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Budget Q&A with Deloitte
Published on: Sunday, October 13, 2019

Q: After taking a career break to give birth and care for her twin children three years ago, Lina is contemplating returning to work and placing them in childcare centre. However, she wonders if she should continue being a housewife with the rising cost of childcare centres as her initial pay in rejoining the workforce could be lower since she has not worked for three years and employers may also be reluctant to hire her. What are the Government’s initiatives to encourage women back into the workforce?

A: The Government proposes a wage incentive for returning women workers of RM500 per month for two years under the “Women@Work” initiative. The employer will also be given a hiring incentive of up to RM300 per month. This is in addition to the current tax exemption for women returning to work after career break up to 12 consecutive months introduced in Budget 2018 for the years of assessment 2018 to 2020 which is proposed to be extended to 2023.

In addition, if Lina places her children in a childcare centre registered with the Department of Social Welfare or Ministry of Education, Budget 2020 proposes that the relief for fees paid to childcare centres and kindergartens be increased from RM1,000 to RM2,000 for children aged up to 6 years old with effect from year of assessment 2020.

Q: Perniagaan Besar Sdn Bhd (“PBSB”) has a paid up share capital of RM2 million and has been enjoying the reduced tax rate for Small Medium Enterprises (“SME”) of 17pc on chargeable income up to RM500,000. The company forecasts that the annual revenue will hit a new milestone of RM52 million in year 2020. The director of PBSB heard that there will be changes to the treatment of SME and is wondering how it will affect PBSB’s income tax treatment.

A: From year of assessment 2020, the chargeable income limit which is subject to the reduced 17pc tax rate will be increased to RM600,000 which is boon to SME companies. However, despite PBSB meeting the requirement of having capital contribution not exceeding RM2.5 million to qualify as SME, there is an additional requirement introduced that requires the company to have an annual sales of not more than RM50 million. As PBSB’s annual revenue has exceeded RM50 million, PBSB may no longer be eligible the reduced tax rate benefit for SME companies.

Q: I am a retiree and I own a residential property purchased in 1992. Are there any new real property gains tax (“RPGT”) announcements that will affect me?

A: As you recall, the prior year’s budget in 2019 increased the RPGT rate from 0pc to 5pc for disposal of properties held for more than 5 years. As you purchased your property prior to the year 2000, the market value of the property on 1 January 2000 shall be taken as the acquisition price for the purpose of computing RPGT payable. It was announced in Budget 2020 that for the disposal of properties acquired prior to the year 2013, the acquisition price shall be deemed to be the market value of the property on 1 January 2013. The implications are as follow:-

 

Scenario 1 – RPGT treatment under Budget 2019

Assumptions

Purchase price in 1992 is RM180,000

Market value on 1 January 2000 is RM270,000

Market value on 1 January 2013 is RM600,000

The property was sold on 31 December 2018 for RM850,000

RPGT Payable

: (Disposal Price – Acquisition Price) x RPGT Rate

: (RM850,000 – RM270,000) x 5pc

: RM29,000

Scenario 2 – RPGT treatment under Budget 2020

Assumptions

Same as Scenario 1, except the property was sold on 31 December 2019 for RM850,000

RPGT Payable

: (Disposal Price – Acquisition Price) x RPGT Rate

: (RM850,000 – RM600,000) x 5pc

: RM12,500

 

The RPGT treatment proposed in Budget 2020 is only applicable to Malaysian citizens and permanent residents who disposed chargeable properties 5 years after the date of acquisition. In addition, the date of disposal must fall on or after October 12, 2019. This is a welcomed announcement and we look forward to further guidance in determining historical market values of the properties.

Q: James, an Australian citizen, owns a bungalow in Kuching. He intends to transfer the property to his child, Adam as he is getting older. He is aware that while the gift of real property from him to his child is not exempted from real property gains tax as he is not a citizen in Malaysia, there is a 50pc remission of stamp duty on the instrument of transfer. This remission is given to both Malaysian citizen and non-citizen. James would like to know whether the recent budget announcement would affect the stamp duty remission.

A: For instrument of real property transfer executed from 1 January 2020, the 50pc stamp duty remission for the transfer between parents and children and vice versa by way love and affection will be restricted to Malaysian citizen only. Hence, James should consider to execute the instrument of transfer in the year 2019 in order to enjoy the 50pc stamp duty remission.

Q: Do you foresee any major policy change on indirect taxes?

A: According to the Minister of Finance, the goods and services tax (“GST”) contributed significantly to price increases while its substitution with the sales and services tax (“SST”) resulted in Malaysia experiencing its lowest inflation rate since 2007. The Minister was very clear that the Government does not intend to reintroduce GST, effectively quelling such rumours in the run up to Budget 2020. Notwithstanding, we expect further expansion of the SST regime such as the introduction of tax on digital services effective 1 January 2020.

Q: Are there any concessions offered for service tax on intra-group transactions?

A: Budget 2020 enhances it by expanding the scope of the relief on intragroup services, and in particular including a minimum threshold on the value of services provided outside of the group. Where a company provides the same services to third parties as well as within the group, the intragroup relief can still be applied provided the value of the services to the third party does not exceed 5pc of the total value of the services made by that company within 12 months.

Q: How would Budget 2020 energise the tourism sector?

A: It was proposed for income tax exemption of 50pc on statutory income to be granted from the years of assessment 2020 to 2022 to companies that organise:

Arts and cultural activities approved by the Ministry of Tourism, Arts and Culture; and International sports and recreational competitions approved by Ministry of Youth and Sports. Similar incentives were offered in the years of assessment 1999 and 2000.

The Government also announced enhancement of existing tax incentives for tourism projects as summarised below. Applications received by the Malaysian Investment Development Authority from 1

January 2020 onwards may be eligible for the enhanced Budget 2020 incentives.

The next initiative is for licensed tour operators to be granted:

l Accelerated capital allowance (“ACA”) on the purchase of new and locally assembled excursion bus to be fully claimed within 2 years. This is effective years of assessment 2020 and 2021 and a similar measure ACA was in effect in the years of assessment 2009 to 2011; and 

l Excise duty exemption of 50pc on the purchase of new and locally assembled vehicles used as tourism vehicles. This is for applications received by the Ministry of Finance from January 1, 2020 until 31 December 2021. Similar measure was implemented for locally assembled four wheel drives effective September 2, 2006.

Additionally, companies that sponsor local and foreign arts, cultural as well as heritage activities in Malaysia and approved by Ministry of Tourism, Arts and Culture are given tax deduction of RM1,000,000 a year under Budget 2020 (up from RM700,000 previously). This proposal comes into effect in the year of assessment 2020.

We welcome the above initiatives and hope for continued support in ensuring the success of Visit Malaysia Year 2020.

 



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