The highly anticipated Budget 2020 was announced by the Pakatan Harapan Government on 11 October 2019. This was a momentous event not only because it was a budget created where the government of the day had a full year of being in power but also to address the elephant in the room – debt crisis. The Budget’s theme was “Shared prosperity: Sustainable and inclusive growth towards high-income economy” and although there were not as many changes as anticipated compared to the previous budget, it was a well-thought one.
The Budget 2020 includes policies and recommendations as well as the allocation of funds into various parts of the country. On the other hand, the Finance Bill 2019 addressed the more legal side of things where it involves amendment in, amongst others, the following acts: Income Tax Act 1967, Real Property Gains Tax Act and Stamp Duty Act.
Below includes some of the policies recommended to be in place for the year 2020:
1 Policies affecting the labour market
Under the Budget
- The minimum wage in major cities will be increased to RM1,200 from the current RM1,100.
- Maternity leave will be increased to 90days from the current 60 days effective 2021
- Eligibility to overtime will be extended to those earning less than RM4,000 from the current RM2,000 per month
- Disabled persons and singles above the age of 40 and earning less than RM2,000 will receive RM300 Bantuan Sara Hidup aid.
- To encourage women participation in the workforce, the current tax exemption for women returning to work is extended for another four years.
2 Improving traffic accessibility and cost
Under the Budget
- RM450mil will be spent on electric buses for public transport.
- A Targeted Subsidy Programme will be implemented and aimed at individuals who do not own more than 2 cars and 2 motorcycles. The subsidy will be allowed on only one motor vehicle.
- Plus Highway tolls are to be reduced by at least 18%.
- The cost of passing through highways will be dependent on the time of travel with the implementation of a congestion charge which will be lowered by up to 30% from the present charge rate whilst travelling outside peak hours will be free.
3 Reducing property overhang
Under the Budget
- Foreign ownership of highrise properties will be reduced to Rm600k from the current RM1mil.
- RM10billion Rent to Own financial scheme will be implemented where the individuals will rent the property for 5 years and thereafter decides if he wants to purchase the property.
4 Affecting corporate tax
Under Finance Bill 2020
- It is recommended that the threshold of chargeable income for SME for enjoying a lower tax rate of 17% will be increased to RM600,000 from the current RM500,000 before being charged the higher rate of 24%. (effective YA 2020)
- Special allowance for small value assets will be increased to RM2,000 from the current RM1,300 and the collective amount of special allowance claimed will be restricted to RM20,000, higher than the current RM1,300. (effective YA 2020)
- Previously, the P.U. (A) 336/2014 Income Tax (Deduction for expenses in relation to secretarial fee and tax filing fee) Rules 2014 allows a maximum deduction of RM5,000 on secretarial fees and RM10,000 on tax fees. Currently, it is proposed that a resident company is entitled to a deduction of not exceeding RM15,000 collectively of both secretarial and tax fee.
- For players in the electrical & electronics (E&E) industry and in line with the government’s vision of Industry 4.0, the Budget proposes an income tax exemption for up to 10 years on investments in selected knowledge-based services. The Budget further proposes for a special investment tax allowance to encourage E&E players to continue investing in Malaysia after exhausting the Reinvestment Allowance.
- Accelerated Capital Allowance and automation equipment capital allowance for the manufacturing sector on the first RM2 million and RM4 million incurred on qualifying expenditure to be extended to YA 2023. Currently, this incentive is due to expire in YA 2020.
- Technology-based companies and SMEs listing on the ACE Market or the LEAP Market (but not the Main Market) of Bursa Malaysia will be allowed to claim a tax deduction of up to RM1.5 million for listing fees to the authorities, professional fees and underwriting, placement and brokerage fees for from YA 2020 to YA 2022. Such expenses are currently not eligible for a tax deduction when computing the corporate tax.
- Adopting the Modified Nexus Approach (which supersedes the previous one expiring 31 December 2018), the Bill proposes that 100 per cent of income tax exemption up to 10 years on income derived from patent and copyright of qualifying activities. The added restriction is that this only applies to intellectual property in Malaysia.
5 Affecting personal tax
Under the Finance Bill
- There will be a new tier of personal income rate of 30% to be imposed on those earning RM2mil and above. The highest tier currently is 28%.
6 Affecting real property gains tax
Under Finance Bill 2020
- For real property acquired before 2013, the market value of the property as of 2013 will be deemed to be the acquisition cost of the property for the purposes of calculating real property gains tax.
- Companies incorporated outside of Malaysia who disposes of real property will be subjected to the same real property gains tax rate as an individual.
- Companies incorporated inside of Malaysia and trustee of a trust will be subjected to the prevailing real property gains tax rate. Previously, there was no such distinction of companies incorporated in Malaysia or outside.
8 Affecting stamp duty
Under Finance Bill 2020
- Only Malaysian citizens will qualify for a 50% remission of stamp duty for transfer of real property between parents and children and vice versa for natural love and affection. Currently, it applies to both citizens and non-citizens.
- To assist in Malaysians acquiring their first home, it is proposed that there will be a stamp duty exemption under the Rent-to-Own scheme on the following instrument of transfer of property valued up to Rm500k subjected to obtaining approval.
7 Affecting other legal implications
Under Finance Bill 2020
- Section 103 of the Income Tax Act 1967 is amended by removing further penalties on non-compliance of delay in making tax payment after the due date. It is proposed that the penalty remains 10% regardless of the time span of delay from the current increase of 5% if payment is delayed after 60 days.
- Persons who understated its tax payable and makes an amendment return will be penalised 10% of the amount understated regardless if the amendment was made 60 days before or after the date of deemed assessment. This is different from the current additional penalty of 5% if the amendment is made after 60 days but before 6 months after the filing of a deemed assessment tax return.
- A time restriction of 7 years is imposed for taxpayers wishing to apply for an extension of time to appeal against assessments made by the IRB. Currently, there is no time restriction.
- Assessment under the Mutual Agreement Procedure will not be subjected to any time limitation.
- The Special Commissioner of Income Tax and the Customs Appeal Tribunal will merge to form the Tax Appeal Tribunal which is expected to be in operation in 2021.
Legally Malaysians 