The 2014 Budget Strengthening economic resilience, accelerating transformation and

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The 2014 Budget
Strengthening economic
resilience, accelerating
transformation and fulfilling
promises
Highlights of the Finance Bill (No.2) 2013
TaXavvy
Special Edition
30 October 2013
Inside this issue
2014 Budget
Highlights of the Finance Bill (No.2) 2013
Corporate tax
3
Personal tax
8
•
Compulsory acquisition of stock-in-trade
•
Monthly tax deduction as final tax
•
Interest income deemed to be obtainable
on demand
•
•
Deemed interest on loans or advances to
director
Withholding tax on early withdrawal from
deferred annuity or private retirement
scheme
•
Definition of entertainment
•
Deduction for interest expense
Real property gains tax
8
•
No deduction allowed for failure to furnish
information requested under section 81 of
the Act
Labuan Business Activity Tax Act 1990
9
•
Unlisted investment holding companies,
closed-end funds and unit trusts Determination of deductible permitted
expenses
•
Takaful business - Withholding tax under
Section 109E
•
Takaful business – Deductibility of
management expenses, commission and
discount
•
Conversion of partnership or company into
Limited Liability Partnership (LLP) –
Capital allowances
•
Basis period of a company, LLP, trust body
or co-operative society
•
Approved organisation for the purpose of
section 44(6) of the Act
Tax administration
•
Director’s liability
•
Submission of income tax return
•
Mutual Administrative Assistance
Arrangement
•
Appeal against assessment
•
Mutual Agreement Procedure (“MAP”)
•
Payment under anti-avoidance provision
•
7
Power to make regulations and prescribe
forms
Petroleum Income Tax Act 1967
9
PwC contacts
12
Welcome to our
TaXavvy Special
Edition which brings to
you the highlights of the
Finance Bill (No.2) 2013
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
2
Corporate tax – Income
Compulsory acquisition of stock-in-trade
In Penang Realty v. Ketua Pengarah Hasil Dalam Negeri
(2006) 3 MLJ 597 (Penang Realty), the Court of Appeal
decided that the gains arising from the compulsory
acquisition of houses by the government (trading stock
of Penang Realty) were not subject to income tax as “the
element of compulsion vitiates the intention to trade”.
It is proposed that a specific provision be introduced in
the Act to over-ride the principle established in the
Penang Realty case. The proposed section 4C of the
Income Tax Act 1967 (the Act) provides that any amount
receivable from the disposal of stock-in-trade by any
element of compulsion such as compulsory acquisition
or forced sale, is to be treated as gains or profits from a
business under section 4(a).
(Effective from year of assessment (YA) 2014)
Interest income deemed to be obtainable on
demand
Section 29 of the Act, an anti-avoidance provision,
provides that income (except for business income and
dividend income) which is obtainable on demand will be
taxable in the period when such circumstances arise
even though the income has not been received.
Deemed interest on loans or advances to
director
It is proposed that where loans and advances are given
by a company to its directors, the company is deemed
to have gross income consisting of interest from such
loans or advances.
The interest income is calculated based on the
formula:1/12 x A x B
where
A
is the total amount of loan or advances
outstanding at the end of the calendar month;
B
is the average lending rate of commercial banks
published by the Central Bank at the end of the
calendar month or where there is no such average
lending rate, such other reference lending rate as
may be prescribed by the Director General (DG).
The formula is not applicable if the actual interest
charged by the company is more than the total sum of
the deemed interest.
(Effective from YA 2014)
It is proposed that in respect of interest income on the
following loans, the lender is deemed to be able to obtain
the interest on demand when the interest is due to be
paid to the lender:•
where the lender has control over the borrower or
vice versa; or
•
where the loan is between persons, both of whom are
controlled by some other person.
(Effective from YA 2014 )
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
3
Corporate tax – Deductions
Definition of entertainment
The definition of “entertainment” currently includes :–
No deduction allowed for failure to furnish
information requested under section 81 of the
Act
(a) the provision of food, drink, recreation or hospitality
of any kind; or
Section 81 of the Act empowers the DG to request
information (orally or in writing) from a taxpayer.
(b) the provision of accommodation or travel in
connection with or for the purpose of facilitating
entertainment of the kind mentioned in paragraph
(a),
It is proposed that no deduction be allowed for an
expense if the taxpayer fails to furnish information
concerning the expense, wholly or partly, as required
by the DG under section 81 within the stipulated time
frame.
by a person or an employee of his in connection with a
trade or business carried on by that person.
It is proposed that the definition be broadened to include
the abovementioned expenses incurred in promoting a
business or trade, with or without consideration (in cash
or in kind).
(Effective from YA 2014)
Deduction for interest expense
Currently, section 33(1)(a) allows a tax deduction for
interest payable in relation to any money borrowed, and
employed in the production of gross income or laid out
on assets used or held in the production of gross income.
To clarify the timing of deduction of such interest
expense, it is proposed that the following be specifically
provided in section 33:that the interest is only deductible in the period in which
the interest is due to be paid.
(Effective from YA 2014 )
(Effective from YA 2014 )
Unlisted investment holding companies,
closed-end funds and unit trusts Determination of deductible permitted
expenses
Unlisted investment holding companies, closed-end
funds and unit trusts are accorded a special deduction
for permitted expenses under sections 60F, 60H and
63B of the Act respectively. The deductible permitted
expenses is computed based on the following formula:A x B /4C,
where:
A is the total of permitted expenses ... incurred for
that basis period
B is the gross income consisting of dividend, interest
… chargeable to tax for that basis period
C is the aggregate of gross income consisting of
dividend, … interest and gains made from the
realisation of investments …”
There are currently differences in the description of
the denominator “C” in the three sections above,
giving rise to uncertainty as to whether exempt
dividend and interest are to be included.
Amendments to the description of item C are now
proposed to align these differences. With the proposed
amendments, it is now clear that dividend and interest
to be included in denominator “C” comprise all
dividend and interest income, both taxable and
exempt.
(Effective from YA 2014)
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
4
Corporate tax – Takaful & Limited Liability Partnership (LLP)
Takaful business - Withholding tax under
Section 109E
Conversion of partnership or company into
LLP – Capital allowances
Takaful operators are currently required to withhold tax
under section 109E at 8% on profits distributed or
credited out of its family fund, family re-takaful fund or
general fund. In practice, it is difficult to track actual
distributions.
Under the Limited Liability Partnerships Act 2012, a
partnership or company is allowed to convert into a
LLP.
To ease administrative difficulties, it is proposed that tax
is only required to be withheld under section 109E
where a deduction has been claimed on such distributed
profits.
•
the control transfer provisions under the Act shall
apply to the transfer of assets to the LLP;
•
the LLP is not allowed to claim capital allowances
on the assets in YA in which the transfer takes place
if the partners of the partnership or company has
claimed capital allowances on these assets for that
YA .
(Effective from YA 2014)
Takaful business – Deductibility of
management expenses, commission and
discount
It is proposed that in the above conversion to a LLP,
(Effective upon gazetting of the Finance Act)
To promote the Takaful industry and put Takaful
operators on par with conventional insurance business,
it is proposed that the following expenses incurred by
both resident and non-resident Takaful operators be
deductible:•
management expenses of general fund; and
•
commission expenses and discounts of the
shareholders’ fund.
(Effective from YA 2014)
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
5
Corporate tax – Others
Basis period of a company, LLP, trust body or
co-operative society
Approved organisation for the purpose of
section 44(6) of the Act
The following proposals relating to the determination of
the basis period of a company, LLP, trust body or cooperative society, have been made :-
Currently, an approved organisation for the purpose of
section 44(6) of the Act includes an organisation
established exclusively to administer and augment a
public fund established solely for the purposes of
religious worship or the advancement of religion and
such fund is used for the construction, improvement or
maintenance of a building in Malaysia used for the
abovementioned purposes.
(a) The DG is empowered to direct the basis period in
relation to any change of accounting period
regardless of the financial year end.
(b) Where a company, LLP, trust body or co-operative
society commence operations, the basis period for
the first year of assessment shall be the accounting
period of the accounts, notwithstanding the length
of the accounting period.
(Effective from YA 2014)
It is proposed that the definition of an approved
organisation be extended to include an organisation
which administers and augments a public fund
established to purchase a building to be used for the
abovementioned purposes.
(Effective from YA 2014)
Furnishing of tax estimate for small medium
enterprise (SME)
Following the above proposed amendment to
determination of basis period, a SME* is not required to
furnish tax estimate where the company has no basis
period for the relevant YA (s).
*paid up capital in respect of ordinary shares is
RM2,500,000 or less
(Effective from YA 2014)
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
6
Tax administration
Director’s liability
Appeal against assessment
Under section 75A of the Act, directors of a company are
jointly and severally liable for unpaid taxes of the
company and debt due and payable under rules made
pursuant to section 107 (deduction of tax from
emoluments and pensions) by the company.
Under section 99 of the Act, a person aggrieved by an
assessment may appeal to the Special Commissioners
of Income Tax (SCIT) by submitting to the DG, a
written notice of appeal in the prescribed form within
the stipulated timeframe.
The definition of “director” in the same section includes
“any person who is, either on his own or with one or
more associates within the meaning of subsection 139(7),
the owner of, or able directly or through the medium of
other companies or by any other indirect means to
control, more than fifty percent of the ordinary share
capital of the company …”
It is proposed that section 99 of the Act will not be
applicable to:-
It has been proposed that the threshold of fifty percent
of ordinary share capital be reduced to twenty percent.
(Effective upon gazetting of the Finance Act)
•
a deemed assessment made under section 90; and
•
a deemed assessment made on amended returns
furnished under section 91A.
However, if a person is aggrieved under sections 90
and 91A as a result of complying with any Public
Rulings issued by the DG, that person can still file an
appeal under section 99.
(Effective upon gazetting of the Finance Act)
Submission of income tax return
Currently, companies can choose to submit tax returns
either manually or electronically.
With the proposed amendments to section 77A of the
Act, all companies are required to submit tax returns by
way of an electronic medium or electronic transmission.
In addition, the tax return submitted by the company
must be prepared based on audited accounts.
(Effective from YA 2014)
Mutual Agreement Procedure (“MAP”)
It is proposed that where a person has made an
application to invoke a MAP, no appeal on the same
grounds covered by the MAP shall be forwarded to the
SCIT until determination of the MAP.
A request may be made to the DG to forward the appeal
to the SCIT within 30 days from determination of the
MAP. The DG shall within 3 months after receiving the
request, forward the appeal to the SCIT.
(Effective upon gazetting of the Finance Act)
Mutual Administrative Assistance Arrangement
It is proposed that if the Minister of Finance by statutory
order declares that arrangements specified in the order
have been made between the Government of Malaysia
with the government of any territory outside Malaysia
with a view to the mutual administrative assistance in
tax matters, then, so long as the order remains in force ,
these arrangements shall have effect in relation to tax
under the Act or other taxes of every kind under written
law.
Payment under anti-avoidance provision
It is proposed that in invoking the anti-avoidance
provision under section 140 of the Act, the DG may
require a person to remit by way of notice, withholding
tax within the time specified in the notice.
(Effective upon gazetting of the Finance Act)
(Effective upon gazetting of the Finance Act)
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
7
Personal tax
Real property gains tax (RPGT)
Monthly tax deduction as final tax
Computation of penalty
Employees whose total income tax is equivalent to the
amount of tax deducted under the Monthly Tax
Deduction (MTD) system, may elect not to submit a tax
return provided that:
A penalty of 10 percent of tax payable is imposed in
the following situations:-
•
the employee only receives cash remuneration under
employment income (including amounts received
from pension or provident fund which is not
approved and compensation for loss of employment);
•
tax is deducted on that income and remitted under
the MTD system;
•
the employee has been serving under the same
employment for a period of 12 months in the year of
assessment;
•
the taxes are not borne by the employer for the year
of assessment; and
•
for husband and wife, no election for combined
assessment has been made.
•
If the acquirer fails to retain and remit part of the
consideration on disposal of chargeable asset by the
disposer under section 21B of the RPGT Act to the
IRB, due to incorrect or wrong information
provided by the disposer;
•
If the disposer fails to furnish a return of disposal of
a chargeable asset or furnish a declaration of
disposal of a chargeable asset.
It is proposed that the meaning of “tax payable” be
inserted into the RPGT Act. With the proposed
amendment, the above penalty will be computed on the
amount of tax charged on the chargeable gain
excluding any allowable loss.
Meaning of “director”
(Effective from YA 2014)
Under the RPGT Act, any person who is a director of a
company during the period in which the RPGT or debt
is liable to be paid by a company, shall be jointly and
severally liable for such tax or debt. For this purpose,
“director” includes:-
Withholding tax on early withdrawal from
deferred annuity or private retirement scheme
•
any person who is concerned with the management
of the company’s business, and
•
who is either on his own or with one or more
associates, the owner of, or has direct or indirect
means to control not less than 50 percent of the
ordinary share capital of the company.
Withholding tax of 8% is currently deducted from
withdrawal of contributions from private retirement
schemes by contributors before age 55 (except by
reason of death or where the person is permanently
leaving Malaysia).
The following have been proposed:•
•
Early withdrawals before age 55 due to serious
diseases or mental disability would be excluded from
the 8% withholding tax deduction.
It is proposed that the threshold of 50 percent of
ordinary share capital be reduced to 20 per cent in line
with the Income Tax Act.
(Effective upon gazetting of the Finance Act)
Withdrawals by contributors from deferred annuity
schemes would also be subjected to the same
withholding tax requirements as private retirement
schemes.
(Effective upon gazetting of the Finance Act)
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
8
Labuan Business Activity Tax
Act 1990 (LBATA)
Power to make regulations and prescribe
forms
• Transfer pricing and thin capitalisation
The party to a petroleum agreement is regarded as
the chargeable person for the purposes of
determining a transfer pricing and thin
capitalisation transaction.
Currently, the Minister of Finance may:•
make regulations for the purposes of the LBATA;
and
•
prescribe forms as are required by the LBATA.
It is proposed that the Minister of Finance continues
to make regulations for the purposes of the LBATA
while the DG is now empowered to prescribe forms as
required by LBATA.
(Effective upon gazetting of the Finance Bill)
• Utilisation of qualifying exploration expenditure
(“QEE”)
Only QEE incurred by a chargeable person under a
petroleum agreement under an agreement area
where chargeable petroleum is not being produced
can be deducted against the gross income of
another chargeable person in another petroleum
agreement where the original parties to the
petroleum agreement are the same.
(Effective upon gazetting of the Finance Act)
Petroleum Income Tax Act 1967
(PITA)
The following changes to PITA have been proposed:-
Where the QEE exceeds the gross income of
another chargeable person, the excess of the QEE
is only allowed to be deducted against the gross
income of that chargeable person in subsequent
YAs.
• Advance Pricing Arrangement (APA)
(Effective from YA 2014)
Persons operating in the upstream oil and gas
industry may make an application to the DG to
enter into APAs for its cross border transactions
(Effective from YA 2014)
The Minister of Finance is empowered to prescribe
rules to facilitate the implementation of APA .
(Effective from YA 2014)
•
Changes to align to the Income Tax Act 1967
o Broadening of the definition of “entertainment”
(Effective from YA 2014)
o Appeal procedure to the SCIT where the person
has made an application under the MAP
(Effective upon gazetting of the Finance Bill)
o Tax returns must be furnished based on
accounts audited by a professional accountant
(Effective from YA 2014)
For more information on the 2014 Budget, please visit us at
http://www.pwc.com/my/en/issues/budget2014.jhtml
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
9
The Academy brings to you…
The PwC Seminar
Rising to the Challenge
Kuala Lumpur
Date: 1 November 2013 (Friday)
Venue: Grand Hyatt Kuala Lumpur
Contact: Fazlina Jaafar at 03-2173 0860
Penang
Date: 12 November 2013 (Tuesday)
Venue: Equatorial Hotel
Contact: Ann Yew or Ong Bee Ling at 04-238 9291 /
04-238 9170
Johor Bahru
Date: 13 November 2013 (Wednesday)
Venue: Renaissance Johor Bahru Hotel
Contact: Ling Hie Jing or Renuka Ashok at 07-222 4448
Featuring
Kuala Lumpur
• Budget 2014 – Rising to the challenge
• Budget 2014 – Your burning questions
answered
• The Goods & Services Tax - Are you ready
for the wave?
• Let’s talk tax - Getting down to business
Penang & Johor Bahru
• Budget 2014 – Rising to the challenge
• Financial reporting developments : A peek at
the horizon
• The Goods & Services Tax - Are you ready for
the wave?
• Taxpayers are not cannon fodder - The rise &
rise of litigation
For more information/to register please visit PwC’s website at
www.pwc.com/my/en/TheAcademy
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
10
The Academy brings to you…
GST
Giving you the goods to stay competitive
Look out for our GST Seminar on 26 November 2013.
The brochure and registration form will be available soon.
Email us at [email protected] for further details.
Speak to us:
Wan Heng Choon
Senior Executive Director
[email protected]
Phone +60(3) 2173 1488
Yap Lai Han
Executive Director
[email protected]
Phone +60(3) 2173 1491
Steve Chia
Senior Executive Director
[email protected]
Phone +60(3) 2173 1572
Nicolaos Giannopoulos
Executive Director
[email protected]
Phone +60(3) 2173 0833
Raja Kumaran
Executive Director
[email protected]
Phone +60(3) 2173 1701
Hanita Ahmad
Executive Director
[email protected]
Phone +60(3) 2173 0202
For more information/to register please visit PwC’s website at
www.pwc.com/my/en/TheAcademy
TaXavvy, Special Edition | The 2014 Budget
PwC
30 October 2013
11
PwC contacts
Our offices
Our services
Kuala Lumpur
Melaka
Jagdev Singh
Tel: +60(3) 2173 1469
[email protected]
Teh Wee Hong
Tel: +60(3) 2173 1595
[email protected]
Penang / Ipoh
Tony Chua
Tel: +60(4) 238 9118
[email protected]
Johor Bahru
Benedict Francis
Tel: +60(7) 222 4448
[email protected]
Au Yong
Tel: +60(6) 283 6169
[email protected]
Labuan
Jennifer Chang
Tel: +60(3) 2173 1828
[email protected]
Consumer, Industrial
products & Services
Energy, Utilities, Media and
InfoComm
Theresa Lim
Tel: +60(3) 2173 1583
[email protected]
Khoo Chuan Keat
Tel: +60(3) 2173 1368
[email protected]
Margaret Lee
Tel: +60(3) 2173 1501
margaret.lee.seet.cheng
@my.pwc.com
Transfer Pricing &
Investigations
Emerging Markets
SM Thanneermalai
Tel: +60(3) 2173 1582
thanneermalai.somasundaram@
my.pwc.com
SM Thanneermalai
Tel: +60(3) 2173 1582
thanneermalai.somasundaram International Assignment
Services
@my.pwc.com
Corporate Services
Lee Shuk Yee
Tel:+60(3) 2173 1626
[email protected]
Sakaya Johns Rani
Tel: +60(3) 2173 1553
[email protected]
Japanese Business
Consulting
Financial Services
Jennifer Chang
Tel: +60(3) 2173 1828
[email protected]
International Tax Services /
Mergers & Acquisitions
Frances Po
Tel: +60(3) 2173 1618
[email protected]
Indirect Tax
Wan Heng Choon
Tel: +60(3) 2173 1488
[email protected]
Worldtrade Management
Services
Huang Shi Yang
Tel:+60(3) 2173 1657
[email protected]
Junichi Fujii
Tel: +60(3) 2173 1480
[email protected]
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