Budget 2018 (27/10/2017)

The budget 2018 had been tabled in Parliament on Friday, 27th October 2017 by our Prime Minister, Datuk Seri Najib Tun Razak.

This budget can be considered to be among the shortest or less changes compare to any other budget tabled before.

Among the key summary changes from the tax perspective are:

BUDGET 2018

27/10/2017, FRIDAY, 3.30PM

PARLIAMENT OF MALAYSIA

NOTES PREPARED AT 8.00PM

INCOME TAX, GST AND RELEVANT AREAS

Tax incentive for Principal Hub until 31/12/2020 to encourage FDI.

Widen eVisa for regional hub to facilitate visa application through online, mainly by expatriate, foreign student and Malaysia My Second Home Programme (MM2H).

Tax incentive for investment in new 4 & 5 star hotel extended until 31/12/2020.

Tax incentive in form of income tax exemption for tour operator company extended until 31/12/2020.

Tax incentive in term of Investment Tax Allowance (ITA) of one hundred percent (100%) for health tourism extended until 31/12/2020.

Double deduction on the expenses incurred for obtaining quality certification from the Malaysia Accreditation Body of Health Service Certification, for dental and ambulatory services registered with Malaysia Healthcare Travel Council (MHTC).

Special tax exemption incentive increased from 50% to 100% from value of export increment private healthcare services (YA 2018 - 2020).

Pulau Pangkor, Perak as duty free island (except alcoholic drink, cigarette & motor vehicle)

Extends income tax exemption, covering management fees and performance fees received by the venture capital company from the years of assessment 2018 to 2022

10.

Incentive income tax exemption equal to the amount of investment by angel investors in the venture company extends until 31 December 2020

11.

Income tax exemption on Sukuk Green SRI special grant recipients, for applications received by SC from 1/1/2018 - 31/12/2020

12.

Income tax exemption on management fee income is extended to conventional SRI fund managers approved from year of assessment 2018 to 2020.

- SI from service to foreign investors

- SI from service to local investors

- SI from service to business trust or REITs

W.e.f. YA 2018 - 2020

13.

Further tax deductions for employed employers are extended to employers employing disabled workers or critical illnesses, certified by the SOCSO Medical Board that they are still eligible for work

14.

Every Malaysian born born from 1 January 2018 to 2022, is awarded an Initial Savings Fund (ADAM50) of RM200 Unit Trust Unit in PNB.

15.

Individual income tax relief extended for the contribution made for SSPN(SSP1M), limited to six thousand ringgit (RM6,000), for net savings made into SSP1M for three years from the year of assessment 2018

16.

Middle class income group (M40 - middle 40% with household income between RM3,860 - RM8,319, B40 Bottom 40% - income <RM3,855)

Reduction of individual income tax rate of 2% for following chargeable income:

Calculations (RM)

Tax Rate (%)

Rough estimation of tax (RM) 2018

Tax (RM) 2017

20,0001 - 35,000

5% to 3%

1st RM20,000

150

Next RM15,000

450

750

35,001 - 50,000

10% to 8%

1st RM35,000

900

Next RM15,000

1,200

1,500

50,000 - 70,000

16% to 14%

1st RM50,000

2,400

Next RM20,000

14%

2,800

3,200

Example, Ms A's salary in YA 2018 is RM3,100 per month x 12, annually is RM37,200. Calculate her income tax for YA 2018.

Gross salary (RM5,000 x 12 months)

60,000

Less: Relief

Individual

(9,000)

EPF & Life insurance (max RM6,000)

(6,000)

Education & Medical insurance (max RM3,000)

SSPN (max RM6,000)

(15,000)

Chargeable income

45,000

Tax on first RM35,000

900.00

Tax on next RM15,000 @ 8%

800.00

Tax payables

1,700.00

17.

Tax exemption on rental income from residential homes

- 50% tax exemption subject to following conditions:

rental income not exceeding <RM2,000 per month for each residential home (if have 10, total is RM20k)

ii.

must be rented under a legal tenancy agreement between the owner & tenant

iii.

period: 3 YAs

W.e.f: YA 2018 - 2020

18.

Tax relief on SSPN @ SSP1M extended YA 2018 - 2020 up to net savings of RM6,000 in the fund

19.

CA for ICT equipment and software

- ICT equipment cant be claimed 20%,80% (ACA) until YA 2016 only. YA 2017 its normal again 20%,10%.

- The expenditure incurred on consultation fee, licensing fee & incidental fee for the development of the customised software is not eligible fot CA or deduction for income tax.

Its is proposed:

IA, AA

W.E.F

Purchase of ICT equipment & software packages

20%, 20%

YA 2017

Expenditure on development of customised (bespoked) software comprising consultation fee, licensing fee & incidental fee related to software development

20%, 20%

YA 2018

20.

Stamp duty exemption to revive abandoned housing projects extended from 1/1/2018 to 31/12/2020

The stamp duty exemption is given on the following instruments (to revive the abandoned projects):

Rescuing contractors:

Loan agreements

Instruments of transfer of title for land and houses

Original house purchasers:

Loan agreement for additional financing

Instruments of transfer of the houses

The eligible abandoned housing projects must be certified by Ministry of Urban Wellbeing, Housing & Local Government.

21.

Stamp duty exemption for trading of Exchange Traded Fund (ETF) & Structured Warrants (SW)

Before: Stamp duty RM1 = each RM1,000

8 ETF in Bursa Listing. SW is a security instrument.

Exemption: 1/1/18 - 31/12/2020

22.

Malaysia participation in OECD (organisation for economic cooperation & development) taxation initiatives

Participation:

BEPS (base erosion and profit shifting) Associate - to implement BEPS action plan

Member of the forum on harmful tax practices (FHTP)

Member of global forum on transparency & exchange of information for tax purpose

party to the convention on mutual administrative assistance on tax matters

Country-by-Country Reporting

Common Reporting Standards

Implementation of the automatic exchange of information effective Sept 2018

Streamline tax incentives, amendment on relevant legislation will be gazetted b4 1/1/2019

23.

GST on reading materials

- All types of books (reading materials) & newspaper treated = 0% (zero-rated supply)

- Magazines, journals, periodicals & comics = 6%, proposed to be 0%

W.e.f 1/1/2018

24.

GST treatment on JMB (management & maintenance services of stratified residential buildings)

25.

Review of the GST treatment for local authorities (Pihak Berkuasa Tempatan)

Current:

Section 64, GST Act 2014 – supply made by Federal, State Gov, & Local Authorities in respect of regulatory and enforcement function is not subject to GST (out of scope – OS).

Proposed:

All supply by Local Authorities = 0%, OS. GST relief will be given on the acquisition of all goods excluding petroleum, commercial buildings or land and on the importation of motor cars.

W.e.f : 1/4/2018 or 1/10/2018

26.

GST relief on construction services for school buildings & places of worship

Current:

Gov school, Gov-aided schools & Chinese independent high schools = 50% GST relief on the constructin services for school building including hall & sport facilities, if approved by respective authorities (contracts sign b4 1/4/2015 and extended till 31/3/2017). No GST relief for those worship places construction.

Proposed:

100% GST relief, if the above is financed through public donations.

Restricted to construction services which invoice haven’t issued and subject to following conditions:

i. Approval under Subsection 44(6) ITA 1967 for their construction fund has been obtained;

a. S44(6) Subject to subsection (12), there shall be deducted pursuant to this subsection from the aggregate income of a person for the relevant year reduced by any deduction falling to be made for that year in accordance with subsection (1) an amount equal to any gift of money made by him in the basis year for that year to the Government, a State Government, a local authority or an institution or organisation approved for the purposes of this section by the Director General on the application of the institution or organisation concerned:

Provided that the amount to be deducted from the aggregate income for the relevant year in respect of any gift of money made to any institution or organization approved for the purposes of this section by the Director General shall not exceed―

(a) in the case of a person other than a company, seven per cent of the aggregate income of that person in the relevant year; or

(b) in the case of a company, ten per cent of the aggregate income of that company in the relevant year.

ii. Approval for development and constructions by Local Authorities, the MOE or State Religious Councils (for mosque or surau) have been obtained

iii. Construction of school building including hall & sport facilities are directly used for teaching and learning purpose

iv. The relief does not apply to the purchase of commercial buildings; and

v. Construction services contract signed on or after 1/4/2017

W.e.f: Applications submitted to MOF from 27/10/2017

27.

GST relief on the importation of big ticket items

Current:

Importation of big ticket items (retail good that has high selling prices – real estate, big utilities - washing machines, cars) such as aircrafts, ship & oil rigs by Companies in aviation, shipping and gas industries are subjected to GST (6%).

Proposed:

GST relief will be given on the above.

W.e.f: 1/1/2018

28.

Relief from payment of GST on importation of goods under lease agreements from designated areas

Current:

Goods under lease agreements supplied by Companies located in Designated Areas (DA) i.e. Labuan, Langkawi, & Tioman and imported into Malaysia are subjected to GST 6%.

Proposed:

GST relief given to Companies involve in O&G industry on the importations of goods under lease agreements into Malaysia from DA.

W.e.f: 1/1/2018

29.

GST relief on handling services rendered to operators of cruise ships

Handling services provided by sea port operators to ships such as stevedoring (pemunggahan), loading, unloading and reloading and inspection of cargo are categorised as ZRL.

Ships that are eligble must fulfil the definition of “Ships” under Item 2, GST Act 2014, used for sea navigation – registered under Merchant Shipping Ordinance 1952. Including vessel owned/operated by foreign Gov but exclude vessel designed for recreation, pleasure or other than freight/passenger transportation.

Cruise ship = “ship” used for recreation & pleasure = not eligible for zero-rated treatment.

Prposed:

GST relief on handling services by sea operators in Malaysia given to cruise ship operators.

W.e.f: 1/1/2018 – 2020

30.

Merger of customs appeal tribunal & GST appeal tribunal

W.e.f: 1/1/2019

31.

Tax incentives for automation

Current:

Manufacturing co – eligible for ACA and Automation Equipment Allowance (AE) in QE incurred on following automation equipment:

1. Labour-intensive industry (rubber, plastic, wood, textile)

· ACA 10%, AE 100% on first RM4m from YA 2015 - 2017

2. Other Industries

· ACA 10%, AE 100% on first RM2m from YA 2015 – 2020

Effective for application submitted to MIDA:

i. 1/1/2015 – 31/12/17 (Category 1)

ii. 1/1/2015 – 31/12/2020 (Category 2)

Proposed:

Streamline C1 = C2. The incentive period extended to 31/12/2020. Fully claimable within 1 year.

W.e.f: Application received by MIDA from 1/1/2018 – 31/12/2020.

32.

Tax incentive for transformation to industry 4.0

Current:

Gov provided tax incentives for manufacturing sector and its related product. Companies are encouraged to adopt advanced tech (known as Industry 4.0), includes following tech driver:

1. Big data analytics

2. Autonomous robots

3. Simulation

4. Industrial internet of things

5. Cyber security

6. Horizontal & vertical system integration

7. Cloud computing

8. Additive manufacturing

9. Augmented reality

10. Artificial intelligence

Proposed:

ACA & AE be given on the first RM10m of QE incurred in YA 2018 – 2020, fully claimbanle within 2 YAs.

W.e.f: Applications received by MIDA from 1/1/2018 – 31/12/2020

33.

Extension of tax incentive for Principal Hub

Current:

Principal Hub enjoy income tax exemption, in 3-tire preferential tax rates of 0%, 5% & 10% based on criteria:

i. Min paid-up capital RM2.5m

ii. Min annual sales of RM300m

iii. Monitoring & providing services to at least 3 related co and operating outside M’sia

iv. Carrying out qualifying services including strategic services such as financial and talent management services

v. Acquire local professionals and local financial services

The applications mustbe made to MIDA from 1/5/15 – 30/4/2018.

Proposed:

Extended till 31/12/2020

34.

Extension of tax incentives for hiring the disabled

Current:

Employers who employ disabled persons, certified by Department of Social Welfare (JKM), eligible to claim a further deduction on salary paid to the disabled persons – since 1982.

Proposed:

To include those who have been affected by accidents/critical illness and are able to secure suitable employment. The Medical Board of the Social Security Organisation (SOCSO) need to certify these disabled are able to work within their capabilities.

W.e.f: YA 2018

35.

Extension of period for application of incentives for new 4 & 5 star hotels

Current incentives:

Location

Pioneer Status

Investment Tax Allowance

Peninsular

Exemption of 70% SI for 5 years

ITA 60% on QE incurred within 5 years. Can be set-off against 70% SI.

Sabah & Sarawak

Exemption of 100% SI for 5 years

ITA 100% on QE incurred within 5 years. Can be set-off against 100% SI.

W.e.f: Extended till 31/12/2020

36.

Extension of period of tax incentives for tour operating companies

Current:

100% tax exemption on tour operating Co’s SI if meet:

i. Tour packages within Malaysia participated by >1,500 local tourist annually

ii. >750 foreign tourist annually

From YA 2007 – 2018

Proposed W.e.f: YA 2019 – 2020

37.

Extension of period of tax incentives for medical tourism

Current:

From 1/1/15 – 31/12/17. Companies providing private healthcare services, carrying out a new investment or will be undertaking expansion, modernisation or refurnishment. Eligible co must be:

i. Incorporated in Malaysia under CA 2016 & residing in Malaysia

ii. Licensed with Ministry of Health (MOH)

iii. Registered with Malaysian Health Tourism Council (MHTC)

Eligible health care travellers are:

i. A non-Malaysian in MM2H (Malaysia My Second Home) and his dependents

ii. An expatriate (holding a Malaysian work permit & his dependents)

iii. A non-Malaysian who visits Malaysia and receives private healthcare services in Malaysia

The condition for tax incentives:

i. >5% of total number of patients comprised of qualified heathcare travellers per YAs

ii. >10% of gross income is derived from qualified heathcare travellers per YAs

Proposed: extended till 31/12/2020

38.

Expansion scope of double deduction incentive for expenditure incurred in obtaining certification for quality system and standard

Current:

Any private healthcare services registered with MHTC eligible for the above if they get from the following approved certification bodies:

i. Malaysian Society for Quality in Health – Malaysia

ii. Joint Commission International – USA

iii. CHKS Accreditation Unit – UK

iv. The Australian Council on Health Care Standard – AU

v. Accreditation Canada

Proposed:

Co registered with MHTC that provide dental & ambulatory healthcare services be given double deduction for obtaining certification for quality systems & standard.

W.e.f: YA 2018

39.

Export of Private Healthcare Services

Current:

50% tax exemption on the value of increased export of services, set-off against 70% SI – for provision to foreign patients.

Proposed:

Increase to 100% tax exemption on the value of increased export of services, set-off against 70% SI.

Subject to:

i. >10% of total number of patients comprised of qualified heathcare travellers per YAs

ii. >10% of gross income is derived from qualified heathcare travellers per YAs

W.e.f: YA 2018 – 2020

40.

Venture capital

i. Venture capital management corporation (VCMC) – exemption on SI derived from share of profit received on investment made by VCC (to include income from management fees & performance fees in managing VCC funds)

ii. Venture capital company (VCC) – exemption on SI derived from all sources of income except interest income from savings/FD and profits from shariah-compliant deposits; 10years exemptions according to life of the fund established for investment in VC. The VCC must be registered with SC, invest >70% of seed, start up and early state fund in VC OR >50% in the form of seed capital. VCC & VC must not related co. (investment limit in VC to be reduced to 50% & 50% balance allowed for other investments)

iii. Investment in VC – tax deduction equivalent to amount of investment in VC at the adjusted income level (co/individual investing into VCC given tax deduction to max RM20m per year on the investment made)

Tax exemption given for 5 years (YA 2018 – 2022). Application must be received by CS from 1/1/18 – 31/12/2018.

41.

Angel investors

i. Angel investors are:

a. Individual resident in M’sia, sources of income not solely derived solely from business

b. No family relation with investee co

c. Investment if for sole purpose of financing activities of investee co as approved by Minister

d. Investment <30% of total paid-up capital of investee co

ii. Investee co are:

a. Incorporated under CA 1965, resident in M’sia

b. >51% of ordinary share capital owned by Malaysian

c. Carries out xtvt approved by Minister

The angel investor enjoy tax exemption on the amount of investment made in investee co.

W.e.f: Application made from 1/1/2018 – 31/12/2020.

42.

Women returning to work after career break

Income tax exemption up to 12 months (1 year) for women who return to workforce after having a career break of 2 years on 27/10/2017. Eligible to claim for YA 2018 – 2020.
Application must be made to Talent Corporation Malaysia Berhad from 1/1/2018 – 31/12/2019.

*This notes was made by me based on the budget speech and might left some other important point which I purposely not included here.

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Budget 2018 (27/10/2017)

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