PERMAI Assistance Package Tax Highlights

Earlier this week, the Prime Minister of Malaysia announced another economic stimulus package called the “Perlindungan Ekonomi & Rakyat Malaysia (“PERMAI”) Assistance Package”. This would be the 4th stimulus package announced by the government to cushion and stimulate the economy amidst rising concerns of the COVID-19 pandemic. 

The PERMAI Assistance Package is anchored in 3 main objectives: combating the COVID-19 outbreak, safeguarding the welfare of the people and supporting business continuity. In precis addition to the extension of the Temporary Measures for Reducing the Impact of COVID-19 Act 2020, the PERMAI Assistance Package provided several interim relief measures to alleviate the impact of the newly announced Movement Control Order. 

This post set out herein the key highlights from the PERMAI Assistance Package.

1/ Cash assistance

A one-off provision of RM500 to healthcare frontliners and RM300 to other frontliners will be paid in the first quarter of the year. The Prime minister stated that the special monthly allowance of RM600 to healthcare frontliners and RM200 to other frontliners will be given until the end of the COVID-19 pandemic. 

Additionally, a one-off financial assistance of RM500 to tourist guides and drivers of taxis, school buses, tour buses, rental cars and e-hailing vehicles. 

2/ Tax relief for COVID-19 screening (personal)

As stated in the Budget 2021, the tax relief for full health screening has increased twofold, from RM500 to RM1,000. The government announced that this relief includes COVID-19 screening as well.

3/ Moratorium on loans and installment reduction

The government announced that throughout this Movement Control Order 2.0, moratorium facilities such as the extension of the moratorium, restructure of loan payments and reduction of loan repayment installments will continue.

4/ Special tax relief for technology products 

Last year, the government announced a special personal income tax relief for the purchase of mobile phones, computers and tablets to ease the industry in adapting to the Work From Home arrangement. In this PERMAI Assistance Package, the government announced the extension of the special tax relief of up to RM2,5000 for the purchase of mobile phones, computers, and tablets until the end of 2021.

5/ Expenses incurred for COVID-19 testing

Under the PENJANA scheme, it was announced that tax deduction will be given for expenses incurred for COVID-19 testing. Under PERMAI, employers who bear the cost of COVID-19 screening for its employees are entitled to claim a double deduction for the payment screening costs made during the year 2021.

6/ Sales tax exemption

To boost the automotive sector, the government had announced a sales tax exemption for locally assembled and imported passenger vehicles until 31 December 2020 under the PENJANA package. This exemption will continue until 30 June 2021 to stimulate and drive momentum in the automotive sector.

7/ Revised Wage Subsidy Programme

A revised Wage Subsidy Programme called the Wage Subsidy Programme 3.0 is introduced and applies to all employers operating in areas affected by the Movement Control Order, irrespective of the industrial sector operating. For one month, employers will receive a wage subsidy of RM600 for each employee earning less than RM4,000. The number of employees for the wage subsidy limit is also increased from 200 to 500. 

8/ Special deduction for reduction of rental on business premises

During the implementation of the 1st Movement Control Order last year, the government gave a special tax deduction to a company that reduces the rental rate on business premises rented to Small and Medium Enterprises (“SME”) by at least 30% between the period 1 April 2020 to 31 March 2021. It is announced that this special deduction will be extended until 30 June 2021 and applies to rental reduction for non-SME as well.

9/ Exemption on excise duties and sales tax 

The government announced a reduction in the number of years qualified for exemption from excise duty and sales tax from seven years to five years for the transfer, disposal and private use of taxis. 

Conclusion

The introduction of the PERMAI Assistance Package aims to revitalise the economy and boost consumption. With a budget of RM3 billion for the COVID-19 Vaccination Programme, it is hoped that this will instill momentum for businesses to navigate towards economic recovery. 

7 tax cases in Malaysia in 2020

Within the blink of an eye, we have come to the end of 2020. Although the greater part of 2020 was spent in quarantine, it has not stopped the Inland Revenue Board (“IRB”) from conducting tax audits and neither has it prevented the Courts from conducting hearings of tax cases via Zoom or Skype.

With that being said, there are a few noteworthy tax cases that laid down important principles and applications of the law. This post outlines 7 influential tax cases in 2020.

  1. IBM Malaysia Sdn Bhd v KPHDN

This case concerns the legal status of an advance ruling under Section 138B of the Income Tax Act 1967 (“the Act”).

Briefly, the taxpayer executed a software distribution agreement with a related company which allowed the taxpayer to distribute the software programs produced by the latter in Malaysia. The taxpayer made an application for an advance ruling to the IRB for a determination on whether the distribution payment is subjected to withholding tax as being “royalty”. The IRB issued its decision and stated that payment was considered royalty and hence was subject to withholding tax. Aggrieved, the taxpayer filed a judicial review application to appeal against the IRB’s decision.

The entire edifice of the objection made by the IRB was that the judicial review application was filed prematurely. The High Court allowed the judicial review application. However, the Federal Court and Court of Appeal overturned it but no grounds have been issued by the Federal Court. In the grounds of judgment, the Court of Appeal agreed with the IRB and held that the judicial review was premature as an advance ruling “has not adversely affected the (taxpayer) until the (taxpayer) has filed its tax return and tax was assessed.

With all due respect, I find doubt in the decisions by the Court of Appeal and Federal Court and a fortiori the High Court position. It is apposite to note that the tax administration regime in Malaysia is a self-assessment system. The taxpayer decides the appropriate treatment of a certain transaction under the pre-existing laws. If in doubt, taxpayers may apply for an advance ruling to obtain clarification. This is the purpose of the advance ruling system. An advance ruling further behoves the taxpayer to be bound by the ruling with no remedy.

One of the arguments advanced by the IRB was premised upon its “Guidelines on Advance Rulings” which stated that the taxpayer may appeal under Section 99 of the Act if aggrieved by an Advance Ruling decision. A closer inspection of Section 99 does not allow for an appeal of an Advance Ruling. Therefore, there ought not to be any other remedy available to a taxpayer other than judicial review. The Court of Appeal’s decision is flawed in this perspective.

Nevertheless, unless the waters are tested once again by the apex court in Malaysia, the case as it stands, whether rightly or wrongly decided, is the law.

2. G Sdn Bhd v Ketua Pengarah Kastam Dan Eksais

This case was significant as it was a landmark decision by the Court of Appeal in recognising the application of the principle of De-minimis rule in tax cases.

In this instant case, the taxpayer was in the business of operating a chain of supermarkets and hypermarkets. Due to the change in the indirect tax regime from Sales and Service Tax to Goods and Service Tax, Section 190 and 191 of the Goods and Services Tax Act 2014 was enacted to prevent double taxation. The taxpayer made a Special Refund Application under Section 190 (“Application”) with the accompanying required documents. The Director-General of Customs refused the Application because of alleged errors made in the Application. The margin error allegedly made by the taxpayer was around the ballpark figure of 0.001388% – 0.015%. The High Court disallowed the Application and dismissed the judicial review application due to non-compliance.

The Court of Appeal reversed the decision of the High Court and allowed the claim. This is the first tax case in Malaysia that recognised the cardinal principle of De minimis Non Curat Lex This case now imbues revenue officers to exercise discretion proportional to the alleged mistakes made and are restrained from raising meagre non-compliance as grounds to reject refund claims in the entirety.

3. Uniqlo (Malaysia) Sdn Bhd v Ketua Pengarah Kastam Dan Eksais

Uniqlo was a decision by the Court of Appeal which enumerated the duty to give reasons by tax officers. The case is currently under appeal to the Federal Court.

The taxpayer in this case was retail business and imports garments. Similar to the above case, the taxpayer made an application for the special refund of sales tax under Section 191 of the Goods and Service Tax Act. The Customs Officer rejected the claim and the only reason given was “Keptusan Ketua Pengarah” and nothing else. Aggrieved, the taxpayer applied for judicial review to challenge the decision. The High Court rejected the taxpayer’s claim.

Relying on the case of Kesatuan Pekerja-pekerja Bukan Eksekutif Maybank Bhd v Kesatuan Kebangsaan Pekerja-pekerja Bank, the Court of Appeal held that there is a duty to give reasons for decision notwithstanding that the said duty is absent in statute. The guise of exercising absolute discretion offends the principle of natural justice.

This case confirms that tax officers cannot, without justifiable and express reasons, raise assessments, refuse refunds or vary transactions which prejudice the taxpayer who is left in the lurk to search for the reason. Discretion by public officers must be exercised judiciously to instill public confidence in the administration of governmental functions. The absence of providing reasons to be averse to interference and exculpate itself of liability will do more harm than good to the law-abiding citizens.

4. GCVSB v Ketua Pengarah Kastam Dan Eksais

A full analysis of the case can be found in an earlier analysis of the case here.

In essence, the case concerns the timing in which the taxpayer made its claim for the exceptional input tax claim. The taxpayer was in the business of property development and had purchased a piece of land (GST-inclusive) and thereafter sold the land on. Due to the sale of the land, the taxpayer registered to be a GST registered person and made an application (“Application”) to claim Exceptional Input Tax Claim for the refund of input tax incurred for the purchase of the land.

The GST Repeal Act was enacted which mandated all input tax claims to be made before 29 December 2018. However, the Respondent instructed the Applicant to not make an application for the Exceptional Input Tax Claim in the GST Return Form unless and until the Respondent had approved. The taxpayer obediently held its hands and submitted the first and only GST return form in September 2018, without stating the claim.

Approval was only given in March 2019 and the taxpayer accordingly claimed. However, the claim was denied on the ground that the claim ought to have been made in December 2018 as under the GST Repeal Act.

The High Court granted relief to the taxpayer and ordered that the taxpayer’s Exceptional Input Tax Claim be allowed. The Court found that the Applicant was acting at the behest of the Respondent and it would not be unconscionable for the Respondent to take a U-turn and required that the application be made before approval was given, in defiance of its own instructions. The Court established that the Taxpayer had made its claim to the Exceptional Input Tax Claim when it had submitted its tax return, therefore it was protected as an accrued right.

5. Prima Nova Harta Development Sdn Bhd v KPHDN

The taxpayer was in the business of property development. The taxpayer had applied to release housing units reserved for Bumiputera to be available for sale to non-Bumiputera. In return, the taxpayer had to pay a sum equivalent to the bumiputra discount to the state government and claimed the aforementioned payment as a deduction. The IRB and SCIT disallowed the sum as a deduction by finding that the payment was penal in nature for breaching the Bumiputra Quotas.

The High Court reversed the decision by the SCIT and allowed the payment to be deducted. In reliance of the case British Insulated and Helsby Cables Limited v Atherton, the Court found that the main purpose of the developer’s application was to allow the additional sale of houses. Without making the payment, the taxpayer would not earn any income and therefore the payment was closely connected to the generation of income of the taxpayer’s business.

6. BX Steel Posco Cold Rolled Sheet Co Ltd v Minister of Finance and others

This was a decision by the High Court in the determination of export prices to impose anti-dumping duties.

BX Steel Posco Cold Rolled Sheet Co Ltd was a company incorporated in the People’s Republic of China and exports Flat Rolled products to Malaysia. Various discussions between the parties were unfruitful and the Investigative Authority recommended an anti-dumping duty of 5.47% and this came into realisation vide Customs (Anti-Dumping) Duties Order 2019 P.U.(A) 69. Aggrieved, BX Steel applied for judicial review to quash the decision.

In allowing the judicial review application, the High Court found that there was no evidence to support the imposition of the 5.47% anti-dumping duty. It was admitted by the Respondents that the said rate had arrived using a wrong formula but no action was taken to reduce it accordingly. In the premise, the Ministry of Finance fell into error in failing act upon the uncontroverted admission when it was made known.

Furthermore, the High Court favoured BX Steel’s submission that the export price is the price paid by Malaysian importers based on a plethora of commentary support. In this case, a lower export price was used and as such artificially inflated the dumping margin.

Finally, the Ministry of International Trade and Industries’ (MITI) actions of signing the Notice of Affirmative Determination before a Final Determination Report was released falls as being Wednesbury unreasonableness. This was due to the lack of consideration given to relevant circumstances and MITI had unreasonably pre-judged the matter.

7. Bintulu Lumber v DGIR

I’ve discussed the case of Bintulu Lumber previously in this post.This case concerns the interpretation of the word “fruit” and whether it includes “palm oil fruit”. The taxpayer applied for judicial review which was dismissed by the apex court of the country.

The Federal Court held that there were no grounds appealable by way of judicial review and the matter was not a matter of public importance that would give rise to exceptional circumstances.

It is important to note that this case did not shut the doors to judicial review for tax matters. Many subsequent tax cases demonstrated that judicial review is an available relief if the taxpayer could prove that the assessments were illegal, irrational, and procedural impropriety. In this instant case, there was previous case law which held that palm oil fruit was not a fruit eligible to claim reinvestment allowance and therefore the statutory appeal to the Special Commissioners of Income Tax is the suitable forum to ventilate this matter.

Budget 2021 and Finance Bill 2020 (Part 2)

On 16 November 2020, the Finance Bill 2020 had its first reading in the Malaysian Parliament’s Dewan Rakyat. In tandem with the Budget 2021, the Finance Bill 2020 seeks to give legal effect to the proposals and amendments to the Malaysian tax legislations.

This post outlines the proposed changes to the law and its reciprocal effects  as a result of the Finance Bill 2020.

1.    Income Tax Act 1967 – Corporate Income Tax

A.     Tax Rebate for Small and Medium Enterprises and Limited Liability                         Partnership

Under the PENJANA scheme, the government had introduced an initiative for both Small and Medium Enterprises (“SME”) and Limited Liability Partnership (“LLP”) whereby a tax rebate of RM20,000 is given on the tax payable for the 3 Years of Assessment (“YA”).

The amount of rebate given shall be equal to the amount of operating and/or capital expenditure or RM20,000, whichever is lower, against the tax liability of the company. If the tax liability is lower, the excess rebate shall not be repaid back or to be treated as credit to set off the tax liability for subsequent YAs. In other words, it’s a permanent loss.

A SME / LLP for the purposes of obtaining this rebate is an entity which:

            • has a paid-up capital of RM2.5mil or less at the beginning of the basis period for a year of assessment;
            • has a gross income from source or sources consisting of a business not exceeding RM50 mil; and
            • which has commenced operation on or after 1 July 2020 but not later than 31 December 2021.

In the event that the SME / LLP is unable to fulfill any of the above conditions, in addition to subsequent conditions as may be prescribed, the SME / LLP will not be eligible to claim the rebate for that YA and subsequent YAs.

B.    Additional condition for the purposes of claiming deduction of expenses                incurred in relation to research and development activities

 

 

 

 

 

C.        New tax treatment for new incentives

The Finance Bill proposed the addition of a new section whereby certain persons carrying out an Approved Incentive Scheme (“AIS”) activities will be taxed at a preferential rate of 20% for 7 YAs.

It was mentioned during the Budget 2021 speech that AIS activities include:

          •     Global Trading Centre;
          •     Companies relocating to Malaysia;
          •     Companies manufacturing pharmaceutical products; and
          •     Principal Hub.

D.        New Section 103B – tax payable notwithstanding institution of                                 proceedings

Under Section 103(2), the service of an assessment by the IRB is made payable on the date that is stated on the assessment when it is served, regardless of whether or not the taxpayer is appealing the said decision or otherwise. In other words, “pay first talk later”. This applies where the taxpayer is appealing the assessment to the Special Commissioners of Income Tax (SCIT), the prescribed relief in the Income Tax Act 1967. 

The aforementioned approach may cause problems to taxpayer when faced with the impossibility of payment of the additional taxes within a very short period of time (commonly 30 days within the date of assessment). An alternate relief mechanism taxpayers often plead to the High Court for a stay order vide a judicial review application. The effect of such order, if granted, is that the taxpayer is allowed to withhold payment of the assessment until the disposal of the case, or as prayed.

The introduction of this section appears to frustrate such circumstances. Section 103B makes tax payable under the Income Tax Act payable notwithstanding the “institution of any proceedings under any other written law”. The words “other written law” would be referring to the Rules of Court 2012 where the roots of judicial review are entrenched in.

E.        Definition of the word “plant”

Presently, there is no statutory definition of the word “plant” within the Income Tax Act.

Our Malaysian Courts have therefore been applying, inter alia, the definition in Yarmouth v France that a plant “includes whatever apparatus is used by a business man for carrying on his business” in the context of the industry operating by that taxpayer.

The word “plant” is proposed to be defined as “an apparatus used by a person for carrying on his business but does not include a building, an intangible asset, or any asset used and that functions as a place within which a business is carried on”.

The effect of such a definition is that it negatives cases such as Tropiland (car park building), CIMB (database) and Infra Quest (telecommunication tower) for the purposes of claiming capital allowance.

However, of particular contention, is the effect on PU orders gazetted pursuant to Schedule 3. For example, the PU(A) 274 – Income Tax (Capital Allowance) (Development Cost for Customised Computer Software) Rules 2019 provides for the initial and annual allowance for customized software under Schedule 3 of the Income Tax Act. The new definition will have a residual effect on subsidiary legislation and thereby making certain PU orders redundant as subsidiary legislation cannot override the principle legislation.

F.        Extension of period to claim Reinvestment Allowance

For companies which had exhausted their period to claim Reinvestment Allowance in 2019 or prior YAs, the proposed amendment allows the taxpayer to claim an additional period of 3 YAs, up to YA 2022.

For companies who will exhaust their period to claim Reinvestment Allowance in 2020 or 2021, the proposed amendment allows them to claim an additional 1 / 2 years respectively, up to YA 2022.

G.        Definition of related companies

Currently, a company may surrender 70% of its business loss for the year to a related company. A related company, for the purposes of surrendering business loss, is where:

i) the surrendering and claimant company owns 70% (either directly or indirectly through a third company) of the other’s share capital; and

ii) the surrendering and claimant company is owned (directly or indirectly) by a third party company.

Where the situation falls under (ii), it is proposed that the third party company ought to be a Malaysian resident company.

2.     Income Tax Act 1967 – Transfer Pricing

A.    Penalty for failure to maintain contemporaneous transfer pricing                             documentation

The proposed Section 113B makes it an offence where a company fails to furnish contemporaneous transfer pricing documentation.

The penalty for an infringement of this section is a fine not less than twenty thousand ringgit and not more than one hundred thousand ringgit or imprisonment for a term not exceeding six months or to both.

B.    Surcharge on transfer pricing adjustment

Under the current transfer pricing regulation regime, a penalty is only imposed where an adjustment made results in additional tax payable. If it doesn’t, then no penalty may be imposed.

Vide Section 140(A) (3C), the amendment proposes a 5% surcharge be levied on transfer pricing adjustment made, regardless of whether or not such adjustment results in additional tax payable.

C.    Power of the Director General to disregard structures in controlled                           transactions

Section 140A(3A) seeks to incorporate the powers of the Director General made under Income Tax (Transfer Pricing) Rules 2012 which empowers the Director General to make adjustments deems fit if he is of the view that:

(a) the economic substance of that transaction differs from its form; or

(b) the arrangement, viewed in totality, differs from those which would have been adopted by independent persons behaving in a commercially rational manner.

The Director General may make adjustments to such transactions as if they were carried out at arm’s length.

3.     Real Property Gains Tax Act 1976

A.    Remission of Tax Penalty

Screenshot 2020-11-30 at 12.10.52 AM

B.    Revision of the retention rate by the acquirer

Screenshot 2020-11-30 at 12.13.15 AM

C.    Real Property Gains Tax for Societies

Screenshot 2020-11-30 at 12.14.06 AM

4.    Stamp Act 1949

A.    Digitalisation of the stamping process

The Act as it stands does not recognise digital stamping as a mode of stamping. It is proposed that the following incorporate digital stamping as a valid stamp.

B.    Remission of Stamp Duty

Screenshot 2020-11-30 at 12.15.43 AM

5.     Labuan Business Activities Act 1990

A.    Change in definition of “chargeable income”

Screenshot 2020-11-30 at 12.16.33 AM

B.    Control and management for non-trading Labuan entities

A Labuan company must satisfy the substance requirement (i.e. number of employees and operating expenditure) to enjoy a preferential tax rate under the Act.

However, there is an added requirement for Labuan entities carrying out non-trading activities, i.e. a pure equity holding company, that must meet the control and management test which is to be prescribed by the Minister.

C.    Election to be taxed under the Income Tax Act 1967

Screenshot 2020-11-30 at 12.17.42 AM

Budget 2021 and Finance Bill 2020 (Part 1)

Malaysia Budget 2021: Pre-Budget Experts' Roundup

With the recent shift in the power of the Malaysian government (again), many eyes were on the Budget 2021 and the measures to undertake in these challenging times. With the COVID-19 pandemic having affected many parts of our daily livelihood, the Budget 2021 would play a pivotal role to help steer out of these uncertain times.

Part 1 of this series aims to adumbrate the key proposals in Budget 2021 from the tax perspective whilst Part 2 analyses the Finance Bill 2020 in greater detail.

1. Personal tax

a) For individuals with chargeable income between RM50,001 to RM 70,000, the tax rate to be reduced by 1% from YA 2021 onwards

b) For non-Malaysians working in companies investing in new strategic investments, the income tax rate is 15%.

c) The monetary value of personal income tax relief has increased for various types of expenses/income.

d) Similarly, the government has also increased the monetary limit for income exempted from tax.

2. Corporate Tax

a) The period to claim further deductions for certain expenses is extended.

b) The period where a certain class of income is exempted from tax is extended.

c) The Budget included some review of the current incentive program structure.

3. Indirect Tax

4. Stamp Duty

Is judicial review still available in tax cases

Under the Income Tax Act 1967 (Act), all taxpayers aggrieved by the decision of the Director General of Inland Revenue (DGIR) must appeal to the Special Commissioners of Income Tax (SCIT) to have its case heard. However, in view that a decision of the DGIR is also a decision of a government servant in carrying out its duties, judicial review under the Rules of Court 2012 is an available remedy for taxpayers to seek recourse.

However, in light of the recent Federal Court decision in Bintulu Lumber v DGIR, are the doors to judicial review for tax cases now closed?

Why judicial review?

The judicial review route is often more preferred instead of appealing to the SCIT due to the benefits available to taxpayers such as:-

  1. Obtaining an injunction to restrain the DGIR from enforcing payment on additional assessments

This is perhaps the most common reason why taxpayers would want to seek the judicial review route. Under the Act, once the DGIR raises an additional assessment, such sums are payable on the due date regardless of whether or not an appeal is made:

“103. (1) Except as provided in subsection (2), tax payable under an assessment for a year of assessment shall be due and payable on the due date whether or not that person appeals against the assessment.”

There are no other sections within the Act which allows a taxpayer to withhold payment. Therefore, imagine if the DGIR suddenly lands a bombshell of RM1trillion in additional taxes to be paid within 30 days, one can only imagine the immense challenge of meeting the bill if you don’t have RM1 trillion just sitting in your bank account for easy disposal.

Vide the judicial review route, taxpayers will be able to raise Order 29 rule 1 of the Rules of Court 2012 for an injunction order to restrain the DGIR from enforcing the additional taxes and taking proceedings to enforce payment of the additional assessment after the due date.

2. Faster

An appeal via judicial review involves only exchanges of affidavits as sworn evidence. There are no witnesses required to be present in a case starting as originating summons (such as judicial review) whereas there will be examination of witnesses in the SCIT.

The duration of the whole process varies depending on the complexity of the matter. A straightforward judicial review can be disposed of within a year or two. However, cases in the SCIT do involve coordination of time with witnesses and therefore are a lot longer.

3. No other alternatives

Judicial review is an applicable route where the taxpayers have no other viable options for redress. For example, the Goods and Service Tax Act 2014 was enacted, appeals against the Director General of Customs (DGC) were to be made to the GST Appeal Tribunal. However, with the subsequent enactment of the Goods and Service Tax Act (Repeal) Act 2017, the GST Appeal Tribunal ceases to exist.

Therefore, taxpayers aggrieved with the decisions of the DGC can only bring the matter to the High Court by way of judicial review for the case to be tried.

What happened in Bintulu Lumber v KPHDN

Bintulu Lumber v KPHDN (Bintulu Lumber) concerns the question of whether oil palm fruits can be considered to be a “fruit” under Schedule 7A of the Act to claim reinvestment allowance. The Taxpayer was in the palm oil plantation business and had claimed reinvestment allowance on a few occasions. This resulted in 2 separate suits relating to different assessments – Year of Assessment (YA) 2008 and 2011.

In the first suit corresponding to YA 2008, the SCIT allowed the Taxpayer’s claim but that was subsequently overruled by the High Court and Court of Appeal.

In the second suit corresponding to YA 2011, the Taxpayer applied for judicial review. This was dismissed in both the High Court, Court of Appeal and also the Federal Court.

The Federal Court found that the matter was not a matter of public importance giving rise to special circumstances warranting a judicial review. The Federal Court further held that the DGIR had acted lawfully in the circumstance.

What happens now

Whilst the Federal Court did say that judicial review was not suitable in Bintulu Lumber, it did not put the nail to the coffin to judicial review for tax cases. To date, the Federal Court has yet to release the grounds of judgment and many high court cases after Bintulu Lumber had allowed judicial review as an available remedy for relief.

That being said, taxpayers must take note that judicial review is only applicable to exceptional circumstances as held in Government of Malaysia & Anor v Jagdis Singh [1987] 2 MLJ 185:

  1. Clear lack of jurisdiction; or
  2. Blatant failure to perform statutory duty; or
  3. A serious breach in the principles of natural justice.

Examples of cases where judicial review are suitable are where there are case law to support a certain proposition but the DGIR contends otherwise, acting arbitrarily by failing to give reasons and acting unreasonably in the Wednesbury sense.

Finally, the Federal Court in Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-sama Serbaguna Glugor dengan Tanggungan [1999] 3 CLJ 65 held that the existence of an alternate remedy does not automatically shut off judicial review but the merits of the case would be one that gives rise to exceptional circumstances:

“The reason for this is that whilst in theory the courts there frequently recite the incantation that alternative remedies must be exhausted before recourse may be had to Judicial Review, in practice, the courts are often much kinder to the application with a good case on the merit, who is faced with this hurdle to clear…”

Conclusion

Therefore, Bintulu Lumber ought not to be treated as a revolutionary or landmark case as it merely recanted the position that judicial review is not suitable where there is a dispute on the question of fact. This is not the first time the Federal Court has ordered that a case ought to start by appealing to SCIT as in Bandar Nusajaya Development.

Judicial review is always available for taxpayers seeking recourse from the additional tax assessments by the DGIR but the added burden is on taxpayers to prove special circumstances warranting the court’s discretion.

High Court held Exceptional Input Tax Claims are made when GST Forms are submitted

Recently, the High Court held in a judicial review application in relation to an Exceptional Input Tax Claim (“Claim”) made under the Goods and Service Tax Regulations 2014 (“Regulations”) and Goods and Services Tax Act (“Act”) that an Exceptional Input Tax Claim which requires the Director General of Excise and Customs’ (“DGEC”) approval is deemed to be made when the GST Return Form is submitted. The DGEC had rejected the Taxpayer’s Claim by reason that the Claim was time-barred due to enactment of the Goods and Services Tax Repeal Act 2018 (“Repeal Act”).

The Repeal Act mandated all Goods and Services Tax (“GST”) input tax claims to be made before 29 December 2018 (“Prescribed Date”). However, the DGEC failed to appreciate that the Taxpayer was at all times acting in according with instructions directed from the DGEC and the Claim was made within time when the Taxpayer submitted its GST Return Form in September 2019 i.e. before the Prescribed Date.

Upon hearing the respective parties’ submissions, the High Court ordered that the Taxpayer’s Claim be allowed.

Background facts

The Taxpayer is in the business of property development. In 2017, the Taxpayer had purchased a piece of land for RM 91 million wherein RM 5 million was incurred as GST. In July 2018, the Taxpayer sold the land and, as required by the Act, registered to be a GST-registered person.

The Taxpayer proceeded to make the Claim under Regulation 46 of the Regulations. Regulation 46 allows a taxpayer to make an input tax claim in relation to GST incurred before a taxpayer was a GST-registered person. However, such claim would require the pre-approval of the DGEC. Accordingly, the Taxpayer made an application to obtain approval in July 2018.

The Repeal Act came into force on 1.9.2018 which, amongst others, mandated all unclaimed input tax claims to be made before 29.12.2018 (“Prescribed Date”). At the behest of the DGEC, the Taxpayer made its first and only GST return in September 2018 without stating the Claim.

Approval by the DGEC was finally given in March 2019. The Taxpayer then made the Claim vide an Amended GST return (“Amended Return”) as instructed by the DGEC. However, the DGEC subsequently rejected the Taxpayer’s Claim on grounds that the Claim was time-barred as it was made after the Prescribed Date and that the Amended GST return does not fulfill the conditions of Regulation 46 i.e. an Amended Return was not the first return as required under Regulation 46.

Aggrieved by the DGEC’s rejection, the Taxpayer filed this judicial review to seek relief.

Decision of the High Court

The Taxpayer’s main thrust of argument is that the Claim was protected under the Interpretations Act 1967 and 1948 and Regulation 4 of the Regulations. It was submitted that when the Taxpayer had made an application to make the Claim and submitted the GST Return before the Prescribed Date, the Taxpayer had an accrued right which is well protected under statutes and seminal case laws. In the premise, the DGEC ought to be precluded from hiding behind the veil of the Repeal Act to exculpate itself of liability.

Furthermore, in absence of clear and unambiguous language, laws are presumed to be interpreted prospectively and not retrospectively. Reliance was made on the case of La Salle Brothers v Ketua Pengarah Hasil Dalam Negeri [2018] 1 MLJ 376 where the court held:

But the amendment Act A471 did not also expressly provide that Part I of the Interpretation Acts 1948 and 1967 (Act 388) which includes the said s 30 of the Act shall not apply… As there is a doubt the ambiguity must be construed in favour of the tax payer as the said exemption from tax has not been removed by sufficiently clear words to achieve that purpose.

Since there were no words to exclude, extinguish or affect claims which were made pending the DGEC’s approval, such claims ought to be considered as “accrued rights” established when the taxpayers made the GST Return Form. Insofar as the Taxpayer recognised it’s rights and pursued it within time, it ought not be prejudiced by the delay DGEC’s approval.

Secondly, it was also evident from contemporaneous correspondences that the Taxpayer was acting strictly according to the DGEC directions in that the Taxpayer ought not to state the Claim in the GST Return unless and until approval was obtained. It is then irrational and unreasonable for the DGEC to reject the Amended Return which was made after approval was given.

Furthermore, the DGEC had represented to the Taxpayer that the raison d’être of the Claim is that DGEC’s approval was necessary. The blithered fixation on the Prescribed Date without taking into consideration the DGEC’s own representations had therefore violated the Taxpayer’s legitimate expectation when rejecting the Taxpayer’s Claim after approval was granted. Legitimate expectation had been recognised by the Malaysian Courts to be a right protected under the law as held in Majlis Perbandaran Pulau Pinang v Syarikat Bekerjasama-sama Serbaguna Sungai Gelugor Dengan Tanggungan:

“Given the duty of a public body not to fetter its discretion under what circumstances will a legitimate expectation be protected in the face of a change in policy. Clearly, the change of policy must be ‘a lawful exercise of discretion”

The High Court agreed with the Taxpayer and ordered the DGEC to allow the Claim.

Comments

This case affirms the cardinal principle that statutes are presumed to be interpreted prospectively and does not affect anything act done and rights accrued before the implementation of any repeal or amendment.

Furthermore, this decision would hold tax authorities responsible for their own words to maintain public confidence in the government. Instructions ordered by tax authorities of its own volution would now be prevented from canvassing arguments to the opposite effect.

Case Update: Tax authorities’ obligation to give reasons

A recent decision by the Court of Appeal affirms a principle that although taxation laws do not impose a legal duty on revenue officers to provide reasons, there is nevertheless a duty to give reasons as a public decision-making body. In the grounds of judgment of the case Uniqlo (Malaysia) Sdn Bhd v Ketua Pengarah Kastam dan Eksais dated 9-07-2020, the court held that the High Court was wrong in finding that since the Goods and Services Tax Act 2004 (“the Act”) did not impose a legal duty to give reasons, the Director General of Customs and Excise (“Respondent“) is therefore excused from giving reasons.

Facts:

The case concerns a claim for a special refund of sales tax for goods held by Uniqlo (Malaysia) Sdn Bhd (“Uniqlo”) under Section 191 of the Act.

Briefly, Section 191 of the Act was a transitional provision that allowed businesses, especially in the manufacturing and retail sector, to avoid the imposition of 6% GST upon the price of goods which already contained the 10% Sales Tax. If the claim is above RM 10,000, the claim must have the claim certified by a chartered accountant. In this case, Uniqlo’s claim was duly certified by Ernst and Young.

The Respondent requested supporting documents and carried out an audit on Uniqlo’s premises. The Respondent had conducted stock takes and requested details of stock movement in furtherance of its verification of the Uniqlo’s claim.

Vide a letter dated 16-11-2016, the Respondent issued a letter informing Uniqlo that it’s special refund application was rejected due to “Keputusan Ketua Pengarah” (“Decision“). Uniqlo’s request for reasons why the application was rejected was akin to throwing a stone in the ocean as letters went unanswered. Uniqlo then applied for a judicial review to quash the Respondent’s decision.

In the High Court:

The High Court found in favour of the Respondent and held that the Decision was valid in law.

The first ground for rejection was due to inaccurate information provided by Uniqlo. The High Court found that the Respondent’s findings after conducting physical audits were different from the refund application. This allowed the Respondent to reject Uniqlo’s claim.

Secondly, the High Court was of the view that Section 191 of the Act does not make it mandatory for the Respondent to provide reasons for rejection. It favoured the position of Pendaftar Pertubuhan v Datuk Justin Jinggut [2013] 3 MLJ 16 (“Justin Jinggut”) in finding that the GST does not mandate an obligation for the Respondent to give reasons.

Additionally, the High Court considered an undated letter after the filing of the juridical review from the Respondent which stated the reasons for rejection were due to inaccurate information and failure to remove the sales tax element from the selling price for stocks on hand.

Aggrieved by the decision of the High Court, Uniqlo filed an appeal to the Court of Appeal.

In the Court of Appeal:

The Court of Appeal allowed the appeal and overturned the decision of the High Court and quashed the Respondent’s decision.

On the point of inaccuracies, the Court Appeal found:

  1. The Respondent did not challenge the certificate issued by Ernst & Young; and
  2. The verification physical audit was conducted 6 months after the claim was made hence the goods held by Uniqlo as of 1.4.2015 would naturally be different from October 2015.

On the second point, the Court of Appeal distinguished the case of Justin Jinggut and instead found reliance in the case of Kesatuan Pekerja-Pekerja Bukan Eksekutif Maybank Bhd v Kesatuan Kebangsaan Pekerja-pekerja Bank & Anor [2018] 2 MLJ 590. Accordingly, the Court of Appeal held that silence on the duty to give reasons in the Act cannot be equated to the same as no reasons need to be given, and duty to give reasons can be implied. This approach was favoured on the concept of fairness and inculcates transparency and accountability.

Similarly, the Court found that the High Court erred in considering the undated letter as it was filed after the filing of the judicial review.

Conclusion

The Decision is welcome to encourage accountability by public servants and ensure that discretion was exercised properly. The practice to give reasons further instills confidence and provides an opportunity to taxpayers and to remedy mistakes/ discrepancies, if any.

It is noted that the Respondent had since filed an appeal to the Federal Court.

税务与新冠肺炎 第二部

于 6月7日2020年,大马首相宣布有条件行动管制令将于6月9日结束,取而代之的是复苏期行动管制令落实于6月10日至9月31日。大马首相也发表了人民对于经济逐渐下降的情况以而介绍了国家经济重建计划(Penjana)(“计划”)。该计划包含了许多不同的计划与激励措施来帮助提振经济基础。计划的意向可以简单的用六个字来形容:解决,韧性,重新启动,修复,振兴和改良。

这文章宗旨提供计划中的税收优惠从企业所得税,个人所得税,印花税,不动产利得税, 销售与服务税等等的角度。

  1.  企业所得税

 

a) 特别再投资税收津贴

在所得税法1967 附表7A内, 仅有制造业企业和特定的农业核准的活动可有资格索求特别投资税收津贴。所得税提供企业可索取再投资减税收津贴高达15年连续课税年。

在计划内: 

如果该企业可索取再投资税收津贴已结束,企业可继续索取多两课税年的特别再投资税收津贴。然而,特别再投资税收津贴是否与再投资税收津贴一致可需要政府誊清。

b) 扣除与资本津贴与控制新冠肺炎关联的费用

大马政府已在上任的经济振兴配套之中允许了与控制新冠肺炎关联的费用一律可得扣除或采用资本津贴。当中,这包括了个人防护装备, 热扫描仪以及测试工具。

在计划内: 

这看起来是重复政府已先期提供的税收优惠为了鼓励企业遵守卫生部的标准操作程序

c) 采用弹性工作制税收优惠

即使条件性行动管制令即将结束,政府呼吁人民保持社交距离以及鼓励企业采取弹性工作制以避免众人在公司集会。

目前,纳税人在所得税(扣除谘询与培训费用于执行弹性工作制税收)条规2015之下可以在获得大马人才机构(TalentCorp)的批准后可扣除与执行或增进弹性工作制相关的谘询与培训费高达3个课税年。

在计划内:

纳税人可从1.6.2020扣除与弹性工作制相关的费用。有关详情与条件需澄清。

d) 中小型企业税务优惠

在计划内: 

如有中小型企业在于1.7.2020 和 31.12.2021 之间开始营业,该企业可索取特别所得税扣税高达RM20,000 给予高达3个课税年。

(请在之下参考给中小型企业的印花税优惠) 

e) 税务津贴为了鼓励聘用雇员

在计划内: 

为了鼓励聘用雇员,政府以介绍了以下的税务津贴:

        1. 雇佣青年在学徒制之下:可获得RM600 每月长达6个月

2. 雇佣>40岁以及失业超过6月:可获得RM800 每月长达6个月

3. 雇佣>40岁以及残障人士:可获得RM1,000 每月长达6个月

4. 被裁员的了的雇员但没有缴纳社会保险:一次性的RM4,000培训练津贴

f) 其他税务优惠

在计划内: 

政府延长了一些近期会到期的税务优惠

I. 降低租给中小型企业至少30%的特别税务扣除延长至30.9.2020 。

II. 电脑软件工具的加速资本减免率延长至31.12.2021。

III. 装修与翻新贸易建筑的特别税务扣除高达RM300, 000 延长至31.12.2021。

IV. 工资补贴计划延长多3个月。

 

  1. 个人所得税

a) 购买手机,电脑或平板的个人可获得所得税减免

目前,每个人都可获得个人所得税减免高达RM2,500在用于生活方式兴趣费用例如购买书籍,个人电脑,智能手机或平板(非商业使用),运动工具,健身房会员以及支付网络订阅。

在计划内: 

如果收到得一架手机,电脑或平板高达RM5,000,纳税人可用来抵减个人所得。

纳税人可另外获得RM2,500 减免在购买了手机,电脑或平板的费用。

政府必须澄清这一措施了是否提高了所得税法令之下的限额还是另外运转,例如是否一个人可获得RM5,000的减免为了购买1个平板,还是每个资产的减免额限制于RM2,500.

b) 对于育兒的个人所得税减免

目前,每个个人纳税人都可获得支付育儿费用高达RM2,000的个人所得税减免。前提是该育儿中心必须已注册还有儿童的年龄不超过6 岁。

在计划内:

该所得税减免额被提高至RM3,000. 育儿中心必须与社会福利局或教育局注册

c) 于旅游的个人所得税减免

在之前的经济配套之中,政府给予了在本地旅游行程在酒店和入门票之类的开支高达RM1,000的个人所得税减免为了促使马来西亚居民帮助旅游产业从1.3.2020至31.8.2020.

在计划内: 

减免时期已延长至 31.12.2021.

  1. 印花税

a) 对于并购过程的合同或文件的特别豁免印花税

在计划内: 

中小型企业可享受豁免特别印花税征收在并购过程的合同或文件从1.7.2020至30.6.2021. 

b) 购买房屋豁免印花税

在计划内: 

为了重振地产市场,政府一再次的介绍了房屋拥有权活动以及提供税务优惠。从1.6.2020至31.12.2021, 如果发展商处给予至少10%折扣在价值RM300,000 – RM2,500,000住宅物业,其相关的买卖合约以及贷款协议都可获得所得税豁免。

购买者可获得的印花税豁免如下:

买卖合约:限于首RM1,000,000。

贷款合约: 全额免税。

  1.  产业盈利所得税

在产业盈利税法1976,出售房屋或土地的产业盈利必须支付5 – 30% 的产业盈利税。产业盈利税率根据纳税人购置与出售的时间来定。

在计划内: 

从1.6.2020 至 31.12.2021,出售房屋或地产可豁免产业盈利税,但此优惠只限至于3间房屋或土地。

注意:仅有如果出售房屋或地产会招致产业盈利税可豁免。如果出售房屋或地产会招致所得税,该盈利是应税所得。

  1. 间接税

a) 旅游税

外国游客必须为每晚住宿在酒店支付RM10 的旅游税。

在计划内: 

从1.7.2020 至 30.6.2021, 酒店可豁免旅游税。

b) 豁免汽车销售税

根据销售税(税率)法令2018,本地组装车以及进口车会招致为 10%的销售税。

在计划内: 

从15.6.2020 至31.12.2020, 本地组装车全额免销售税而进口车免50%。

c) 豁免服务税

在之前已介绍的经济配套之中,政府豁免酒店支付服务税在住宿和相关的服务从1.3.2020 至 31.8.2020. 

在计划内: 

豁免服务税的时期延长至30.6.2021. 

d) 豁免出口关税

毛棕榈油、棕榈油仁油和加工棕榈仁油都会招致 0 – 30% 的出口关税。政府已降低5月和6月的出口关税至分别4.5% 和 0%,

在计划内: 

从1.7.2020 至 该国出口的毛棕榈油、棕榈油仁油和加工棕榈仁油将免除出口关税。

e) 减免迟缴销售与服务税罚款

亚皇家海关局已宣布任何迟缴销售与服务税而引起罚款一律全额减免如果该销售和服务税在30.6.2020 前缴纳给应纳税期在29.2.2020, 31.3.2020 和 30.4.2020结束. 

在计划内: 

从1.7.2020至31.9.2020,任何迟缴销售与服务税在和纳税期在30.6.2020, 31.7.2020 和 30.8.2020结束的的罚款将会减免50%。至于给纳税期在31.5.2020 必须缴纳的销售与服务税应纳税期是否会必须如期(30.6.2020)支付,减免50% 还是100%则不清。

  1. 其他税务优惠

a) 为了鼓励外国直接投资的税务优惠

目前,促进投资法1986定为新兴工业地位的企业可享受法定收入全额免税高达10年以及政府介绍的各种税务优惠。

在计划内: 

搬迁制造业至马来西亚的外资企业以及投入新资本投资进制造产业。根据直接投资额,这会影响外资企业在马来西亚可享受的收入免税时期:

在RM3亿至RM5亿之间:10年

高于RM5亿:15年

如有兴趣,企业可在1.7.2020 至 31.12.2021 之间向马来西亚投资发展局申请批准。该企业必须在获得批准后的一年之内搬迁以及开始制造业。

b) 搬迁制造业至马来西亚的马来西亚企业

在计划内: 

凡是搬迁制造业至马来西亚的居民公司和马来西亚投资发展局的批准后可获得可以获得高达5年100%的再投资津贴。

企业可在1.7.2020 至 31.12.2021 之间向马来西亚投资发展局申请批准。

 

Tax and Covid-19 Part 2

(This post will be updated as more clarification comes to light)

On 7 June 2020, the Prime Minister of Malaysia had announced that the Conditional Movement Control Order (“CMCO”) will come to an end on 9 June 2020 and be replaced with Recovery Movement Control Order (“RMCO”) which is set to take effect from 10 June 2020 to 31 August 2020. During his speech, the Prime Minister addressed the public’s concerns about reopening the economy and also introduced various measures to stimulate the economy with the introduction of the National Economic Recovery Plan (otherwise known as “PENJANA”) which encapsulates the Government’s initiatives in 6 words: Resolve, Resilience, Restart, Recovery, Revitalise and Reform.

This Article aims to provide a summary of the tax initiatives under PENJANA from the corporate income tax, personal income tax, stamp duty, real property gains tax, indirect tax and other incentives perspective.

1. Corporate Income Tax

(1) Special Reinvestment Allowance (“SRA”)

Under Schedule 7A of the Income Tax Act 1967 (“the Act”), only manufacturing companies and selected agricultural activities are eligible to claim for Reinvestment Allowance (“RA”). Furthermore, the Act provides that a company may claim for RA only for up to 15 consecutive Year of Assessment (“YA”).

Under PENJANA:

Where the company’s eligibility to claim RA has expired, the company can continue to claim SRA for up to 2 YAs. However, it is unclear whether the SRA would be the same rate as the RA and whether there are any further conditions to comply.

(2) Deduction and capital allowance for expenses incurred in relation to prevention of Covid-19

The Government had previously announced in the first stimulus package that taxpayers are allowed to claim tax deductions or capital allowances in relation to expenses incurred on Covid-19 prevention measures such as personal protective equipment (“PPE”), thermal scanners and testings.

Under PENJANA:

This seems to be a repetition of the same incentive to ease the cost burden of adopting measures under the SOPs issued by the Ministry of Health

(3) Incentives to adopt Flexible Work Arrangements (FWA)

As social distancing measures are encouraged, the government aims to further incentivise companies to have in place FWA to prevent a gathering of large number of employees.

Currently, under the Income Tax (Deduction for Consultation and Training Costs for the Implementation of Flexible Work Arrangements) Rule 2015 allows taxpayers to claim double tax deductions for consultation fees and costs of training in implementing or enhancing FWAs for up to 3 consecutive YA and a cap of RM500,000 per year subject to approval by Talent Corp.

Under PENJANA:

Tax deduction for FWA will begin from 1 June 2020 onwards. Further clarification on the type of expenses and corresponding conditions will be required.

(4) Small and Medium Enterprise (“SME”) tax incentives

Under PENJANA:

Where an SME commences operation between 1 July 2020 to 31 December 2021, a special annual income tax rebate of up to RM20,000 will be given for up to 3 YAs.

(Please refer to stamp duty relief available to SME below)

(5) Incentives to encourage employment

Under PENJANA:

To further encourage employment, the Government had announced the following tax incentives:

      1. Employment of youth for apprenticeships: RM600 per month for up to 6 months
      2. Employment of person >40 years old and been unemployed for 6 months: RM800 per month for up to 6 months
      3. Employment of persons >40 years old or persons with special abilities: RM1,000 per month for up to 6 months
      4. Employees retrenched but are not covered under the Employment Insurance Scheme: one-off RM4,000 training allowance.

(6) Other incentives

Under PENJANA:

The Government further announced the extension of various incentives currently already in place but due to expire soon.

      1. Special tax deduction for rental reduction for business premises rented to SMEs of at least 30% to be extended to 30 September 2020.
      2. Accelerated capital allowance of 40% for ICT equipment to be extended to 31 December 2021.
      3. Special tax deduction for renovation and refurbishment expenses of business premises up to RM300k to be extended to 31 December 2021.
      4. Extension of the Wage Subsidy Program to be extended for a further 3 months.

2. Personal Income Tax

(1) Personal income tax reliefs for purchase of handphone, notebook and tablet

At present, individuals may claim income tax relief of up to RM2,500 for lifestyle expenses such as the purchase of books, personal computer, smartphone or tablet (not for business use), sports equipment, gym membership payment and monthly bill for internet subscription

Under PENJANA:

      1. From 1 July 2020 onwards, individuals who receive a handphone, notebook or tablet can claim personal income tax relief of up to RM5,000.
      1. Similarly, individuals can claim further claim a tax exemption of RM2,500 for purchase of handphone, notebook and tablet.

Further clarification is required whether a claim under the PENJANA tax incentive operates exclusively to the current tax relief or in addition i.e. can a person claim for a total of RM5,000 for purchase of 2 tablets?

(2) Personal income tax relief for childcare

At present, individuals can claim an income tax relief of up to RM2,000 for child care expenses at a registered child care centre/kindergarten for a child aged 6 years and below

Under PENJANA:

The income tax relief is increased to RM3,000 for YA 2020 to 2021.

The child care centre must be registered with the Department of Social Welfare or the Ministry fo Education.

(3) Personal tax relief for travelling expenses

Previously, a special personal income tax relief of up to RM1,000 allowed for resident individuals for expenses incurred domestic travelling between 1 March 2020 to 31 August 2020.The expenses eligible for tax relief are accommodation fees with registered accommodation providers and entrance tickets to tourist attractions spots.

Under PENJANA:

The period is extended to 31 December 2021.

3. Stamp Duty

(1) Special stamp duty exemption for instruments executed in connection with Mergers and Acquisition for SMEs.

Under PENJANA:

For any instruments executed between 1 July 2010 and 30 June 2021 by SMEs, there will be a stamp duty exemption if it is for the purpose of mergers and acquisitions.

(2) Stamp duty exemption for instruments executed in connection with the purchase of residential properties

Under PENJANA:

With the reintroduction of the Home Ownership Campaign, a stamp duty exemption will be given for the purchase of residential properties between the value of RM300k to RM2.5million ON THE CONDITION THAT at least a 10% discount is given by the developer & the instrument was executed between 1 June 2020 to 31 December 2021.

The stamp duty exemption given is:

      1. Instrument of transfer: Restricted to the first RM1million of the property price
      2. Loan agreement: Full stamp duty exemption

4. Real Property Gains Tax (“RPGT”) Exemption

At present, taxpayers are subject to an RPGT at the rate of between 5 – 30% depending on the period in which the taxpayer acquires and subsequently disposes of the property.

Under PENJANA:

Taxpayers are exempted from RPGT for properties disposed between the period of 1 June 2020 to 31 December 2021 for up to 3 units of residential property.

Note: caution must be taken as the exemption appears to apply only where the disposal of real property is subjected to RPGT and not income tax. Where the disposal of real property is subject to income tax instead, the exemption may not apply.

5. Indirect Tax

(1) Tourism tax exemption

Currently, a tourism tax of RM10 is charged on foreign travellers on a per room per night basis.

Under PENJANA:

Hotels are exempted from charging the tourism tax between 1 July 2020 to 30 June 2021.

(2) Sales tax exemption on automotive vehicles

Under the Sales Tax (Rates of Tax) Order 2018, a sales tax of 10% is imposed on the sale price of locally assembled cars and final price of imported cars.

Under PENJANA:

A full sales tax exemption (100%) on locally assembled passenger vehicles and a 50% sales tax exemption for imported passenger vehicles purchased between the period 15 June 2020 to 31 December 2020.

(3) Service tax exemption

At present, hotel operators are exempted from imposing service tax on accommodation and related services for the period 1 March 2020 to 31 August 2020.

Under PENJANA:

The service tax exemption is to be extended up to 30 June 2021.

(4) Export duty exemption

Currently, an export duty of between 0-30% is imposed on the export of crude palm oil, crude palm kernel oil and refined bleached deodorised palm kernel oil. The Government had previously announced that the export duty for crude palm oil had been reduced to 0% for June from 4.5% in May.

Under PENJANA:

There will be a full export duty exemption on the export of the aforementioned commodities between the period 1 July 2020 to 31 December 2020.

(5) Remission of penalties for late payment of Sales and Service Tax

The Royal Malaysia Customs Departments had previously announced that any penalty imposed on late payment of Sales and Service Tax due at the end of the month between the period of March to May will be fully remitted if the payment is received on or before 30 June 2020 for the taxable period ending 29 February 2020, 31 March 2020 and 30 April 2020.

Under PENJANA:

There will be a 50% remission on penalty for late remission of Sales and Service Tax due and payable between the period 1 July 2020 to 31 September 2020, which correlates to the taxable period ending 30 June, 31 July and 30 August 2020. 

However, further clarification is required for the taxable period ending 31 May and tax due on 30 June whether any remission on penalty for late payment is given. 

6. Other incentives

(1) Incentives to encourage Foreign Direct Investments (“FDI”)

At present, there are various incentives available in addition to the Promotion of Investments Act 1986 where companies with a Pioneer status may enjoy a full income tax exemption of the statutory income for a period of up to 10 years.

Under PENJANA:

Foreign companies can enjoy a full income tax exemption of 0% if they relocate their manufacturing business operations into Malaysia and make new investments in the manufacturing industry. Depending on the amount of the FDI made, this will affect the corresponding period in which the company can enjoy the income tax exemption:

      1. For FDI between RM300mil to RM500mil: 10 years
      2. For FDI above RM 500mil: 15 years

Applications must be made to the Malaysia Investment Development Authority (MIDA) for approval between 1 July 2020 to 31 December 2021. The company must shift and commence manufacturing operation within 1 year after approval.

(2) Relocation of manufacturing operations by Malaysian companies

Under PENJANA:

If a resident company moves its manufacturing operations from overseas into Malaysia, the resident company would be eligible to claim a 100% investment tax allowance for a period of up to 5 years, subject to approval by MIDA.

Applications can be made between 1 July 2020 and 31 December 2021.

Tax and Covid-19 Part 1

As the Covid-19 pandemic’s effect on the global economy is predicted to last for another year, taxpayers may be forced to take extraordinary measures in handling their business affairs during these extraordinary times. When making any financial decisions, taxpayers should take note that there may be tax repercussions arising from these decisions.

鉴于新型冠状病毒肺炎疫情蔓延而在国际经济上所造成的停滞不前的情况预测将持续至下一年,纳税人或被迫在这个异乎寻常地时间里采取特殊的措施。在做任何商业决定时,纳税人应意识到商业政策是否会对税务实务造成影响。 

This article aims to lay out some applicable principles of deductibility of different types of expenses that a taxpayer may incur during this period. The types of expenses to be explored are compensation for early termination, bad debts, compensation for retrenchment, subsidy received by the government and donations.

此文章旨在说明纳税人在这期间或将产生的一些费用的相关税务扣除制度。其中会进一步探讨的费用包括提前终止合约赔偿金、坏账、遣散费、政府给予的工资补贴计划以及捐献。

Under Section 33(1) of the Income Tax Act 1967 (“the Act”), the conditions in order to qualify for a tax deduction are:

  1. The expense was incurred in the basis period; and
  2. The expense is wholly and exclusively for the production of the taxpayer’s gross income.

根据所得税法1967 第33(1)条,获得扣税的条件如下:

  1. 该费用在此准基期限招致;以及
  2. 该费用是完全以及专门用于产生收入。

However, Section 39 of the Act provides that notwithstanding an expense fulfils the conditions under Section 33(1), no deduction is allowed. For example, Section 39(1)(c) provides that expenses incurred which are capital in nature are not tax-deductible.

无论如何,第39条说明就算有些费用满足第33(1)条的条件,该费用不允许扣税。例如,第39(1)(c)条陈述资本支出是不允许扣税。

1.Deductibility of compensation expense for early termination

1。扣除提前终止合约赔偿金

Parties seeking to put a contract to an end unilaterally may be required to compensate the counterparty for early termination. Before Covid-19, parties may have entered a contract in the course of trade with the vision that the contract would be profitable. If the contract now proves to be more a liability than an income source, any compensation payments made to terminate the contract generally ranks for a deduction.

假设合同当事人想单方提前终止合约,该合同当事人也许必须赔偿对方。在新型冠状病毒肺炎疫情爆发,合同当事人也许预期该合作会产生利润。如果该合同是明显的无法企及反而成了一个累赘, 为了提前终止合约所导致的赔偿金是可以扣除的。

However, if the early termination compensation is capital in nature, it is not tax-deductible. For example in CH & Co (Perak) Sdn Bhd v DGIR, the taxpayer had claimed a deduction for compensation expense to compensate the ground floor tenant for trade fixtures and fittings and loss of business as the taxpayer had a prospective tenant who wanted to lease the entire building for 14 years. The court found that the compensation was a capital expense. The reason for the court’s finding was twofold:

      1. The termination was to remove of a disadvantageous asset; and
      2. To make the building more advantageous and beneficial.

然而如果此赔偿金是资本支出,该赔偿金是不可扣除的。在CH & Co (Perak) Sdn Bhd v DGIR,该纳税人扣除了支付给在一楼的租户与所有固定装置和可拆除设备以及营业亏损所造成的赔偿金。为了提前解约的原因是因为有另一位准租户有意租用纳税人所属的楼宇长达14 年。法庭裁定该支出是中资本支出因为

    1. 纳税人终止合约是为了去除不利的资产;以及
    2. 为了使楼宇更有利和增加吸引力。

Generally, if the termination gave the taxpayer an enduring benefit, compensation for the early termination may not be deductible. Courts will scrutinize the surrounding circumstances and events that led to termination to determine the purpose of compensation payment and thereafter decide if it is revenue or capital in nature.

如果终止合约给予该纳税人持久的利益,所交付的赔偿金是不可扣除的。法庭在决定该赔偿金是资本支出还是公司营运费时会根据周围情况和提前终止合约的目的进行评估。

2. Deductibility of bad debt

2. 坏账的税务扣除

As demand for goods and services slumps amidst economic uncertainty, many companies may be in a precarious position where they are unable to pay creditors for goods. If parties have a cordial business relationship, it is common to write off debts as a sign of goodwill. However, in doing so, creditors inevitably expose themselves to the risk of being challenged that the bad debt expense is not deductible.

随着经济衰退以及消费者对货物与服务的需求逐渐下降,许多企业或许会因为面对现金流量的问题而至无法支付债权人。若双方是拥有和谐的关系,注销该债务是个常见的现象。然而,在注销债务时,债权人也许会面临被税务局挑战该坏账是不可扣除的。

It is trite law that when taxpayers take a deduction for bad debt incurred, he would need to demonstrate that there were efforts to recover the debt and any waiver of debts were based on sound commercial reasoning. The Public Ruling 1/2002 (“Public Ruling”) defines bad debt as “a debt that is considered not recoverable after appropriate steps have been taken to recover it”. The Public Ruling also suggests that reasonable steps taken to recover debts include debt restructuring scheme, legal action or reminder notices. Therefore, reasons such as “goodwill” or “personal relationships” will likely be insufficient.

当纳税人要扣除坏账时,他必须证明他已采取适当努力以追回债务以及任何坏账是基于合理的商业理性。在税务局所发布的公共裁决 1/2002 (“公共裁决”)对于坏账的定义是 “采取合理的步骤后还是无法追回的债务”。公共裁决也提出为了追债的合理步骤包括了债务重组计划,采取法律行动以及提醒同知。因此,理由犹如 “信誉“和”人际关系” 是不足以获取税务扣除。

Based on our body of case law, the Malaysian courts had held along the same tune as the Public Ruling. Taxpayers must take reasonable steps to recover sums owed such as timely legal action, referring matters to dispute resolution and/ or settlement agreements.

根据我国的判例法, 马来西亚法院的裁定和公共裁决是一致的。纳税人应采取适当的步骤来追回债务例如尽快采取法律诉讼,提交仲裁或和解协议。

3. Deductibility of compensation expense for retrenchment of employees

3.税务扣除员工裁员的赔偿金

In efforts to reduce cost, companies may be forced to undergo a retrenchment exercise in endeavours to keep afloat. According to the respective employment contracts, the company may be required to pay compensation to the employees for loss of employment. Taxpayers would need to evaluate whether such payments are deductible or otherwise.

为了减低营业费用,企业或许会为了保持营业而被迫进行裁员行动。根据各自的劳动合同,该企业必须根据合约条件给予赔偿金。纳税人必须鉴定任何赔偿金是否可税前扣除。

If compensation payments paid to employees are part of the taxpayer’s strategy to reduce cost and sustain business continuity, the payments are deductible. In Kulim Rubber Plantations v DGIR, the Federal Court held that where a taxpayer makes a payment “in order to get rid of … a servant whose continuance in service is undesirable in the company’s interest”, it should be treated as a revenue payment and a deductible expense. Accordingly, compensation payments made to employees pursuant to a restructuring exercise are deductible if the purpose is to keep the company in operation.

如果裁员行动是为了减低营业费用和业务可以持续性发展,相关的赔偿金时可在税前扣除的。在 Kulim Rubber Plantations v DGIR,联邦法院已裁定如果纳税人支付赔偿金“为了摆脱…… 一个从公司的利益的角度想不理想的员工” 该赔偿金是属于公司营运费用和可扣除的。因此,如果裁员的目的是为了确保公司可以继续营业, 因企业重组所致的赔偿金是可扣除如果。

However, if the compensation payments are made due to the cessation of business, such payments are not deductible. The rationale is due to the fact that these payments were not made in the production of the taxpayer’s gross income but were made to put an end to the business. The court in Ampat Tin Dredging Ltd v DGIR held that it was not sufficient that the expense incurred is related to the production of income, but it must be wholly and exclusively incurred in the production of income. In this case, the retrenchment due to closure of business was found to have nothing to with the production of gross income.

然而,如果该赔偿金是为了停业而造成的,该赔偿金是不可扣除。原理是因为这赔偿并不是用于产生收入而招致的费用,而是为了停业的费用。法院已在 Ampat Tin Dredging Ltd v DGIR 指出任何费用不仅必须和产生收入有关系,该费用必须是完全以及专门的产生收入。在该案例里,为了停业而裁员所支付的赔偿金和产生收入毫无关系。

Taxpayers are advised to maintain contemporaneous documentation by stating the purpose and reason of any compensation payment made. Where retrenchment benefits were made to save the taxpayer from extinction, it would qualify for a tax deduction as expenses incurred in the production of gross income.

纳税人应当存同期文档并且注明赔偿金的目的以及理由。如果该裁员赔偿金是为了避免企业倒闭,该费用是属于用于取得所得收入的费用方可在税前扣除的。

4. Deductibility of employee wages under the govt grant

4. 政府雇员工资补助的税前扣除

On 6 April 2020, the Prime Minister of Malaysia had announced the Additional PRIHATIN SME Economic Stimulus Package (“PRIHATIN SME+”) in efforts to stimulate the Malaysian economy with emphasis placed on maintaining the sustainability of SMEs. In Malaysia, SMEs accounted for more than 98.5% of all business establishments but compared to larger multinationals, they are often strapped for cash and have lower liquidity ratios. With that in mind, the PRIHATIN SME+ had, amongst others, offered a wage subsidy program to assist in maintaining the job security of its employees and reduce the burden on expenses (“Program”).

于 4 月 6 日,马来西亚首相宣布了经济振兴中小企配套(增加版)(“配套”)来协助企业可持续发展。在马来西亚,中小企业占了所有企业的98.5% ,可是与大型企业相比,中小企业通常拥有较为紧张的现金周转压力而且拥较低的流动性比率。考虑到这方面的苦扰,政府在配套里介绍了万众期待的工资补贴计划目以提供雇员的保障以及减低企业开支的消费。

The Program would fall within the scope of the Income Tax (exemption) (No.22) Order 2006 (P.U.(A) 207/2006) (“Exemption Order”). Under the Exemption Order, where eligible persons receive income in the form of a grant or subsidy from the State or Federal Government, such sums received are exempted from tax. In light of the foregoing, the subsidy received by an SME company having fulfilled necessary conditions would be tax-exempted.

该配套应在所得税法令(豁免) (第。22) 2006 (P.U.(A) 207/2006) (“豁免法令”)。在该豁免法令,当有资格的纳税人获得由州政府或联邦政府给予的补助或补贴形式的收入,该收入是免税的的。正因如此,中小企业从配套里收到的工资补贴是,在满足了所有的条件后,将是免税的的。

However, expenses spent using the sums received under the Program is also not deductible. Therefore, if the taxpayer received RM50,000 under the Program, expenses incurred for its employees’ wages to the value of RM50,000 is not deductible.

然而,任何使用了配套中的补贴所支付的的费用是不可扣除的。因此,假设纳税人在配套中领取了RM50,000的补贴,相等于RM50,000 的雇员工资是不可扣除的。

Taxpayers should be aware that Clause 4 of the Exemption Order imposes an obligation to maintain separate accounts for income received as a grant or subsidy. With this in mind, taxpayers must maintain appropriate records detailing the amount of subsidy received under the Program and amount of deduction claimed in respect of expenses on employee wages.

纳税人应意识到豁免法令的第4条规定获得补助者必须在企业账户中另行记录所领取的补助或补贴。因此,纳税人应该保持适当的记录仔细说明纳税人从配套中收到的补贴以及相关的雇员工资费用。

5. Deduction for donation to Covid-19 fund

5. 捐献给冠病基金的税前扣除

In endeavours to raise funds to combat the pandemic, the Malaysian Government has announced that donations to the Covid-19 fund will qualify for a tax deduction. Taxpayers may choose to donate by cash or in-kind to the Covid-19 fund set up by the Prime Ministry Department and Ministry of Health (“Tabung Covid-19”), Organisations with Section 44(6) status or other approved community and charitable projects. The Act has various provisions which allow for deduction hence taxpayers must accurately identify which provision is relevant to their form of donation.

为了筹募基金助于对抗新型冠状病毒肺炎疫情,马来西亚政府已宣布任何为捐给了冠病基金可税前扣除。纳税人可选择以金钱还是以实物的方式捐款给首相署和卫生部的冠病基金,所得税法 第44(6)条认可的任何组织或合格机构将享受减免。所得税法拥有多个相关的条规所以纳税人必须准确的鉴定哪条与他们捐款形式一致。

Scenario 1: Cash donations made to Tabung Covid-19

      • Treatment: Section 34(6)(h) OR Section 44(6)
      • Condition: Approval required if claiming under Section 34(6)(h)

Scenario 2: Donation in kind to Tabung Covid-19

      • Treatment: Section 34(6)(h)
      • Condition: Approval required

Scenario 3: Cash donation to Organisations with Section 44(6) status

      • Treatment: Section 44(6)

Scenario 4: Donation in cash or in-kind to approved community and charitable projects

      • Treatment: Section 34(6)(h)
      • Condition: Approval required

范例 1:现金捐款给冠病基金

      • 待遇: 第 34(6)(h) 条规 或 44(6) 条规
      • 条件: 如果是 第34(6)(h) 条内,纳税者必须获得批准

范例 2:实物捐赠给冠病基金

      • 待遇: 第 34(6)(h) 条规
      • 条件: 纳税者必须获得批准

范例 3:现金捐款给第44(6)条认可的组织

        • 待遇: 第 44(6) 条规

范例 4:现金或实物捐赠给合格机构

      • 待遇: 第 34(6)(h) 条规
      • 条件: 纳税者必须获得批准

Conclusion

Taxpayers would need to reassess whether expenses incurred makes commercial sense, revenue or capital in nature or disallowed for deduction under the Act. Although case laws have been helpful in clarifying rules on deductibility such as which expenses are revenue and capital in nature, the question of whether tax deduction is allowed is often a question of fact as cases on the same facts but with different purposes may have different tax implications.

结论

纳税人应该慎重考虑任何费用的商业合理性,是公司营运费还是资本支出或是否在所得税法里的条规是不被允许扣除的。虽然判例法有助于誊清扣除原则例如费用是否是资本费用,但是某个费用是否可扣除经常是事实问题因为同一个开销可因不同的目的而对所得税务有不同的影响。

Note: If there is any inconsistency between the English and Chinese versions, the English version shall for all intent and purposes prevail. 

特别注明:英文版和中文版上倘出任何歧义,概以英文版本为准。上述仅供阅读参考。