1 November, 2019
Following the tabling of the 2020 Malaysian Budget by the Minister of Finance (“MOF”) on 11 October 2019, the Finance Bill 2019 was tabled for a first reading in Parliament on 15 October 2019. This article highlights the key amendments to tax legislation set out in the Finance Bill 2019.
Personal Income Tax Rates
It is proposed that with effect from year of assessment (“YA”) 2020, a new chargeable income band exceeding RM2,000,000 be introduced and resident individuals with chargeable income of more than RM2,000,000 be taxed at 30% compared to the previous rate of 28%. For non-resident individuals, the fixed income tax rate is also proposed to be increased to 30% from the previous rate of 28%.
Threshold for Lower Corporate Tax Rate for Small and Medium Enterprises (“SMEs”)
Presently, SMEs (companies that are tax residents and incorporated in Malaysia, and have a paid- up capital in respect of ordinary shares of up to RM2,500,000 at the beginning of the basis period for a YA and subject to the proviso on related company) are taxed at a lower rate of 17% on the first RM500,000 of their chargeable income and for every ringgit exceeding the first RM500,000 the normal corporate tax rate of 24% would apply.
It is proposed that with effect from YA 2020, the threshold of chargeable income upon which SMEs enjoy the lower rate of 17% be increased from RM500,000 to RM600,000. Further, it has also been proposed that another criteria be added such that SMEs must also have a gross income not exceeding RM50,000,000 in a basis period for a YA from all business sources in order to enjoy the lower tax rate.
Withdrawals from Deferred Annuity or Private Retirement Scheme
Presently, withdrawals by an individual from a deferred annuity or a private retirement scheme before the individual reaches the age of 55 are taxed at 8%. However, the amount withdrawn would not be subject to tax if the withdrawals are due to permanent total disablement, serious disease, mental disability, death or permanently leaving Malaysia.
It is proposed that Section 109G(1) of the Income Tax Act 1967 (“ITA”) be amended so that with effect from 1 January 2020, withdrawals for reasons of healthcare or housing would also not be subject to tax provided that such withdrawals are in compliance with the relevant Securities Commission guidelines.
Gift of Money or Contribution In Kind
It is proposed that Section 44 of the ITA be amended so that with effect from YA 2020, the tax deduction presently available to a person (other than a company) in respect of the following be increased from 7% to 10% of the aggregate income of that person in the relevant year:
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gift of money to approved institutions, organizations or funds
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gift of money for approved sports activities
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gift of money or cost of contribution in kind for approved projects of national interest
Tax Relief for Medical Expenses
It is proposed that Section 46(1)(g) of the ITA be amended so that with effect from YA 2020, the tax deduction of up to RM6,000 presently available to individuals in respect of medical expenses expended or deemed expended by the individual on himself/herself or his/her spouse or child be extended to also cover medical expenses for fertility treatment, provided that such individual is married. In this connection, “fertility treatment” means intrauterine insemination or in vitro fertilization treatment or any other fertility treatment.
Special Allowance for Small Value Assets
It is proposed that Paragraph 19A of Schedule 3 to the ITA be amended so that with effect from YA 2020:
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(i) the value of small value assets on which special allowance can be claimed by SMEs and non- SMEs be increased from RM1,300 to RM2,000; and
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(ii) the limit of qualifying plant expenditure in respect of small value assets on which such allowance can be claimed by non-SMEs be increased from RM13,000 to RM20,000.
Whilst there is no limit on the amount of qualifying plant expenditure for SMEs, for consistency purposes, Paragraph 19A is to be amended to reflect the additional criteria that SMEs must have a gross income not exceeding RM50,000,000 in a basis period for a YA from all business sources.
Increase in Tax for Amended Tax Return
It is proposed that Section 77B(4) of the ITA be amended so that with effect from 1 January 2020, where a person makes an amendment to a tax return, any amount of tax or additional tax payable by that person pursuant to the amended return shall only be increased by 10% of the amount of such tax or additional tax payable. The additional tax increase of 5% imposed in respect of an amended return which is furnished after 60 days from the due date for the furnishing of the tax return will be abolished.
Please click here for the full article (5 page PDF).
For further information, please contact:
Goh Ka Im, Partner, Shearn Delamore & Co
kgoh@shearndelamore.com
