(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”).
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.
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.
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
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
To further encourage employment, the Government had announced the following tax incentives:
- Employment of youth for apprenticeships: RM600 per month for up to 6 months
- Employment of person >40 years old and been unemployed for 6 months: RM800 per month for up to 6 months
- Employment of persons >40 years old or persons with special abilities: RM1,000 per month for up to 6 months
- Employees retrenched but are not covered under the Employment Insurance Scheme: one-off RM4,000 training allowance.
(6) Other incentives
The Government further announced the extension of various incentives currently already in place but due to expire soon.
- Special tax deduction for rental reduction for business premises rented to SMEs of at least 30% to be extended to 30 September 2020.
- Accelerated capital allowance of 40% for ICT equipment to be extended to 31 December 2021.
- Special tax deduction for renovation and refurbishment expenses of business premises up to RM300k to be extended to 31 December 2021.
- 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
- From 1 July 2020 onwards, individuals who receive a handphone, notebook or tablet can claim personal income tax relief of up to RM5,000.
- 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
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.
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.
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
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:
- Instrument of transfer: Restricted to the first RM1million of the property price
- 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.
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.
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.
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.
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.
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.
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.
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:
- For FDI between RM300mil to RM500mil: 10 years
- 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
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.