Budget 2018 & Recent Tax Developments – So what’s in it for us?

The 2018 Malaysian Budget was presented by our Prime Minister, YAB Datuk Seri Najib Tun Razak, who is also our Finance Minister, on 28 October 2017. The budget speech contained proposals that were subject to a Bill being gazetted after being tabled at the Dewan Rakyat (House of Representatives) and Dewan Negara (Senate).

On 7 November 2017, a number of us from Group Internal Audit Department, Group Finance as well as Finance employees from the various CMS subsidiaries attended a Budget and Tax Conference hosted by EY at Hilton Kuching.

The Budget and Tax Conference provided highlights, interpretations and comments on the recent budget.

* On 29 November 2017, Finance (No. 2) Bill 2017 which covers a majority of the budget proposals was passed at the Dewan Negara.

Individual Tax Reliefs for Year of Assessment 2017

Before we look at the new individual tax reliefs in Budget 2018, as Year of Assessment 2017 is coming to a close (on 31 December 2017), let us recap on the additional tax reliefs that were proposed during Budget 2017 for those of us who may still want to squeeze any last drop of available tax reliefs to reduce our chargeable income or in layman’s terms, pay less taxes.

A list of individual tax reliefs applicable for Year of Assessment 2017 has only recently been published on IRB’s website. The list of individual tax reliefs can be found here.

Among the highlights include:

  • Lifestyle Relief
Previously Current
Books: RM1,000 Unified total relief amount of RM2,500.

Lifestyle relief include:
· Reading materials including printed daily newspapers, books, magazines
· Personal computer, smartphones of tablets
· Monthly bill for internet subscription
· Sports equipment and gym membership fees

Personal Computer: RM3,000 (once every 3 years)
Sports Equipment: RM300
  • Purchase of breastfeeding equipment – up to RM1,000
    • For working women
    • With child up to age 2 years
    • Once every 2 years
  • Fees to Childcare Centres and Kindergartens – up to RM1,000 per individual tax payer (and not per child. For children less than 6 years old)

Extension of Tax Relief

One available tax relief that is straightforward but not new is the investment in Private Retirement Scheme (“PRS”) with an annual limit of RM3,000. You can easily sign up and park your excess cash in any one of the mutual fund providers.

Another quick and easy tax relief that can be utilised is deposits for children’s higher education savings under SSPN (National Education Savings Scheme) with an annual limit of RM6,000. Deposits for this scheme is available at most local banks including Maybank, Bank Islam, Agrobank, Bank Rakyat, RHB Bank, CIMB Bank, and BSN.

It’s still not too late, so perhaps that is one item you can allocate your generous bonus to this year!

Individual Tax for Year of Assessment 2018 & Beyond 

  • Reduction of Individual Income Tax Rates (for 3 chargeable income brackets where I believe a majority of us would benefit from)

Reduction of Individual Income Tax Rates Tax reliefs / Exemptions

Individual income tax relief for net savings in the SSP1M (also known as SSPN) up to RM6,000 be extended for another 3 years, effective from year of assessment 2018 to 2020.
In order to encourage women to return to the workforce who have been on a career break for at least two years, the Government proposes that their earnings on maximum of 12 months consecutive salary received be given personal income tax exemption. The incentive is available for women who return to the workforce between the year of assessment 2018 to 2020.
50% tax exemption on rental income received by resident individuals not exceeding RM2,000 per month. This exemption is effective from the year of assessment of 2018 to 2020. The Government will also formulate the Residential Rental Act to protect the landlord and tenant.

 Corporate Tax Incentives from Budget 2018

Here are some capital allowance incentives which may be relevant for our Divisions to take into consideration when planning for their Capex budget in 2019.

Capital Allowance Incentives

Capital Allowance for ICT equipment and computer software packages, is claimable for a period of four years beginning year of assessment 2017 to 2020, including for SMEs. It is proposed that the capital allowances will be given at 20% (previously also at 20%) for initial allowance and 20% (previously 80%) for annual allowance.

More on Industry 4.0 at Forbes, PWC, and MITI.

Tourism Industry - Extended Tax IncentivesTourism Industry - Extended Tax IncentivesGST: Proposed revisions from Budget 2018

  • GST Changes: for the Rakyat – effective from 1 January 2018

GST Changes for the Rakyat (Source: EY 2018 Budget and Tax Conference)

  • GST Changes: for the Corporate Taxpayers – effective from 1 January 2018

GST Changes for the Corporate Taxpayers (Source: EY 2018 Budget and Tax Conference)Real Property Gains Tax (“RPGT”)

Not so good news for non-Malaysian citizens trying to sell their properties.

  • Increase in retention sum (from 3% to 7%) by acquirer for disposal of chargeable assets (i.e. property or shares in a real property company) by disposer who is not a citizen or permanent resident (Effective date 1 January 2018).
  • Transfer of assets between spouses or to a company shall involve an asset owned by a citizen for no gain, no loss treatment to apply (Effective 1 January 2018).

Previously, there was no requirement for the disposer of the chargeable asset to be a Malaysian citizen in order for the sale transaction to be deemed as a “no gain, no loss” transaction (i.e. no RPGT to be imposed).

Other key developments from Budget 2018

  • Maternity leave for the private sector

Proposed maternity leave for the private sector to be increased from 60 days to 90 days as implemented by the public sector.

  • Hiring of foreign domestic helpers

The Government will allow employers to hire foreign domestic helpers from 9 selected countries directly without any agents. The Government will also review the cost of hiring foreign domestic helpers, with a view of reducing it in the future.

  • Duty Free Island for Pulau Pangkor, Perak.

However, the duty-free status excludes products such as alcoholic beverages, tobacco and motor vehicles.

  • Special Border Economic Zone in Bukit Kayu Hitam

This development includes a Free Industrial Zone (FIZ) which will be a new attraction for both domestic and foreign investors.

  • Establishing a Digital Free Trade Zone (DFTZ)

Comprises the e-Fulfilment Hub, Satellite Services Hub and e-Service Platform to stimulate growth in electronic trade.

What is DFTZ?

Recent Tax Developments

Implementation of Tourism Tax – June to September 2017

I’m sure all of you have vaguely heard or read of the hoo-hah surrounding the implementation of the Tourism Tax earlier this year. So, after long drawn debates, a verbal stand-off between the Federal Government as well as a number of State Governments, multiple amendments to the terms and deferment of the implementation date, a Tourism Tax regime was finally implemented on 1 September 2017.

To give you a brief background:

The Tourism Tax Bill 2017 was passed on 27 April 2017. The Bill proposed to introduce the imposition of a “tourism tax” on tourists staying at any accommodation premises (i.e., hotels, inns, hostels, lodging houses, etc.) made available by an operator.

However, the sudden nature in the drafting and implementation of this new form of tax gave many quite an unpleasant surprise and resulted in our Sarawak and Sabah State Governments standing up to the Federal Tourism and Cultural Minister to voice their disagreement and initially deciding to defer the implementation of the Tourism Tax within their own state. This conflict even led to Sarawak representatives withdrawing from the Malaysian Tourism Board in June 2017.

A quick look at the initial proposed terms against the final outcome:

Proposed Bill Revision Final
5-star: RM20/room/night 5-star: RM20/room/night Malaysians and permanent residents will be exempted from paying the tax.
Foreign tourists will be charged a flat rate of RM10 per room per night for all hotel classifications.
4-star: RM10/room/night 4-star: RM10/room/night
1 to 3-star: RM5/room/night 1 to 3-star: RM5/room/night

“Orchid” rating and unrated accommodation:

RM2.50/room/night

“Orchid” rating and unrated accommodation:
RM2.50/room/nightLocals/Malaysians will be exempted from the tax for stays at 3-star hotels and below.
Tourism tax will be enforced from 1 July 2017. Imposition of tourism tax effective on 1 August 2017.

Registration of operators of accommodation premises will begin effective 1 July 2017.

Tourism tax to come into effect 1 September 2017.

Other key points to note on the Tourism Tax regime include:

  • The tourism tax regime will be administered by the Royal Malaysian Customs Department (Customs).
  • Registration required for hotel operators.
  • Operators are required to issue an invoice, receipt or other document in either Bahasa Malaysia or English, which separately states the accommodation charges and the rate and amount of tourism tax payable by the tourists.
  • Filing of tourism tax returns and payment of tourism tax.

All’s well that ends well, as least for us Malaysians and local companies, as the Tourism Tax will not apply to us leaving us with a little less to worry about during our staycations in town or holidays to other states.

Taxing the Digital Economy – September 2017 to present

On 18 September 2017, the Director-General of the Royal Malaysian Customs Department indicated that the Customs Department is aiming to table a proposal to amend the GST Act 2014 at the next Parliamentary session in order for the government to collect billions of Ringgit in taxes from foreign companies operating in Malaysia under the digital economy.

He said that foreign companies based outside of Malaysia providing services in Malaysia are currently not taxed, unlike local service providers who have to register for GST. He cited examples of Lazada, Uber, Grab and Google as the service providers that may be affected by the new taxing exercise.

Will these proposed taxes and the eventual increase in cost of business be passed on to us consumers (i.e. online shopaholics) in Malaysia? Most likely yes, but until the Customs Department and Ministry of Finance firms up details of this new tax regime, we’ll just have to wait and see.

More insights on digital taxation can be found here.

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