limited partnership established and registered under the Labuan Limited Partnerships and
Limited Liability Partnership Act 2010 [Act 707], Labuan trust as defined in the Labuan Trust
Act 1996 [Act 554] and a Malaysian bank as defined in the Labuan Financial Services and
Securities Act 2010 [Act 704].
Removing the word offshore from Labuan Offshore Financial Services Authority and effectively
known as Labuan Financial Services Authority.
Effective date: 11 February 2010
2.
Tax rebate on Levy / Fees - Section 6C of ITA to be deleted
Since the employer (effective from 1 April 2009) has to pay for the fee incurred for foreign
worker in respect of Employment Pass, visit pass (for Temporary Employment) or work pass.
The foreign worker is not eligible to claim tax rebate on his or her income tax payable.
Effective date: Year of Assessment (YA) 2011
3.
Pension received by a widower under an approved scheme - Schedule 6 Paragraph 16 ITA
Pension paid under an approved scheme or under any written law to a widower is exempted from
income tax.
Effective date: YA 2011
4.
Expenses in respect of discount or premium incurred on Bond issued or subscribed - Section 34C
ITA
Currently the expenses in respect of discount / premium on bond issued or subscribed by a
company can only be deducted against gross income from premium / discount on Bond issued or
subscribed.
The budget proposed that unutilized expenses can be deducted from the gross income of any
business source of that company provided that:i)
the proceeds from the issuance of the bond that relates to that expenses are utilized wholly by
that company for the production of gross income from any source or sources consisting of that
business and not from investment.
ii) the bond issued or subscribed does not forms part of the stock in trade of a business of a
company.
Effective date: YA 2011
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Example on tax treatment on Bond issued or subscribed for YA 2011
a) Company A, a construction company with 31 December year end issued a bond and
subscribed to a bond issuance as follows:-
Nominal Value
Issued Value
Subscribed Value
Discount
Bond issued
RM
15 million
13.5 million
Bond subscribed
RM
10 million
9 million
1.0 million
1.5 million
Company A’s adjusted income for financial year 2011 is 15 million and capital allowance of
RM2.0 million
Tax computation for YA 2011
Income from Bond
Less: discount expenses
Unutilized discount expenses
1.0 million
1.5 million
0.5 million
Adjusted income from Business
Less: unutilized discount expenses
15.0 million
0.5 million
14.5 million
2.0 million
12.5 million
Less: capital allowance
Statutory / Total Income
b) Company B, a plantation company with 31 December year end issued a RM100 million bond
to raise working capital on 01.01.2011.
The bond issued is for a period of 5 years and carries a discount totaling 10 million to be paid
to the subscribers upon the maturity of the bond.
Company B adjusted income from plantation business for YA 2011 is 15 million and capital
allowance of RM5 million.
Yearly tax deduction for Bond discount =
=
365
1825
x 10 million
2 million
Tax computation for YA 2011
Income from Bond
Discount expenses
Unutilized discount expenses
NIL
2.0 million
2.0 million
Adjusted business income
Less: unutilized discount expenses
15.0 million
2.0 million
13.0 million
5.0 million
8.0 million
Less: capital allowance
Statutory / Total Income
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5.
Failure to Remit Withholding Tax (WHT) - Subparagraph 39(1)(f), 39(1)(i) and 39(1)(j) of ITA
Currently expenses related to payment of Contract (Section 107A), Interest and Royalty (Section
109), Special Classes of Income (Section 4A and Section 109B), Gain or profit under Section 4(f)
to Non Resident person are subjected to withholding tax and the tax has to be paid to the Director
General of Inland Revenue (DGIR) within 30 days after paying or crediting such expenses.
Failure to do so will render such expenses to be disallowed for deduction in arriving at the
adjusted income of the business. A penalty of 10% on the withholding tax will also be imposed.
The withholding tax and the 10% penalty will be a debt due to the government.
The Inland Revenue Board (IRB) will also imposed penalty under Section 113(2) up to a
maximum of 100% on tax undercharged for such expenses (subjected to WHT) if the amount is
claimed in tax return submitted to the IRB.
The expenses (which are subjected to WHT) will be allowable if the payer subsequently paid the
withholding tax and the increased tax of 10%. The imposition of Section 113(2) also to be
waived.
The budget seek to retain and not to waive the penalty imposed under the Section 113(2) if the
payer subsequently paid the withholding tax and the increased tax of 10% after the due date of
submission of tax return for a year of assessment.
Effective date: 1 January 2011
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Example of withholding tax treatment after 01.01.2011
Scenario 1
Original Assessment
where WHT paid
before due date of
submission of tax
return
Scenario 2
Assessment where WHT is paid after the
due date of submission of tax return but
before tax audit
+ Expenses subjected to WHT
Chargeable Income (CI)
Tax payable (CI x 25%)
Tax payable after Revise Assessment
Less : Original Assessment
Tax undercharged
Additional Assessment (JA)
Tax undercharged
Penalty 113(2) 100% of tax undercharged
Total tax payable
20,000
5,000
Scenario 3
Assessment where No deduction of
WHT and after tax audit #
20,000
10,000 + Expenses subjected to WHT
30,000
7,500
7,500
5,000
2,500
20,000
10,000
30,000
7,500
7,500
5,000
2,500
0
2,500
2,500
2,500
2,500
5,000
For Scenario 3
# The withholding tax (WHT) of (RM10,000 x 10%) + Penalty (10%) = RM1,000 + RM100 is debt due to the Government
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6.
Tax relief on Annuity - Subsection 49(1c)
Proposed to delete the above subsection where tax relief is given to purchase of annuity by using
credit in the Employer Provident Fund Account.
Effective date: YA 2011
7.
Relief for Parent Medical Expenses - Section 46(1)(c) ITA
Expenses to include special needs or carer expenses on condition that a certificate is obtained
from a medical practitioner to confirm that the medical conditions of the parent require special
needs or carer.
Payment of the expenses is evidence by receipts and in the case of carer a written certification or
receipt from or work permit of the carer.
Carer excludes that individual, his wife or husband and the children.
Effective date: YA 2011
8.
Computation of Permitted Expenses - Section 60F(2), 60H(5) and 63B
Proposed to include payment distributed by unit trust or REIT (Real Estate Investment Trust) as
dividend.
Effective date: YA 2011
9.
Assessment on Executors of a Deceased Person - Section 74(3) ITA
Currently assessment or additional assessment must be made not later than the end of the third
year of assessment following the year of assessment in the basis year for which an individual
died.
The budget proposed that assessment or additional assessment must be made not later than the
end of the third year of the assessment following the year of assessment in the basis year for
which the executor of the deceased person has informed the IRB of the death of the deceased in a
prescribed form.
The same treatment applied to Real Property Gain Tax (RPGT) – Section 14(4) of RPGT Act.
Effective date: One day after the amendment is gazetted
10. Recovery from person leaving Malaysia - Section 104 ITA
The budget proposed that the DGIR can issue a certificate to the commissioner of Police or
Director of Immigration to prevent a person from leaving Malaysia if an individual fail to make
the bi-monthly tax installments (CP500) issued by the IRB or failure of a company to comply
with the payment of tax estimate (CP204, CP204A and CP205). In the case of a company the
directors will be prevented from leaving Malaysia.
Effective date: One day after amendment is gazzeted
11. Estimation of tax payable by the DGIR for company, trust body & co-operative society - Section
107(c)(8) ITA
Proposal is being made to allow the DGIR to estimate the tax payable by the company, trust body
or the co-operative society by issue the prescription form CP205.
The tax payable estimated by the DGIR can be revised in the sixth month or ninth month of the
basis period for that year of assessment if CP205 is issued before the sixth month of the basis
period for that year of assessment or revision on the ninth month of the basis period for that year
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of assessment if CP205 is received before the ninth month of the basis period for that year of
assessment.
The final tax estimate (if any) or if no revision of tax is made, the estimated tax made by DGIR
will be used to compare with the actual tax payable for that year of assessment.
If the final estimate (or if no revision is made the estimate made by the DGIR) is lower than the
actual tax payable by more than 30 percent the DGIR will imposed a 10% penalty on the
excessive difference.
Effective date: YA 2012
12. Set off for tax payable - Section 111(4A) & (4B) ITA 1967, 50 (4A) Petroleum Income Tax Act
1967 and Section 24 of Real Property Gain Tax Act 1976
The budget proposed that excess tax paid for income tax can be used to set off against tax payable
for petroleum income tax or Real property gain tax.
The same treatments apply to petroleum income tax and real property gain tax.
Effective date: One day after the amendment is gazetted
13. Exchange of information - Section 132 ITA and Section 132A ITA
To seek amendment to allow exchange of information with country having Double Tax
Agreement to include information in respect of tax under Income Tax Act and on other taxes of
every kind under any written law.
For country which does not have double tax agreement with Malaysia, exchange of information is
made relevant to the administration or assessment or collection or enforcement of the taxes under
the income tax Act 1967, other taxes of every kind under any written law and any foreign tax of
that territory.
Effective date: One day after the amendment is gazetted
14. Reinvestment Allowance - Schedule 7A Subparagraph 7(a)
Company granted incentive under promotion of investment Act 1986 in respect of any promoted
activity or promoted product is not eligible to claim Reinvestment allowance in the same basis
period for the same product.
Effective date: YA 2011
Example
Company B a manufacturing company with financial year ended 31 December was granted
Pioneer status in respect of Promoted activity or product and the Pioneer period ended on
30.06.2011.
Company B incurred Qualifying Capital expenditure on qualifying project on 01.08.2011.
01.01.2011
30.06.2011
01.08.2011
31.12.2011
Pioneer status ended
Pioneer Period
Post Pioneer Period
Incurred Qualifying
Capital Expenditure (QCE)
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Since the Pioneer Period shares the same basis period with the Post Pioneer Period and the
Company manufacture the same product after the Pioneer status expired. The QCE incurred is
not allowed to claim Reinvestment Allowance. The same apply to Company that manufacture the
same product and granted pioneer status which share the same basis period for Pre-pioneer and
Pioneer Period.
15. Debt due to the Government Finance Act 2007 - Subsection 48(2) & Finance Act 2009 Subsection 49(2)
Finance Act 2007
When a company pay dividend with tax deducted in excess of section 108 credit. The excess is a
debt due to government and is payable to DGIR. The debt is recoverable and is subjected to
limitation of 6 year.
Finance Act 2009
When tax is discharged, remitted or refunded for assessment prior to year of assessment 2008.
The tax discharged, remitted or refunded is in excess of Section 108 tax credit. The excess is debt
due to government and is payable to DGIR. The debt due under the circumstances is also subject
to limitation Act.
The budget proposed that the debt due under both the Finance Act to be recoverable as if tax due
and payable under the principal Act (ITA 1967) and therefore not subject to limitation Act.
Effective date:
Finance Act 2007 Section 48(4) & Section 49(4) – effective from YA 2008
Finance Act 2009 Section 48(5) – effective from 9 January 2009
16. Double Deduction for Takaful Export Credit Premium - PU(A) 526/1985
Double deduction for Premium incurred to include takaful Export Credit Premium. The insurance
premium based on takaful concept must be purchased from takaful operators approved by the
Minister of Finance.
Effective: YA 2011
17. Expenditure incurred in issuance of Islamic Securities
Proposed to allow expenses incurred on the issuance of Islamic Securities / SUKUK under
syariah principle of murabahah and Bai Bithaman Ajil based on tawarruf concept. The issuance
of Islamic Securities must be approved by Securities Commission or the Labuan Financial
Services Authority.
Effective date: YA 2011 to YA 2015
18. Proposal to Extend the application period for tax incentives
i) Tax incentive for generation of energy from renewable sources
a. Companies generating energy from renewable sources – application extended to 31
December 2015
b. Companies generating renewal energy for own consumption – applications extended to 31
December 2015
c. Non-energy generating company which import or purchase equipment to generate energy
from renewable sources for consumption of third parties – application extended to 31
December 2012
ii) Tax incentive for energy conservation (Energy Efficiency – EE) activities
a. Companies providing energy conservation services application extended to 31 December
2015
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b.
c.
Companies which incur capital expenditure for energy conservation for own consumption
– application extended to 31 December 2015
Companies importing or purchase locally manufactured energy efficiency equipment for
third party consumption – application extended to 31 December 2012
iii) Tax incentive for Approval Food Production Project - application extended to 31 December
2015
iv) Tax incentive for Last Mile Network Facilities Providers for Broadband – application
extended to 31 December 2012
19. Tax incentive Period for Reduction of Greenhouse Gas Emission - PU(A) 378/2008
Exemption is granted to income received from sale of Certified Emission Reductions (CER) from
Clean Development Mechanism (CDM) projects approved by the Ministry of Natural Resources
and Environment. The income exempted is the gross income from sale of Clean Development
Mechanism less the revenue expenditure in obtaining the Certified Emission Reduction.
Exemption is granted from YA 2008 to YA 2010. The budget proposed that exemption to be
extended for 2 more years to YA 2012.
20. Stamp Duty on Instruments of Transfer of Residential Property
Current Stamp Duty rates for transfer of property including Residential Property are as follows:Value of property
First RM100,000
Above RM100,000 to RM500,000
Above RM500,000
Stamp Duty rate for every RM100 or part
thereof
RM1.00
RM2.00
RM3.00
The Government granted 50% exemption on stamp duty for the instrument of transfer of a
residential property on condition that:i) The residential property priced not exceeding RM250,000
ii) One residential property for each individual Malaysian citizen
iii) Sales and Purchase Agreement executed from 8 September 2007 to 31 December 2010
The Budget proposed that 50% exemption on stamp duty on instrument of transfer for a
residential property:i) Priced not exceeding RM350,000
ii) Once only exemption within the exemption period given to an individual Malaysian citizen
who purchase the first Residential property (does not own any residential property or part at
the time of application of exemption)
iii) Sales and Purchased Agreement executed from 1 January 2011 to 31 December 2012
Residential property includes a terrace house, condominium, apartment or flat.
Individual to include Co-purchaser
Example of stamp duty payable on instruments of transfer for a Residential Property that cost
RM350,000
Value (RM)
On the first 100,000
On the next 250,000
Total Stamp Duty
50% exemption
Amount payable
Stamp Duty rate every RM100
or part
RM1.00
RM2.00
Stamp Duty payable RM)
1,000
5,000
6,000
3,000
3,000
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21. Stamp Duty Exemption on Loan Agreement for residential property
Currently the stamp duty rate on loan agreement instruments for residential property is 0.5% of
loan value.
Loan agreement instrument for residential properties price not exceeding RM250,000 are given
stamp duty exemption of 50%. The exemption is granted for purchase of one residential property
for each individual Malaysian citizen with Sale & Purchase Agreements executed from 30 August
2008 to 31 December 2010.
The budget proposed that stamp duty exemption of 50% be given to:i) Loan agreement instrument for residential property priced not exceed RM350,000
ii) Loan agreement are made between purchaser with bank, financial institution, insurance
companies, co-operatives or employer under the employee housing loan scheme
iii) First residential property purchased by a Malaysian citizen and can claim once only within the
exemption period from 1 January 2011 to 31 December 2012
iv) First residential property means that an individual Malaysian citizen does not own any
property (or part) at the time when he or she make the application for exemption
v) Sales and Purchased agreement executed from 1 January 2011 to 31 December 2012
Residential property includes a terrace house, condominium, apartment or flat.
Individual to include co-purchasers.
Example of Stamp Duty on Loan Agreement for a residential property that cost RM350,000
Value (RM)
350,000
Total Stamp Duty payable
Less : 50% exemption
Balance payable
Stamp Duty rate
0.5%
Stamp Duty payable RM)
1,750
1,750
875
875
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