Budget 2019 Highlights (Tax)

The new government’s first budget was announced on 2 November 2018. The theme of the Budget speech was “A Resurgent Malaysia, A Dynamic Economy, A Prosperous Society” and focused on three areas:

• To implement institutional reforms
• To ensure the socio-economic well-being of Malaysians, and
• To foster and entrepreneurial economy.

Below are the tax proposals which are based on the content of the Budget speech and its appendices.

Corporate income tax

Tax rate for SMEs

The preferential tax rate for SMEs in respect of the first RM500,000 of chargeable income is to be reduced from 18% to 17%.

(Effective YA 2019)

Review of group relief

The rules for group relief claims are to be amended as follows:

• Companies surrendering losses must be in operation for at least 12 months
• Surrendering of losses is restricted to three consecutive YAs, and
• A company with unutilised investment tax allowance or unabsorbed pioneer losses will not be eligible to claim group relief.

(Effective YA 2019)

Time limit for carry forward of unabsorbed losses and allowances

A time limit of seven consecutive YAs is placed on the carrying forward of unabsorbed losses, unutilised capital allowances, unutilised reinvestment allowance and investment allowance, and unabsorbed pioneer losses and investment tax allowance.

(Effective YA 2019)

Personal income tax

EPF and life insurance premium relief

• The combined relief of RM6,000 for EPF and takaful/life insurance premiums has been split - RM4,000 for EPF and RM3,000 for takaful/life insurance premiums.
• For public servants under the pension scheme, the income tax relief on takaful/ life insurance premiums is given up to RM7,000.

(Effective YA 2019)

National Education Savings Scheme (SSPN) relief

The relief on the net annual savings in SSPN is to be increased from RM6,000 to RM8,000. 

(Effective YA 2019)

Investigation of unexplained extraordinary wealth

The Inland Revenue Board (IRB) will scrutinise and investigate unexplained extraordinary wealth, and use necessary measures to recover such monies, in the form of additional taxes, penalties or fines.

(Unknown effective date)

Indirect tax

Sales tax and service tax

• Service tax exemption on specific B2B transactions between service tax registrants.
  (Effective 1 January 2019)
• Imposition of service tax on imported services as follows:
• Services imported by businesses
  (Effective 1 January 2019)
• Services imported (e.g. downloaded software, music, video and digital advertising) by consumers)
  (Effective 1 January 2020)
• Introduction of a credit system against sales tax payable for small manufacturers who do not purchase from registered manufacturers.
  (Effective 1 January 2019)

Import duty on bicycles

Reduction of import duty on bicycles under the tariff code of 8712.00.30.00, i.e. bicycles other than racing bicycles and children bicycles) from 25% to 15%.

(Effective 1 January 2019)

Sugar tax

Imposition of excise duty of RM0.40 per litre on sugary drinks as follows:

• Fruit juices and vegetable juices under tariff heading of 20.09, which contains sugar exceeding 12 grams per 100 millilitres, and
• Beverages under tariff heading of 22.02, which contains sugar exceeding 5 grams per 100 millilitres)

(Effective 1 April 2019)

Increase of taxes, fees and levies on the gaming industry

The gaming industry will an increase in the following:

• Casino license - from RM120m to RM150m per annum
• Casino duties - up to 35% on gross collection
• Machine dealer's license - from RM10,000 to RM50,000 per annum
• Gaming machine duties - from 20% to 30% on gross collection

(Unknown effective date)

Departure levy

Imposition of departure levy for all outbound travellers by air as follows:

• To ASEAN countries – RM20
• To countries other than ASEAN – RM40

(Effective 1 June 2019)

Tax incentives

Extension of tax incentives

• Extension of tax incentives for the issuance of:
• Sukuk Ijarah and Wakalah
• Retail bonds and retail sukuk.
  (Effective YA 2019 to YA 2020)
• Extension of deadline of the application period to Securities Commission Malaysia, for venture capital tax incentive, until 31 December 2019.

New tax incentives for Industry 4WRD

Incentive	Eligibility period
Tax deduction on expenses up to RM27,000 for I4.0 Readiness Assessment paid to the Malaysian Productivity Corporation.	Effective YA 2019 to YA 2021
Double deduction on operating expenses incurred by anchor companies to develop local vendors in I4.0. The expenses need to be verified by MITI and capped at RM1m per year for three consecutive YAs.	For MOU signed between company and MITI from 1 January 2019 to 31 December 2021
Tax incentives for Human Capital Development
Double deduction on scholarships provided to Malaysian students pursuing studies in engineering and technology fields at technical and vocational levels or diploma and degree levels.	Effective YA 2019 to YA 2021
Tax deduction on expenses incurred for participation in the National Dual Training System for I4.0 programmes.	For programmes implemented from 1 January 2019 to 31 December 2019
Tax deduction on expenses for development of new I4.0 technology and engineering courses by Private Higher Education Institutions.	Effective YA 2019 to YA 2021
Double deduction on expenditure incurred to upgrade and develop its employees’ technical skills in I4.0 technology via approved training programmes	For companies participating in the Readiness Assessment Intervention Plan from 1 January 2019 to 31 December 2019
Double deduction on expenditure incurred to conduct approved internship programme for undergraduate students in engineering and technology fields.	Effective YA 2019 to YA 2021
Deduction on equipment and machinery contributed by companies to certified Skills Development Centres, Polytechnics or Vocational Colleges.	For contributions made from 1 January 2019 to 31 December 2019

Tax incentives related to welfare

• Further tax deduction given on remuneration (not exceeding RM4,000) for the full-time employment of senior citizens (above 60 years old) or ex-convicts.
  (Effective YA 2019 to YA 2020)
• Tax deduction for employers who help settle PTPTN loans of its full-time employees, on the condition that employees are not required to reimburse the employer.
  (Effective 1 January 2019 to 31 December 2019)
• Tax deduction for contributions from any parties to any social enterprise, capped at 10% of aggregate income of a company or 7% of aggregate income for an individual.
  (Unknown effective date)

Tax incentives related to the environment

• Grant of pioneer status [exemption of 70% of statutory income (SI)] or investment allowance (60% on qualifying capital expenditure) for five years to companies that produce environmental-friendly plastics.
  (Unknown effective date)
• Expansion of the list of green assets that qualify for Green Technology Investment Allowance (GITA) from 9 assets to 40 assets in the MyHijau directory.
  (Unknown effective date)

Concessionary tax rate for existing Principal Hub companies

Grant of a concessionary tax rate of 10% on the overall SI related to Principal Hub activities for a period of five years.

(Unknown effective date)

Removal of tax incentives

Removal of tax exemption for interest earned on wholesale money market funds.

(Effective 1 January 2019)

Labuan

The current treatment and conditions are to be abolished:

• Election for income tax to be at a fixed rate of RM20,000
• Restriction on transactions conducted in Ringgit Malaysia, and
• Restriction on transactions between Labuan entities and Malaysian residents.

The following new conditions are to be imposed:

• Labuan International Business and Finance Centre (IBFC) activities carried out in Labuan are subject to substantive conditions as determined by a committee
• Income from intellectual property assets held by Labuan entities is subject to corporate income tax rate under the Income Tax Act 1967, and
• Malaysian residents who transact with Labuan entities are entitled for tax deduction on expenditure incurred, limited to 3% of the allowable expenditure.

(Effective 1 January 2019)

Stamp duty

• The stamp duty are on transfer of property valued above RM1m is to be increased from 3% to 4%.
  (Effective 1 January 2019)
• Stamp duty exemption on insurance policies/takaful certificates under Perlindungan Tenang products launched in 2017, with yearly premium/contributions not exceeding RM100.
  (For policies/certificates issued from 1 January 2019 to 31 December 2020)
• 100% stamp duty exemption on instrument of transfer and loan agreement for purchase of a first residential home priced up to RM300,000.
  (For S&P agreement executed from 1 January 2019 to 31 December 2020)
• 100% stamp duty exemption on instrument of transfer for purchase of a first residential home priced between RM300,001 and RM1m.
  (For S&P agreement executed from 1 January 2019 to 30 June 2019)
• 100% stamp duty exemption on instrument of transfer and loan agreement for purchase of a first residential home priced between RM300,001 and RM500,000, limited to the first RM300,000 of home price. The remaining balance is subject to stamp duty at the prevailing rate.(For S&P agreement executed from 1 July 2019 to 31 December 2020)

Real Property Gains Tax (RPGT)

The RPGT rate on gains on disposal of real properties and shares in real property companies in the sixth and subsequent years is to be increased as follows:

• Non-citizens, non-permanent residents, companies - 5% to 10%
• Citizens and permanent residents - 0% to 5%.

(Effective 1 January 2019)

Special Voluntary Disclosure Program (SVDP)

The SVDP was offered to encourage taxpayers to disclose unreported income (including those in offshore accounts) and covers:

• Income not previously declared/under-declared, expenses over-claimed/not allowed and reliefs/deductions/rebates over-claimed
• Gains ondisposal of assets (real properties and shares in real property companies), and
• Stamping of instruments not previously stamped.

Voluntary disclosure under this programme can be made at any IRB office. Under this programme, taxpayers will be subjected to penalty rates of 10% to 15% of tax payable. Once the voluntary disclosure period expires, taxpayers could be subjected to penalty rates of 80% to 300%.

The IRB has also provided further details and released guidelines (No 1/2018) on this programme which covers, among others, in further detail on the implementation, how penalty rates are applied and payment requirements.

(Effective 3 November 2018 to 30 June 2019)

Find out more about these taxes, key trends, challenges and opportunities that may impact your business and influence your strategy in 2019, at our Malaysian Tax Budget Conference 2019 on 26 and 27 November 2018.