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The 2014 Malaysian Budget Information

The 2014 Malaysian Budget Information. GST Introduction _________________________________________________________________________ GST will be introduced at 6% on 01/04/2015

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The 2014 Malaysian Budget Information

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  1. The 2014 Malaysian BudgetInformation

  2. GST Introduction_________________________________________________________________________ • GST will be introduced at 6% on 01/04/2015 • Sales & Service Tax will be abolished______________________________________________________Page 2 The 2014 Malaysian Budget

  3. ______________________________________________________Page 3 The 2014 Malaysian Budget Reduction in Corporate Tax rate ( cont’d)____________________________________________________________

  4. Reduction in Corporate Tax rate(cont’d)_________________________________________________________________________ Note: The preferential tax rate shall not apply to a company if the company has a direct or indirect relationship( in respect of ordinary shares) with another company which has more than RM2.5 million in paid up capital at the beginning of the tax basis period.______________________________________________________Page 4 The 2014 Malaysian Budget

  5. Reduction in Corporate Tax rate(cont’d)_________________________________________________________________________ _________________________________________________________Page 5 The 2014 Malaysian Budget

  6. Comparative Corporate Tax and GST/ VAT rates-ASEAN countries_________________________________________________________________________ ______________________________________________________________Page 6 The 2014 Malaysian Budget

  7. Reduction in Corporate Tax rate_________________________________________________________________________ ______________________________________________________Page 7 The 2014 Malaysian Budget

  8. Reduction in Corporate Tax rate(cont’d)_________________________________________________________________________ • Non-resident rate reduced by 1% from 26% to 25%. Effective date: • From year of assessment 2015. ______________________________________________________________Page 8 The 2014 Malaysian Budget

  9. Tax savings from tax rate reduction_________________________________________________________________________ __________________________________________________________Page 9 The 2014 Malaysian Budget

  10. Comparative tax rates- ASEAN competitors_________________________________________________________________________Highest marginal tax rate comparison _____________________________________________________________Page 10 The 2014 Malaysian Budget

  11. Comparative tax estimate- ASEAN competitors_________________________________________________________________________Estimated tax on USD $100,000 chargeable income ______________________________________________________________Page 11 The 2014 Malaysian Budget

  12. Expenses for GST-related training in Accounting and Information and Communication Technology_________________________________________________________________________ Current position • Single deduction under Section 33(1) of the Income Tax Ace 1967 Proposed change • Expenses incurred for GST-related training of employees in Accounting and Information and Communication Technology(“ICT”) will be given further reduction. Effective date: • For the years of assessment 2014 and 2015. _________________________________________________________Page 12 The 2014 Malaysian Budget

  13. Accelerated Capital Allowance on Information and Communication Technology equipment._________________________________________________________________________ Current position • Pursuant to the Income Tax (Accelerated Capital Allowance) ( Information and Communication Technology Equipment) Rules 2008 [ P.U.(A) 358/2008], ACA is given at the following rate: • Initial allowance : 20% • Annual allowance: 80% • Not Applicable to:**A company that has been granted any incentive under the Promotion of Investment Ace 1986, or**A company that has been granted reinvestment allowance under Schedule 7A of the Tax Act1967. • For the years of assessment 2009 to 2013.___________________________________________________________Page 13 The 2014 Malaysian Budget

  14. Accelerated Capital Allowance on Information and Communication Technology equipment. (cont’d)_________________________________________________________________________ Proposed change • ACA (IA= 20%, AA=80%) on ICT equipment to be extended for another 3 years, i.e. the years of assessment 2014 to 2016. Purpose • To further encourage the purchase and installation of ICT equipment and software by companies and to encourage companies to replace and upgrade ICT equipment in order to improve operational efficiency and speed of delivery to customers._______________________________________________________Page 14 The 2014 Malaysian Budget

  15. Accelerated Capital Allowance on Information and Communication Technology equipment.(cont’d) _________________________________________________________________________ ICT equipment as specified in the gazette order [ P.U.(A) 358/2008] are as follows: • Access control system • Banking systems • Bar code equipment • Busters/decollators • Cables and connectors • Computer assisted design • Computer assisted manufacturing • Computer assisted engineering • Card readers • Computer and components • Central processing unit • Storage • Screen • Printers • Scanners/ reader • Accessories • Communication and network • Software system and software package_______________________________________________________Page 15 The 2014 Malaysian Budget

  16. Secretarial fee and Tax filing fee_________________________________________________________________________ Current position • Not deductible since it is not incurred directly in the production of business income. Proposed change • Secretarial fee is allowed a tax deduction up to RM5,000. • Tax filing fee is allowed a tax deduction up to RM10,000. Effective date • From the year of assessment 2015._______________________________________________________Page 16 The 2014 Malaysian Budget

  17. Deductibility of interest expense on money borrowed_________________________________________________________________________ Current position • Section 33(1) of the Income Tax Ace 1967 reads as follows:“ Subject to this Act, the adjusted income of a person from a source for the basis period for a year of assessment shall be an amount ascertained by deducting from the gross income of that person from that source for that period all outgoings and expenses wholly and exclusively incurred during that period by that person in the production of gross income from that source, including –(a) subject to subsection(2), any sum payable for that period( or for any part of that period) by way of interest upon any money borrowed by that person and –(i) employed in that period in the production of gross income from that source; or (ii) laid out on assets used or held in that period for the production of gross income from that source; “________________________________________________________Page 17 The 2014 Malaysian Budget

  18. Deductibility of interest expense on money borrowed(cont’d)_________________________________________________________________________ Proposed change • It is proposed that a person now only be eligible to claim a tax deduction on interest expenses in the period that the interest is due to be paid. However, the deduction would be given in the year the interest in payable. Reference • New subsection 33(4) of the Income Tax Act 1967. Effective date • From the year of assessment 2014. ________________________________________________________Page 18 The 2014 Malaysian Budget

  19. Interest income obtainable on demand_________________________________________________________________________ Current position • Under Section 29 of the Income Tax Act 1967, where circumstances are such that a person is able to obtain income on demand, that income shall be treated as gross income at the time those circumstances arise. Proposed change • In a controlled loan transaction, it is proposed that interest income is deemed to be obtainable on demand in the basis period for a year of assessment in which such interest is due to be paid. • The above would apply to a loan between persons, one of whom has control over the other, or between persons, both of whom are controlled by some other person.________________________________________________________Page 19 The 2014 Malaysian Budget

  20. Interest income obtainable on demand(cont’d)_________________________________________________________________________ Reference • New subsection 29(3) of the Income Tax Act 1967. Effective date • From the year of assessment 2014.________________________________________________________Page 20 The 2014 Malaysian Budget

  21. Deemed interest for loans/ advances to directors_________________________________________________________________________ Current position • No Specific provisions to deem interest income on loans to directors. Proposed change • Where a company provided a loan/ advance to a director from its internal funds, the company will be deemed to have received interest income and would be taxed accordingly under Section 4(c) of the Income Tax Act 1967 • Minimum interest rate deemed to be based on average monthly lending rate of commercial banks published by Bank Negara(or, where such rate is not available, such other reference rate as may be prescribed by the Director General) • The interest income for the basis period will be based on the sum of interest for all calendar months in the basis period.________________________________________________________Page 21 The 2014 Malaysian Budget

  22. Definition of directors_________________________________________________________________________ Current position • He/she occupies the position of director by whatever name called, or is concerned in the management of the company’s business; and • He/she, either on his/her own or with one or more associates, the owner of, or able to directly or through the medium of other companies by any other indirect means to control, more than 50% of the ordinary share capital of the company. Proposed change • It is proposed that the percentage of the ordinary share capital that is to be owned or controlled by a person who is regarded as a director be reduced from more than 50% to not less than 20%.________________________________________________________Page 22 The 2014 Malaysian Budget

  23. Deemed interest for loans/ advances to directors(cont’d)_________________________________________________________________________ Proposed change • The formula to compute the monthly interest income is as follows:1/12 x A x BwhereA: Total amount of loan/ advance outstanding at the end of the calendar month.B: Average lending rate of commercial banks published by Bank Negara(or such other rate as may be prescribed by the DG) Reference • New Section 140B of the Income Tax Act 1967. Effective date • From the year of assessment 2014.________________________________________________________Page 23 The 2014 Malaysian Budget

  24. Deemed interest for loans/ advances to directors(cont’d)________________________________________________________________________ Example • A loan of RM120,000 payable over a period of 12 months has been provided to a director from internal funds in January 2013. • The average lending rate of commercial banks published by Bank Negara is assumed to be 3% for every month in the year. _____________________________________________________________Page 24 The 2014 Malaysian Budget

  25. Deemed interest for loans/ advances to directors(cont’d)________________________________________________________________________ ________________________________________________________Page 25 The 2014 Malaysian Budget

  26. Taxation of amount receivable from disposal of stock in trade by any element of compulsion________________________________________________________________________ Current position • Court cases suggest that based on certain circumstances such amounts should not be taxable. This issue was considered in the cases of ‘Ketua Pengarah Hasil Dalam Negeri v Penang Realty Sdn Bhd(2006) 2 CLJ 835’ and ‘Metacorp Development v Ketua Pengarah Hasil Dalam Negeri (2011) MSTC 30-024’. Proposed changes • Any amount receivable by a person from the disposal of its stock in trade by” any element of compulsion”, such as compulsory acquisition, is deemed to form part of business gains or profits. ________________________________________________________Page 26 The 2014 Malaysian Budget

  27. Taxation of amount receivable from disposal of stock in trade by any element of compulsion (cont’d)________________________________________________________________________ Reference • New section 4C of the Income Tax Act 1967. • New paragraph 24(1)(aa) of the Income Tax Act 1967. Effective date • From the year of assessment 2014. ______________________________________________________________Page 27 The 2014 Malaysian Budget

  28. Definition of “entertainment”________________________________________________________________________ Current position • Under Section 18 of the Income Tax Act 1967, “entertainment includes:a) The provision of food, drink, recreation or hospitality of any kind, orb) The provision of accommodation or travel in connection with or for the purpose of facilitating or any employee of his, in connection with a trade or business carried on by that person. Proposed changes • It is proposed that the definition of “entertainment” be amended by inserting after the words “an employee of his”, the words “with or without any consideration paid whether in cash or in kind, in promoting or…” _______________________________________________________________Page 28 The 2014 Malaysian Budget

  29. Definition of “entertainment” (cont’d)________________________________________________________________________ Effective date • From the year of assessment 2014 Implication • As such, the costs of promoting the company’s business in connection with the provision of food, drink, recreation, hospitality of any kind and any related accommodation or travel will be treated as entertainment expenses irrespective of whether any consideration is received. The wider definition of entertainment may result in additional non-deductible expenses. _______________________________________________________________Page 29 The 2014 Malaysian Budget

  30. Tax relief for middle-income tax payers________________________________________________________________________ Proposed • A special tax relief of RM2,000 will be given to resident tax payers with a monthly income of up to RM8,000( aggregate income up to RM96,000 per year) Note: Aggregate income= Employment income + business income + other sources of income Impact • Tax savings of up to RM480( RM2,000 @ 24%) Effective date • For the year of assessment 2013 only. _______________________________________________________________Page 30 The 2014 Malaysian Budget

  31. Private Retirement Scheme( PRS) and deferred Annuity________________________________________________________________________ • Currently, the PRS provided is required to deduct the tax of 8% on the pre-retirement withdrawal. • Withdrawal may be made in part or in full under the following circumstances: • Upon retirement age. • Following the death of the member. • Permanent departure of a member from Malaysia. • Permanent total disablement, serious disease, mental disability, or • Pre-retirement withdrawals. • It is proposed that the tax of 8% will also apply to pre-retirement withdrawal from deferred annuity contracted on or after 1 January 2014. Hence, pre-retirement withdrawal from deferred annuity is subject to income tax. _______________________________________________________________Page 31 The 2014 Malaysian Budget

  32. Budget 2014 proposal- increase in RPGT rates Effective 1 January 2014________________________________________________________________________ _____________________________________________________________Page 32 The 2014 Malaysian Budget

  33. Prohibiting Developer Interest Bearing Schemes (DIBS)________________________________________________________________________ • DIBS is a scheme, where the interest on loans during the construction period of a property is borne by the property developer. • The following were announced in Budget 2014:> The prohibition of development projects with DIBS.>The prohibition of financial institutions from providing funding to projects with DIBS. • Singapore banned similar scheme, known as the “Interest Absorption Scheme” and “Interest Only Housing Loan” in 2009 to curb property speculation. Such schemes resulted in property prices being up to 5% higher.( The Business Times, 15 September 2009) ______________________________________________________________Page 34 The 2014 Malaysian Budget

  34. Increase in minimum price of property that can be purchased by foreigners from RM500k to RM 1million________________________________________________________________________Residential property transactions by state: 2010-2012 _______________________________________________________________Page 35 The 2014 Malaysian Budget

  35. Amount of additional payment and penalty________________________________________________________________________ Current position • If the disposer provides an incorrect notification to the acquirer ( Form CKHT 3) and as a result, the acquirer fails to retain and remit the sum pursuant to section 21B of the RPGT Act, an additional sum equal to ten percent of the tax payable will be imposed on the disposer. Proposed change • Tax payable means the amount of tax charged on the chargeable gain excluding any allowable loss referred to under subsection 7(4). Reference • New subsection 14(6) and 15(5) of the Real Property Gain Tax Act 1967. Effective date • Upon coming into operation of the Finance(No. 2) Act 2013 ______________________________________________________________Page 36 The 2014 Malaysian Budget

  36. Amount of additional payment and penalty(cont’d)________________________________________________________________________ Current position • If a person fails to furnish a RPGT return( Form CKHT1A or 1B), a penalty equal to treble the amount of tax payable will be imposed on the disposer. Proposed • “Tax payable” is proposed to mean the amount of tax charged on the chargeable gain excluding any allowable loss referred to under subsection 7(4). Reference • New subsection 29(4) of the Real Property gain Tax Act 1976. Effective date • Upon coming into operation of the Finance(No. 2) Act 2013 _______________________________________________________________Page 37 The 2014 Malaysian Budget

  37. Implementation of minimum wage policy________________________________________________________________________Current and proposed ______________________________________________________________Page 38 The 2014 Malaysian Budget

  38. Implementation of minimum wage policy Illustrative example________________________________________________________________________ • Original wage: RM8,400( RM700 * 12months) in Peninsular Malaysia • Minimum wage: RM10,800 (RM900 * 12 months) • Difference: RM2,400 Further deduction ______________________________________________________________Page 39 The 2014 Malaysian Budget

  39. Other tax incentives- Green technology________________________________________________________________________Green technology • Investment Tax Allowance for purchase of green technology equipment and income tax exemption for use of green technology services and systems. ______________________________________________________________Page 51 The 2014 Malaysian Budget

  40. Subsidy on interest rate of 2% or maximum of RM200,000 per year Incentives available until 31 December 2017 Other incentives - SME________________________________________________________________________ ______________________________________________________________Page 52 The 2014 Malaysian Budget SME Priority incentives Tax deduction on expenses incurred to obtain 1-InnoCERT certification Government procurement incentives

  41. Compulsory submission of annual tax returns by e-filing for companies________________________________________________________________________Current position • A company can either submit its annual tax return to the IRB by manual filing or e-filing. Proposed change • A company must now submit its annual tax return to the IRB by e-filing only. Effective date • Year of assessment 2014 ______________________________________________________________Page 53 The 2014 Malaysian Budget

  42. Monthly Tax Deduction(MTD) as final tax________________________________________________________________________Current: • Employers are required to make Monthly Tax Deductions(MTDs) on cash remuneration and perquisites paid to the employees in the current year. • Benefits-in-kind and living accommodation provided are not subject to MTD. • MTDs are made after deducting personal relief, relief for spouse with no income, child relief, EPF contributions and zakat payment through salary deductions. • Employees may request their employers to deduct other reliefs so that the MTD payments are equal to the total final tax payable by completing the Form TP1- subject to the employer’s approval. • Employees are still required to submit tax returns to the IRB on or before 30 April of the following year. ______________________________________________________________Page 54 The 2014 Malaysian Budget

  43. Monthly Tax Deduction(MTD) as final tax________________________________________________________________________Proposed • Employees whose total income tax is equivalent to the amount of MTD no longer need to submit tax returns. • Amount of MTD is the final tax paid. • Introduction of new section 77c. Effective date • From year of assessment 2014. ______________________________________________________________Page 55 The 2014 Malaysian Budget

  44. Monthly Tax Deduction(MTD) as final tax________________________________________________________________________Criteria for qualification: • Employees with only employment income( excluding benefits-in-king and living accommodation) • Employees whose MTDs are made under the Income Tax( Deduction from Remuneration) Rules 1994, and • Employees employed by same employer for a period of 12 months in that year of assessment. • Employees’ MTDs are not borne by their employers for that year of assessment • Employees who have not elected for a combined assessment ______________________________________________________________Page 56 The 2014 Malaysian Budget

  45. Monthly Tax Deduction(MTD) as final tax________________________________________________________________________Where no return has been furnished by the individual for a year of assessment under Section 77, ITA 1967: • Individual is deemed to have made an election not to file a tax return • Total MTD deducted shall be deemed to be the amount of tax payable for that year of assessment • No assessment will be made by the IRB for that year of assessment The Director General still has the power to make an assessment under Section 90(3) and Section 91 if there appears to be insufficient assessment made, and the MTD paid during the year shall be disregarded as final tax. ______________________________________________________________Page 57 The 2014 Malaysian Budget

  46. Who still needs to file a tax return?________________________________________________________________________ • Individuals working with more than one employer during the year(i.e. those who changed jobs as well as those having more than 1 job at the same time) • Individuals who have worked for less than 12 months during the calendar year, including leaver cases • Individuals who have other sources of income besides employment income e.g. business income, rental income • Individuals who have opted for joint/combined assessment with their spouse – where the individual’s MTD and the spouse’s MTD are not deducted based on the combined income • Individuals with tax refunds or reduced tax liabilities due to over deduction of MTD • Individuals with additional reliefs or deductions to claim which have not been accounted for by the employer through MTD ______________________________________________________________Page 58 The 2014 Malaysian Budget

  47. Who still needs to file a tax return?________________________________________________________________________ • Non-residents whose MTDs have been deducted at resident rates • First year inbound assignee whose MTD is deducted at a non-resident rate of 26% until his tax residence status has been established • Employees who are eligible for the time of appointment exemption claim under OHQ, RO, TMC, TDC, IPC. ______________________________________________________________Page 59 The 2014 Malaysian Budget

  48. Implications to employees________________________________________________________________________ • Knows and understands whether he qualifies to treat MTD as final tax, and does not need to file a personal income tax return • Needs to complete Form TP1 to claim additional reliefs and rebates as the expenses are incurred to ensure that MTDs are deducted correctly ( which is subject to the employer’s approval) • Keeps records of the receipts and supporting documents together with a copy of the Form TP1 submitted to the employer for a period of 7 years • Ultimate responsibilities lies with the employee to ensure that accurate and complete information is provided to the employer ______________________________________________________________Page 60 The 2014 Malaysian Budget

  49. Implications to employees________________________________________________________________________ • Compute MTD accurately based on the MTD table issued by the IRB • May need to take into account additional reliefs/ rebates to be claimed by the employees in Form TP1, which is not mandatory currently. • May need to make adjustments to their payroll and accounting systems to cater for the above changes plus taking on additional payroll administration burden ______________________________________________________________Page 61 The 2014 Malaysian Budget

  50. Issues to be clarified with the Inland Revenue Board________________________________________________________________________ • Will the IRB make it compulsory for the employer to process Form TP1 that is submitted by the employee instead of it being optional as currently? • If the employees provide correct information to the employer but the employer makes an error in keying in the data which resulted in insufficient MTD being deducted, which party would be responsible for penalties? ______________________________________________________________Page 62 The 2014 Malaysian Budget

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