…increase in their chargeable income will enjoy a tax cut. The greater the percentage increase in chargeable income compared to the previous Year of Assessment (YA), the greater the tax cut on the increase in chargeable income. The cuts proposed are as follows:
|Percentage of increase in chargeable income as compared to the immediate preceding YA||Percentage point reduction||Income tax rate increase after reduction (%)|
|Less than 5||Nil||24|
|20 and above||4||20|
source Budget 2017
As an example, if a company’s chargeable income for YA 2016 is RM10 mil and increases by 20% to RM12 mil in YA 2017, the income tax imposed for the first RM10 mil is 24%. However, the RM2 mil increase in YA 2017 will be taxed at 20% which is equal to RM400,000. This means the overall effective tax rate is 23.3% and the total amount of tax to be paid is RM2.8 mil with a tax saving of RM80,000. This proposal is effective only for YAs 2017 and 2018.
The government has recognized the importance of work experience to young people and the need to encourage employee to participate in internship programmes. In this regard, under the existing law, companies resident in Malaysia are given – as an incentive – a double tax deduction for qualifying expenses incurred under approved Structured Internship Programmes (SIP).
The double tax deduction applied to SIP’s is applicable to Malaysian students pursuing full-time degree and diploma courses in institutions of higher learning registered with the Ministry of Higher Education or for equivalent vocational level (Malaysian Skills Certificate Level 4 and 5) as recognized by the Malaysian Qualifications Agency of the Department of Skills Development.
This incentive is however due to expire at the end of the year.In Budget 2017, the government has breathed new life into the SIP. Not only has the incentive been extended through to 1029, but it has also been enhanced to include students pursuing full time vocational level (Malaysian Skills Certificate Level 3)
Islamic banking and takaful business
It is proposed that the following incentives given to International Currency Business Units which operate Islamic banking and takaful (Islamic Insurance) business activities transacted in foreign currencies, be extended for another four years.
i) A full tax-exemption on income received by Islamic banks licensed under the Islamic Financial Services Act 2013, operating Islamic banking business transacted in foreign currencies including transactions with Malaysian residents;
ii) A full tax exemption on income received by Takaful companies and takaful units licensed under the Islamic Financial Services Act 2013 and Financial Financial Services Act 2013, operating takaful business transacted in foreign currencies including transactions with Malaysian residents and
iii) A full stamp duty exemption on instruments executed pertaining to Islamic banking and takaful activities transacted in foreign currencies.
The proposal extends the tax incentive period up to YA 2020 for items (i) and (ii) while item (iii)is extended for instruments executed up to Dec 31, 2020. Qualifying institutions would find their cost base reduced which may provide additional scope to enhance their products.
To encourage citizens to own a home, it is proposed that a stamp duty exemption be given on instruments of transfer and loan agreements for the purchase of first homes as follows:
i. Full exemption for homes where the price does not exceed Rm300,000 or
ii. Full exemption on the first RM300,000 for homes whose price exceeds RM300,000 but not more than 500,000. The balance is excess of RM300,000 is subject to the prevailing rate of stamp duty.The proposal is effective for sale and purchase agreements executed from Jan 1, 2017 to Dec 31, 2018.It is not all good news for house purchasers, however as Budget 2017 includes a proposal to increase the rate of stamp duty on instruments of transfer of real estate worth more than RM1 mil from 3% to 4%. This proposal – once legislated – will be effective from Jan, 2018.
In conclusion as can be expected given the current economic conditions the budget proposals are prudent and this is certainly not “give-away” budget. Further technical changes can be expected when the finance Bill is released.
Nicholas Crist is the executive director of KPMG Tax Services Sdn Bhd
This article first appeared in FOCUS MALAYSIA, on October 29, 2016.