Deloitte Malaysia 's Q&A on Budget 2010
by Financial Daily on Tuesday, 27 October 2009 03:40
KUALA LUMPUR: Following the tabling of Budget 2010 last Friday, Deloitte Malaysia worked together with The Edge Financial Daily to enlighten readers on how the various proposals would impact tax payers and consumers. The following are the answers provided by Janice Tan and Lee Chong Hoo of Deloitte Malaysia based on queries sent in by our readers.
Question 1: What is the impact on a worker earning, say, RM5,000 per month pursuant to Budget 2010?
A: He would not benefit from the proposed one percentage point reduction in the personal income tax rate from 27% to 26% as his chargeable income does not exceed RM100,000.
However, he would be entitled to claim the following additional/new tax reliefs proposed:-
• additional personal relief of RM1,000 (an increase from RM8,000 to RM9,000);
• additional relief of RM1,000 for premium paid on annuity scheme from insurance companies (please refer to further details in our answer to question 2 below);
• new relief on broadband subscription fee paid of up to RM500 per year for years 2010 to 2012.
Q2: How does the proposed additional relief of RM1,000 for premium paid on annuity scheme work and what annuity scheme will it encompass?
A: The additional relief of RM1,000 is in respect of premium paid on annuity scheme from insurance companies contracted from Jan 1, 2010 or additional premium paid on existing annuity scheme from Jan 1, 2010.
This is on top of the existing relief for premiums paid on life insurance or annuity scheme and contributions to the Employees Provident Fund (EPF) of RM6,000.
Where the premium paid on the new annuity scheme or the additional premium paid on existing scheme exceeds RM1,000, the excess can be claimed against any unutilised amount for the existing relief of RM6,000, subject to a cap of RM7,000 for the aggregate amount claimed.
The annuity scheme for the purposes of the above relief under Section 49(1) of the Income Tax Act 1967 (ITA) is an annuity scheme contracted for with an insurance company for securing on death a deferred annuity and not the existing annuity purchased through EPF Annuity Scheme. Currently, a separate relief of RM1,000 is given for the premium paid on the EPF Annuity Scheme under Section 49(1C) of the ITA.
Q3: I understand that Real Property Gains Tax (RPGT) will be reinstated from Jan 1, 2010. Is the 5% tax rate as announced in the budget a fixed rate regardless of the holding period of the properties? Will this just apply to an individual?
A: Notwithstanding the proposals in the Finance Bill, the Ministry of Finance has confirmed that a 5% rate of RPGT irrespective of the holding period and category of tax payers, ie whether individuals or companies, will be introduced through a Ministerial Exemption Order effective Jan 1, 2010.
Q4: I have an apartment under the joint names of my son and myself. I wish to change the ownership in the apartment to either be:-
a) jointly owned by my daughter and myself, or
b) solely owned by my daughter.
Will the above proposed transfers be subject to RPGT based on the Budget 2010 proposals?
A: The transfer of ownership from yourself to your daughter under (b) will be regarded as a gift between parent and child and thus will be exempted from RPGT.
However, the above exemption by way of gift does not cover the transfer of ownership from your son to your daughter. Your son may choose to exercise the once-in-a-lifetime exemption from RPGT for disposal of private residence.
Q5: What will be my obligations if I were to acquire a property after Jan 1, 2010 for a total consideration of, say, RM500,000?
A: You would need to withhold the lower of the amount of money consideration or 2% of the total consideration and remit the sum to the Inland Revenue Board (IRB) within 60 days from the date of disposal. Assuming the total consideration of RM500,000 consists wholly of cash, the amount required to be withheld and remitted would be RM10,000. In addition, you would also be required to submit a return on acquisition of chargeable asset under the existing requirement of the RPGT Act 1976.
Q6: Will my obligation be different if my purchase consideration is partly in cash, say, RM5,000 and the balance is paid by way of shares?
A: The amount required to be withheld and remitted to the IRB will be reduced to the whole amount of the money consideration of RM5,000 and not 2% of the total consideration.
Q7: What will happen if I do not fulfil my obligations as an acquirer under the RPGT Act?
A: Failure to comply with the above withholding requirement would result in a 10% penalty to be imposed on the acquirer and the withholding due plus the penalty would be regarded as a debt due from the acquirer to the government.
Q8: If I sell two properties, one at a profit of RM50,000 and another at a loss of RM15,000 in the same year, what is my chargeable gain?
A: It is proposed under Budget 2010 that any allowable loss arising from a disposal of a chargeable asset would be deducted against any chargeable gain arising from subsequent disposals. As such, your chargeable gain would be RM35,000 after deducting the allowable loss of RM15,000.
Q9: Currently I have two credit cards, one from Citibank and the other from CIMB. I am the principal card holder while my wife and two children are secondary card holders from both banks. I heard that I will be imposed a service tax on such cards effective from Jan 1, 2010. How will it affect me?
A: Effective from Jan 1, 2010, service tax of RM50 and RM25 would be imposed annually for each principal and secondary card respectively. As such, you would be subject to service tax totalling RM250 annually [(RM50 x 2) + (RM25 x 3 x 2)] for the above principal and secondary cards
Q10: I understand that tax incentives for health tourism would be enhanced whereby the exemption rate of 50% on the value of increased exports would be increased to 100% subject to 70% of the statutory income for each year of assessment? How does the exemption work and what would constitute exports for the purposes of the above exemption?
A: The amount of income to be exempted is computed based on the increase in the value of qualifying services exported for two consecutive basis periods.
Assuming the values of services qualifying for exemption are RM100,000 and RM200,000 for Year 1 and Year 2 respectively, the value of increased exports would be RM100,000 ie (RM200,000 — RM100,000).
As such, the amount of income to be exempted for the above example under the Budget 2010 proposal would be RM100,000 instead of RM50,000 based on the existing 50% exemption rate.
The above amount exempted would be allowed as a deduction against the person’s statutory business income (SI) in arriving at the chargeable income but is restricted to 70% of the SI for that year of assessment. Any unutilised amount can be carried forward to be deducted against future statutory income. Normally, statutory business income is computed by deducting allowable expenses and capital allowances from the gross income of the business.
To qualify for the aforesaid exemption, the healthcare services must be provided to the following foreign clients in Malaysia :
a) A company, a partnership, an organisation or a cooperative society incorporated or registered outside Malaysia ;
b) Non-Malaysian citizens who do not hold Malaysian work permits; or
c) Malaysian citizens who are non-residents living abroad.
For the purposes of the enhanced incentive, foreign clients would now exclude:
a) A non-Malaysian citizen that participates in Malaysia My Second Home Programme and his dependents;
b) A non-Malaysian citizen holding a Malaysian student pass and his dependents;
c) A non-Malaysian citizen holding a Malaysian work permit and his dependents; or
d) Malaysian citizens who are non-residents living abroad and his dependents.
However, healthcare services providers who are currently providing services to foreign clients who are excluded under the enhanced incentive can continue to enjoy the existing incentives.
This article appeared in The Edge Financial Daily, October 27, 2009.
Budget 2010 - What is there for individual taxpayers
The Budget 2010 announced on 23 October 2009 has a few changes to individual taxpayers. The Budget Speech can be viewed here with Appendices here.
The sections in the budget speech affecting individual tax payers are :-
24 & 25 IRB will use the MyKad number as a single reference number when dealing with taxpayers, hence doing away with Income Tax Reference Numbers starting with SG or OG.
40 Individual taxpayers will be given tax relief of up to RM500 per year for broadband subscription fees from 2010 to 2012.
88 Re-introduction of Real Property Gains Tax (RPGT) of 5% for gains arising from the disposal of properties from 1 January 2010.
89 Each principal credit card will be charged a service tax of RM50 per year and each supplementary credit card will be charged a service tax of RM25 per year with effect from 1 January 2010.
101 With effect from the Year of Assessment 2010, the maximum rate of individual income tax is reduced by 1% to 26%.
102 Personal Relief increased from RM8,000 to RM9,000
103 & 104 Income tax rate for 'knowledge workers approved by the Ministry of Finance', both Malaysians and foreigners who applied and commenced employment in Iskandar Malaysia between 24 October 2009 and 31 December 2015 be fixed at 15%
117 EPF contributors will be allowed to use Account 2 of their current and future EPF savings to obtain financing, subject to EPF's guidelines, to purchase a residential property. This scheme will be launched in January 2010.
122 & 123 The government will establish a 1Malaysia Retirement Scheme to be managed by the EPF for those retired and self-employed to contribute as savings for their retirement.
124 Employees' contribution to EPF will be reverted to 11% from the current 8%, voluntarily from January 2010 and mandatorily from January 2011.
125 Increase of the EPF/Life Insurance Personal Relief limit from RM6,000 to RM7,000 from the Year of Assessment 2010. However, the increase of RM1,000 is only for annuity premiums paid from 1 January 2010.
The Appendices concerned are Appendix 3, 14, 15, 16 & 17.
The sections in the budget speech affecting individual tax payers are :-
24 & 25 IRB will use the MyKad number as a single reference number when dealing with taxpayers, hence doing away with Income Tax Reference Numbers starting with SG or OG.
40 Individual taxpayers will be given tax relief of up to RM500 per year for broadband subscription fees from 2010 to 2012.
88 Re-introduction of Real Property Gains Tax (RPGT) of 5% for gains arising from the disposal of properties from 1 January 2010.
89 Each principal credit card will be charged a service tax of RM50 per year and each supplementary credit card will be charged a service tax of RM25 per year with effect from 1 January 2010.
101 With effect from the Year of Assessment 2010, the maximum rate of individual income tax is reduced by 1% to 26%.
102 Personal Relief increased from RM8,000 to RM9,000
103 & 104 Income tax rate for 'knowledge workers approved by the Ministry of Finance', both Malaysians and foreigners who applied and commenced employment in Iskandar Malaysia between 24 October 2009 and 31 December 2015 be fixed at 15%
117 EPF contributors will be allowed to use Account 2 of their current and future EPF savings to obtain financing, subject to EPF's guidelines, to purchase a residential property. This scheme will be launched in January 2010.
122 & 123 The government will establish a 1Malaysia Retirement Scheme to be managed by the EPF for those retired and self-employed to contribute as savings for their retirement.
124 Employees' contribution to EPF will be reverted to 11% from the current 8%, voluntarily from January 2010 and mandatorily from January 2011.
125 Increase of the EPF/Life Insurance Personal Relief limit from RM6,000 to RM7,000 from the Year of Assessment 2010. However, the increase of RM1,000 is only for annuity premiums paid from 1 January 2010.
The Appendices concerned are Appendix 3, 14, 15, 16 & 17.
Special Telephone Lines for Budget 2010 Queries
The Prime Minister cun Finance Minister 1 is going to table the Budget 2010 on 23 October 2009.
As usual, the Inland Revenue Board has set up special telephone lines to enable the public to call and have their queries answered on anything announced in the Budget.
The dedicated telephone lines are :-
1. 03-6201 3037
2. 03-6201 3046
3. 03-6201 3048
4. 03-6201 3052
5. 03-6201 3054
6. 03-6201 3058
7. 03-6201 3059
8. 03-6201 3061
From the Media Statement in the website of the IRB, the telephone lines are open on 23 October 2009 from 7.00 pm to 10.00 p.m. only.
As usual, the Inland Revenue Board has set up special telephone lines to enable the public to call and have their queries answered on anything announced in the Budget.
The dedicated telephone lines are :-
1. 03-6201 3037
2. 03-6201 3046
3. 03-6201 3048
4. 03-6201 3052
5. 03-6201 3054
6. 03-6201 3058
7. 03-6201 3059
8. 03-6201 3061
From the Media Statement in the website of the IRB, the telephone lines are open on 23 October 2009 from 7.00 pm to 10.00 p.m. only.
Suggestions for Budget 2010
The Prime Minister cum Finance Minister 1 has invited the public to give suggestions to be considered in the coming 2010 budget to be tabled on 23 October 2009.
The suggestions can be input at http://www.1malaysia.com.my/
I have sent in 4 suggestions on 12 October 2009 and they appeared in the website here. As the pages changes as and when more people give their suf=ggestions, I copied it here as follows :-
gtchye: Increase Personal Reliefs for Income Tax
The personal relief for income tax was increased from RM5,000 to RM8,000 in 1999. There has been no increase for 10 years. With the increasing cost of living, the personal relief should be increased to a minimum of RM10,000. (Sec 46(1)(a) of the Income Tax Act 1967)
Spouse and children's reliefs should also be increased to reflect the increased cost of a sustaining a family. (Sec 47 & 48 of the Income Tax Act 1967)
Life insurance premiums and employees' EPF paid should be separated and each given a limit of RM6,000. Insurance policies are getting too expensive and to encourage savings, premiums paid should be entitled to its own relief instead of combining it with EPF. (Sec 49 of the Income Tax Act 1967)
Relief for medical expenses for parents has not been revised since it was increased from the year of assessment 1996. This should be expanded to include medical expenses for children. (Sec 46(1)(c) of the Income Tax Act 1967)
Let's see if any of these are taken up in the Budget.
The suggestions can be input at http://www.1malaysia.com.my/
I have sent in 4 suggestions on 12 October 2009 and they appeared in the website here. As the pages changes as and when more people give their suf=ggestions, I copied it here as follows :-
gtchye: Increase Personal Reliefs for Income Tax
The personal relief for income tax was increased from RM5,000 to RM8,000 in 1999. There has been no increase for 10 years. With the increasing cost of living, the personal relief should be increased to a minimum of RM10,000. (Sec 46(1)(a) of the Income Tax Act 1967)
Spouse and children's reliefs should also be increased to reflect the increased cost of a sustaining a family. (Sec 47 & 48 of the Income Tax Act 1967)
Life insurance premiums and employees' EPF paid should be separated and each given a limit of RM6,000. Insurance policies are getting too expensive and to encourage savings, premiums paid should be entitled to its own relief instead of combining it with EPF. (Sec 49 of the Income Tax Act 1967)
Relief for medical expenses for parents has not been revised since it was increased from the year of assessment 1996. This should be expanded to include medical expenses for children. (Sec 46(1)(c) of the Income Tax Act 1967)
Let's see if any of these are taken up in the Budget.
Tax residence status of an individual
In determining the income tax rate (hence the amount of income tax payable) of an individual, it is important to first determine if he/she is a tax resident under the Malaysian Income Tax Act, 1967 (ITA).
Many people seem to have the view that if an individual stays in Malaysia for 182 days or more, he/she is a tax resident under the ITA. Anything shorter than that, then the person is a non-resident and is subject to non-resident tax rate, i.e. a flat rate of 27% (Year of Assessment 2008).
This is far from true ! Section 7 of the ITA clearly provides more than one situations when an individual taxpayer is considered a tax resident.
Section 7 of the Malaysian Income Tax Act says,
7. (1) For the purposes of this Act, an individual is resident in Malaysia for the basis year for a particular year of assessment if-
(a) he is in Malaysia in that basis year for a period or periods amounting in all to one hundred and eighty-two days or more;
(b) he is in Malaysia in that basis year for a period of less than one hundred and eighty-two days and that period is linked by or to another period of one hundred and eighty-two or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that particular year of assessment or in that basis year for the year of assessment immediately following that particular year of assessment: Provided that any temporary absence from Malaysia -
(i) connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad;
(ii) owing to ill-health involving himself or a member of his immediate family; and
(iii) in respect of social visits not exceeding fourteen days in the aggregate, shall be taken to form part of such period or that period, as the case may be, if he is in Malaysia immediately prior to and after that temporary absence;
(c) he is in Malaysia in that basis year for a period or periods amounting in all to ninety days or more, having been with respect to each of any three of the basis years for the four years of assessment immediately preceding that particular year of assessment either-
(i) resident in Malaysia within the meaning of this Act for the basis year in question; or
(ii) in Malaysia for a period or periods amounting in all to ninety days or more in the basis year in question; or
(d) he is resident in Malaysia within the meaning of this Act for the basis year for the year of assessment following that particular year of assessment, having been so resident for each of the basis years for the three years of assessment immediately preceding that particular year of assessment.
(1A) For the purposes of subsection (1), an individual shall be deemed to be in Malaysia for a day if he is present in Malaysia for part or parts of that day and in ascertaining the period for which he is in Malaysia during any year, any day (within subsection (1)(a) and (c)) for which he is in Malaysia shall be taken into account whether or not that day forms part of a continuous period of days during which he is in Malaysia.
The wordings are rather lengthy.
In layman’s terms, it simply means that an individual is considered a Malaysian Tax Resident if he/she is :-
Sec 7(a) in Malaysia for 182 days or more in a calendar year ;
Sec 7(b) in Malaysia less than 182 days and this period is linked to last year or next year of 182 days or more ;
Sec 7(c) in Malaysia for 90 days or more and 3 out of 4 years before, either
( i) is a tax resident ; or
( ii) is Malaysia for 90 days or more
Sec 7(d) 3 years before he/she was tax resident and next year also tax resident.
In order not to re-invent the wheel, I found a good write up and explanation in a website here.
Many people seem to have the view that if an individual stays in Malaysia for 182 days or more, he/she is a tax resident under the ITA. Anything shorter than that, then the person is a non-resident and is subject to non-resident tax rate, i.e. a flat rate of 27% (Year of Assessment 2008).
This is far from true ! Section 7 of the ITA clearly provides more than one situations when an individual taxpayer is considered a tax resident.
Section 7 of the Malaysian Income Tax Act says,
7. (1) For the purposes of this Act, an individual is resident in Malaysia for the basis year for a particular year of assessment if-
(a) he is in Malaysia in that basis year for a period or periods amounting in all to one hundred and eighty-two days or more;
(b) he is in Malaysia in that basis year for a period of less than one hundred and eighty-two days and that period is linked by or to another period of one hundred and eighty-two or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that particular year of assessment or in that basis year for the year of assessment immediately following that particular year of assessment: Provided that any temporary absence from Malaysia -
(i) connected with his service in Malaysia and owing to service matters or attending conferences or seminars or study abroad;
(ii) owing to ill-health involving himself or a member of his immediate family; and
(iii) in respect of social visits not exceeding fourteen days in the aggregate, shall be taken to form part of such period or that period, as the case may be, if he is in Malaysia immediately prior to and after that temporary absence;
(c) he is in Malaysia in that basis year for a period or periods amounting in all to ninety days or more, having been with respect to each of any three of the basis years for the four years of assessment immediately preceding that particular year of assessment either-
(i) resident in Malaysia within the meaning of this Act for the basis year in question; or
(ii) in Malaysia for a period or periods amounting in all to ninety days or more in the basis year in question; or
(d) he is resident in Malaysia within the meaning of this Act for the basis year for the year of assessment following that particular year of assessment, having been so resident for each of the basis years for the three years of assessment immediately preceding that particular year of assessment.
(1A) For the purposes of subsection (1), an individual shall be deemed to be in Malaysia for a day if he is present in Malaysia for part or parts of that day and in ascertaining the period for which he is in Malaysia during any year, any day (within subsection (1)(a) and (c)) for which he is in Malaysia shall be taken into account whether or not that day forms part of a continuous period of days during which he is in Malaysia.
The wordings are rather lengthy.
In layman’s terms, it simply means that an individual is considered a Malaysian Tax Resident if he/she is :-
Sec 7(a) in Malaysia for 182 days or more in a calendar year ;
Sec 7(b) in Malaysia less than 182 days and this period is linked to last year or next year of 182 days or more ;
Sec 7(c) in Malaysia for 90 days or more and 3 out of 4 years before, either
( i) is a tax resident ; or
( ii) is Malaysia for 90 days or more
Sec 7(d) 3 years before he/she was tax resident and next year also tax resident.
In order not to re-invent the wheel, I found a good write up and explanation in a website here.
Per diem - Clarification finally
The IRB has finally issued the Third Addendum to Public Ruling No. 1/2006 on 29 July 2009 (view here) to clarify that per diem received is exempted, thus officially reversing their Second Addendum issued on 25 February 2009.
So what happen to all those taxpayers who included per diem received in 2008 in their tax returns ?
Understanding Income Tax issues are already complicated enough for the ordinary taxpayers, the IRB should stop being so frickle minded and make a public ruling without considering the effects on taxpayers and the to reverse it with another public ruling, especially after the tax filing deadline.
So what happen to all those taxpayers who included per diem received in 2008 in their tax returns ?
Understanding Income Tax issues are already complicated enough for the ordinary taxpayers, the IRB should stop being so frickle minded and make a public ruling without considering the effects on taxpayers and the to reverse it with another public ruling, especially after the tax filing deadline.
Why the fuss with PCB deductions 2009 ?
PCB deductions used to be a simple tax collection process imposed by the IRB. How much is your income for a month, follow the table provided by the IRB, follow the amount of estimated income tax payable and that amount is deducted from your monthly salary and remitted to the IRB.
At the end of the year, you receive the Borang EA from your employer and you calculate how much actual tax you have to pay, taking into account the relieves you have, claims, exemptions, rebates, etc and you fill up the Borang BE, send to the IRB and pay the difference between your actual tax and the total PCB deducted for the year.
If your total PCB deducted for the year is higher, then you get a refund from the IRB.
However, things get really complicated since January 2009. The PCB table is changed, calculation of PCB become totally impossible without a payroll software, TP1, TP2, etc.
Why has the PCB turned into something so complicated ?
The reason is this: The Malaysia IRB wishes to follow its counterpart is Singapore in implementing a system where all salaried employees will not have to file their tax returns (Borang BE) in future.
Refer to the Singapore’s Straits Times report on 7 May 2009 below.
http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_373767.html
The system will make the PCB a Final Tax, as opposed to an Estimated Tax as at now.
We are in the first year that the IRB is gearing towards this system. That is why there are so many teething problems and adjustments needed. How long more before the IRB can fully implement the Final Tax via PCB system is yet to be seen.
At the end of the year, you receive the Borang EA from your employer and you calculate how much actual tax you have to pay, taking into account the relieves you have, claims, exemptions, rebates, etc and you fill up the Borang BE, send to the IRB and pay the difference between your actual tax and the total PCB deducted for the year.
If your total PCB deducted for the year is higher, then you get a refund from the IRB.
However, things get really complicated since January 2009. The PCB table is changed, calculation of PCB become totally impossible without a payroll software, TP1, TP2, etc.
Why has the PCB turned into something so complicated ?
The reason is this: The Malaysia IRB wishes to follow its counterpart is Singapore in implementing a system where all salaried employees will not have to file their tax returns (Borang BE) in future.
Refer to the Singapore’s Straits Times report on 7 May 2009 below.
http://www.straitstimes.com/Breaking%2BNews/Singapore/Story/STIStory_373767.html
The system will make the PCB a Final Tax, as opposed to an Estimated Tax as at now.
We are in the first year that the IRB is gearing towards this system. That is why there are so many teething problems and adjustments needed. How long more before the IRB can fully implement the Final Tax via PCB system is yet to be seen.
Subscribe to:
Posts (Atom)
