KL & Selangor Indian Chamber of Commerce & Industry 2018 Budget Dialogue

1. KL & Selangor Indian Chamber of Commerce & Industry 2018 Budget Dialogue By: K. Sandra Segaran Open

2. Outline Open

3. INDIVIDUALS Open 3

4. Reduction in Individual Tax Rates Proposed: Tax rates for resident individuals be reduced by 2% for 3 chargeable income bands between RM20,001 to RM70,000 Open SPEAKER’S NAME

5. Reduction in Individual Tax Rates • A comparison is as shown below (for resident individuals): * After tax rebate of RM400 for CI ≤ RM35,000 2% 5 Open

6. Tax Incentive – Exemption of Rental Income From Residential Homes Received by Malaysian Resident Individuals Objective: To encourage Malaysian individuals to rent out residential homes at reasonable charges Proposed Amendment Current 50% income tax exemption Rental Income fully taxable under Subsection 4(d) • Conditions: • Rental income received • ≤ RM2,000 @ month • Must have legal tenancy agreement • Given for maximum 3 consecutive YAs YA 2018 – YA 2020 Open

7. Relief for Education Fund - SSPN • Currently: • Relief of up to RM6,000 per year for amount deposited into Skim SimpananPendidikan Nasional (SSPN) account established under the PerbadananTabungPendidikanTinggi Nasional Act 1997 by an individual for his child • If withdrawal is made from SSPN account during the year, the amount deposited is reduced by the amount withdrawn in arriving at the above relief of up to RM6,000 • YA 2012 to 2017 • Proposed: • The above relief be extended for another 3 years • WEF: YA 2018 to YA 2020 Open

8. Exemption for Women Returning to Workforce • Proposed: • Women who have been on career break for at least 2 years on 27 October 2017 • Employment income up to maximum of 12 consecutive months be given income tax exemption • Applications submitted to Talent Corporation Malaysia Berhad from1 January 2018 to 31 December 2019 • WEF: YA 2018 to 2020 Open

9. Extension of Application Period for Tax Incentives for Angel Investors Proposed Amendment Current Application period: 1 January 2013 – 31 December 2017 Entitlement : Angel Investor Investment in ordinary shares Tax Exemption: Aggregate income equal to the amount invested in Investee companies. + 3 years Application period to Ministry of Finance extended to 31 December 2020 Open INCOME TAX (EXEMPTION) (NO. 3) ORDER 2014

10. COMPANIES & UNINCORPORATED BUSINESSES 10 Open

11. New Subsection 21A (3A) – Notification of change in accounting period (CP204B) New requirement Company, Limited Liability Partnership, Trust Body or Co-operative Society must notify IRBM of change in accounting period: Less than 12 months – 30 days before the end of new accounting period; (b) More than 12 months – 30 days before the end of the old accounting period WEF YA 2019 Open

12. New Subsection 21A (3A) - Example YA 2019 Less than 12 months –30 days before the end of new accounting period Notification mechanism = CP 204B 31/12/19 30/9/19 1/1/19 X Notify by 31/8/19 (b) More than 12 months –30 days before the end of old accounting period YA 2019 X 28/2/2020 31/12/2019 1/1/2019 Notify by 30/11/2019 X= new accounting period ending Open

13. New Subsection 107C(11B), 112(3A), 120(1)(i) – Failure to notify IRBM S. 107C(11B) Any increase imposed on – failure to pay any instalment under S. 107C(9) or difference between tax estimate and tax payable exceeds 30% under S. 107C(10) WEF YA 2019 Tax due & recoverable by IRBM CONSEQUENCE FOR FAILURE TO NOTIFY S. 112(3A) Penalty imposed under Ss. 112(3) WEF YA 2019 Fine - RM 200 to RM 20,000 or imprisonment of not more than 6 months or both. • Para. 120(1)(i) • Failure to notify change of accounting period under • S. 21A(3A) – is an offence Coming into operation of this Act Open

14. Implementation of Earning Stripping Rules to Replace Thin Capitalisation Rules • Proposed: • Earning Stripping Rules [“ESR”] be introduced to replace the Thin Capitalisation Rules which has been deferred for enforcement until 31st December 2017 • Under the ESR, interest deduction on loans between related companies within the same group will be limited to a ratio ranging from 10% to 30% of the company’s Earnings Before Interest and Taxes [“EBIT”] or Earnings Before Interest, Tax, Depreciation and Amortisation [“EBITDA”] WEF: 1 January 2019 14 Open

15. Implementation of Earning Stripping Rules to Replace Thin Capitalisation Rules • ESR in various countries: 15 Open

16. Implementation of Earning Stripping Rules to Replace Thin Capitalisation Rules • To manage interest expense restriction, it may require the taxpayer to perform periodic projected earning stripping calculations during the year to monitor the company’s position. • Under BEPS Action 4 Rules, interest deductions in respect • of loans between related companies will be limited • to 10% to 30% of EBIT or EBITDA. Open

17. Capital Allowance for ICT Equipment, Computer Software Packages and Customised Software • Currently: • Proposed: 17 Open

18. Double Deduction for Employment of Disabled Person Current : • Since YA 1982, employers of disabled persons certified by the Department of Social Welfare are eligible to claim double deduction on salaries paid to the disabled persons. Proposed: • Now double deduction extended to salaries paid to employees who has been affected by accidents or critical illnesses and certified by the Medical Board of SOCSO that he/she is able to work within his/her capabilities WEF: YA 2018 18 Open

19. Double Deduction for Expenses Incurred in Obtaining Certification for Quality Systems and Standards • Proposed: • Double deduction for expenses, not being capital expenditure, incurred in obtaining certification for quality systems and standards from the following approved certification bodies be given to companies registered with Malaysia Healthcare Travel Council that provide dental and ambulatory healthcare services:- • Malaysian Society for Quality in Health – Malaysia; • Joint Commission International – United Sates of America; • CHKS Accreditation Unit – United Kingdom; • The Australian Council on Health Care Standard – Australia; and • Accreditation Canada – Canada • WEF: YA 2018 19 Open

20. INVESTMENT INCENTIVES 20 Open

21. Extension of Tax Incentive for Automation in Labour Intensive Industries • First Category • For high labour intensive industries (such as rubber products, plastics, wood, furniture and textiles), Accelerated Capital Allowance (ACA) and Automation Equipment Allowance (AEA) will be given on the first RM4 million automation expenditure; and • The automation expenditure must be incurred during the period from the year of assessment YA 2015 to YA 2017 [Extended for another 3 years] • Second Category • For other industries, ACA and AEA will be given on the first RM2 million automation expenditure; and • The automation expenditure must be incurred during the period from the YA 2015 to YA 2020 [Status quo] • WEF: Application received by MIDA from 1st January 2018 to 31stDecember 2020 21 Open

22. New Tax Incentive for Transformation to Industry 4.0 • Industry 4.0 refers to the adoption of advanced technology by the companies in the manufacturing sector and its related services. Generally, Industry 4.0 creates what we called a “smart factory”. Among others, advanced technology includes the following technology drivers: • big data analytics; • autonomous robots; • simulation; • industrial internet of things; • cyber security; • horizontal and vertical system integration; • cloud computing; • additive manufacturing; • augmented reality; and • artificial intelligence. • Presently, there are no tax incentives given to companies to adopt such technologies. Open

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24. Industry 4.0 = Smart factory • Big Data : Data gathered from the entire manufacturing process including purchase orders from end customers. Only now is it possible to collect due to data storage costs and processing speeds. The effort lies in filtering the noise from the useful information and joining all the data together for a full overview. Think Supply Chain data, customer purchase data, raw material costs, etc. • Advanced Analytics: Making sense of the big data to get better insights into manufacturing processes, customer requirements, and even safety issues. Think health and safety monitoring of factory workers. • Augmented Reality: The ability to learn quickly on the job with tutorials, or even project warnings. • Artificial Intelligence: Self learning algorithms that learn from the environment in which the machine is operating. Think Self Driving cars or automated cleaning devices. • All these sound like buzzwords but they are major components in what is being referred to as Industry 4.0 and these combined with many other factors are changing the face of how factories are being run. 24 Open

25. New Tax Incentives for Transformation To Industry 4.0 Big data analytics Allowance of 200%  First RM10 million on expenditure incurred and claimable within 2 years. Autonomous robots Simulation Industrial internet of things Cyber security Artificial intelligence Cloud computing Additive manufacturing For application received by MIDA from 1 January 2018 to 31 December 2020 Augmented reality Horizontal and vertical system integration For further information on IR 4.0 - visit www.mida.gov.my Open

26. Extension of Application Period of Incentives for New 4 & 5 Star Hotels Current Proposed Amendment +2 years Application period to MIDA extended to 31 December 2020 Open

27. Extension of Period of Tax Incentives for Tour Operating Companies Current Proposed Amendment • Tour Operating Companies • Tax Incentives: • 100% Statutory Income • Tour packages for ≥ 750 foreign tourists each year; or • Tour packages for ≥ 1,500 local tourists each YA +2 years Tax Incentives period from YA 2007 until YA 2018 extended to YA 2020 Open INCOME TAX (EXEMPTION) (NO. 11) ORDER 2016 & INCOME TAX (EXEMPTION) (NO. 12) ORDER 2016

28. Extension of Application Period for Tax Incentive for Medical Tourism Current Proposed Amendment • Conditions: • From ≥5% to ≥10% on total number of qualified healthcare travelers for each YA; and • From ≥5% to ≥10% of the company’s gross income is derived from qualified healthcare travelers for each YA. • Private Healthcare service provider • new investment or • undertaking expansion, modernization or refurbishment. • Tax Incentives: • Investment Tax Allowance - 100% on QCE • 5 years • set-off against 100% Statutory Income Application period to MIDA from 1 January 2015 to 31 December 2017 extended to 31 December 2020. Open INCOME TAX (EXEMPTION) (NO. 9) ORDER 2002

29. Enhancement of Tax Incentives for Export of Private Healthcare Services Current Proposed Amendment • ↑ 100% of the value of increased exports • New Conditions: • ≥ 10% of total patients receiving private healthcare services are comprised of foreign patients per year of assessment; and • ≥ 10% of company’s gross income is derived from foreign patients for each year of assessment Tax Exemption: Income derived from export of healthcare services to foreign patients in Malaysia or from Malaysia Equivalent to 50% of the value of increased exports of services and set-off against 70% of Statutory Income Open WEF YA 2018 to YA 2020 INCOME TAX (EXEMPTION) (NO. 9) ORDER 2002

30. Malaysia’s Participation in the OECD Taxation Initiatives AEOI Member/Party to: • Inclusive Framework • Forum on Harmful Tax Practices • Global Forum on Transparency and EOI for Tax Purposes • Convention on MAA on Tax Matters • MCAA on Country-by-Country Reporting • Multilateral Instrument Framework Implementation Sept 2018 1 Jan 2019 Open

31. Extension of Tax Incentive for Principal Hub Current Proposed Amendment Tax Exemption (5 + 5 years) on Statutory Income +3 years Extension of application received by MIDA from 1 May 2018 until 31 December 2020 Guidelines For Principal Hub Incentive available at www.mida.gov.my Open

32. REAL PROPERTY GAINS TAX Open

33. New Subsection 21B(1A) – Duty of Acquirer to Retain and Pay Part of the Consideration Proposed Amendment Current Disposals by non-citizen & non-permanent resident individualsare subject to 7% retention sum 7% All disposals are subject to 3% retention sum 3% WEF 1 Jan 2018 Open

34. Subparagraph 3(2), Schedule 2 – Transactions in which disposal price is deemed equal to acquisition price • Transfer of assets: • between spouses • by connected person to a company controlled by the connected person • Disposer (husband, wife or connected person) must be citizen. Current Proposed Amendment WEF 1 Jan 2018 Open

35. Paragraph 16, Schedule 2 - Conditional Contract Sub para. 16: (a) the acquisition or disposal requires the approval by the Government or a State Government or an authority or committee appointed by the Government or a State Government, the date of disposal shall be the date of such approval; Current Proposed Amendment WEF 1 Jan 2018 To delete the following in subpara. 16(a), Sch.2: 16(a) …by the Government or a State Government or an authority or committee appointed by the Government or a State Government, the date of disposal shall be the date of such approval; Open

36. Schedule 5 - Disposal of deceased’s estate by Administrator • Disposal of deceased’s estate by Administrator subject to Part I, Schedule 5 Disposal of deceased’s estate by Administrator subject to Part III, Schedule 5 if the estate belongs to a deceased who was a non-citizen and non-permanent resident Current Proposed Amendment WEF 1 Jan 2018 Open

37. Schedule 5 - Disposal of deceased’s estate by Administrator Estate of a deceased who is Non-Citizen and Non-Permanent Resident WEF 1 Jan 2018 Open

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