Malaysia’s 2012 Budget

Malaysias 2012 BudgetMalaysia’s Prime Minister YAB Dato’ Sri Mohd Najib Tun Abdul Razak presented the 2012 budget proposals on 7 October 2011. Some of the changes affecting individuals are briefly outlined below.

1. Contribution to Retirement Scheme Approved by Securities Commission

It is proposed that a separate tax relief of MYR 3,000 be given for contributions made to a Private Retirement Scheme (PRS) or deferred annuity, as distinct from the existing relief of MYR 6,000. The PRS is to be approved by the Securities Commission. The existing relief of MYR 6,000 will then only be applicable for life insurance premiums and contributions made to approved schemes other than a PRS.

Withdrawals of contributions from PRS by individuals prior to the maturity period or prior to attaining mandatory retirement age are subject to tax in the hands of the individuals.

Further, contributions by employers to PRS will be deductible up to 19 percent of employees’ remuneration which includes contributions to the Employees Provident Fund (“EPF”) and other approved schemes.

The proposal is effective from Years of Assessment (“YAs”) 2012 to 2021.

2. Enhancing Tax Compliance

To further enhance the e-Filing system for salaried taxpayers, it is proposed that information such as total income, Monthly Tax Deduction (“MTD”), employee’s contribution to EPF, insurance and zakat payments will be pre-filled by the Inland Revenue Board (“IRB”) based on information provided by employers effective from YA 2012.

This proposal will result in additional filing obligations for the employer. In addition, with the partially pre-filled tax return, the government will have some controls on the accuracy of the information provided by the salaried taxpayers. As a result, the taxpayers will have no choice but to take the initiative to review the pre-filled information and to add any data missing from the tax returns, correct any errors, and input the non-standard reliefs they want to claim. Finally, it would be obvious to the IRB if any salaried taxpayers were to continue not to submit his/her tax return.

The proposal is effective from YA 2012.

3. Returning Expert Programme

The employment income of an approved individual under the Returning Expert Programme will be taxed at the rate of 15 percent. The is one of the tax benefits offered to returning experts with a view to attracting, facilitating, and retaining aspiring Malaysian returning individuals.

The tax rate of 15 percent is only meaningful to a returning expert who earns annual chargeable income of at least MYR 106,136. Based on the Talentcorp’s Web site (which is the authority in handling the Returning Expert Programme), the approved individual could opt to be taxed under the scale rates instead of 15 percent. The concession is for a period of five years.

The proposal is effective from YA 2012.

4. Compensation for Late Refund of Income Tax by the IRB

 

Currently, taxpayers who are late in paying their taxes are subject to penalties. However, no compensation is given to the taxpayer if the IRB is late in refunding any tax overpaid.

In order to help ensure that the taxpayers are accorded equitable treatment and to enhance efficiency in the tax administration, it is proposed that taxpayers be given compensation of 2 percent per annum on the amount of tax refunded late by the IRB. Individual taxpayers eligible for the compensation are those who file their income tax returns before the expiry of the stipulated due date (30 April for those who do not derive business income or 30 June for those who have business income).

The compensation of 2 percent is to be paid on a daily basis where the amount refunded is made:

(i) after 90 days from the due date for e-filing; and

(ii) after 120 days from the due date for manual tax filing.

The proposal is effective from YA 2013.

5. Time Bar for Tax Audit

 

Based on the current Tax Audit Framework, a tax audit may cover a period of one to three YAs. However, the audit may be extended up to six YAs.

To foster certainty in respect of the costs of doing business and enhance investors’ confidence, and in tandem with best practices, it is proposed that the time bar for a tax audit be reduced from six to five years. However, the proposal will not alter the requirement to keep records for seven years from the end of the year to which any income of the individual is related. Further, it is not applicable for cases of false declaration, wilful late payment, and negligence.

The proposal is effective from YA 2013.

6. Extension of Tax Incentive Period for Real Estate Investment Trusts (REITs)

Presently, (a) foreign institutional investors which include pension funds and collective investment schemes and (b) non-corporate investors which include resident and nonresident individuals, and other local non-corporate entities receiving dividends from REITs listed on Bursa Malaysia, are subject to final withholding tax at 10 percent from 1 January 2009 to 31 December 2011. To promote further the development of REITs in Malaysia, it is proposed that the concessionary tax treatment as mentioned above be extended for another five years from 1 January 2012 to 31 December 2016.

7 Payment to Agent, Dealer, or Distributor

It is proposed that every company must prepare and provide to each of its agents, dealers, or distributors, who receives payment (whether in monetary form or otherwise) arising from sales, transactions, or schemes, a prescribed form containing particulars of the payment, name, and address of the agent, dealer, or distributor and other particulars which may be required by the Director General of the IRB. The prescribed form must be provided on or before 31 March of the following year. The payor company must retain a copy of the prescribed form in its safe custody and make it readily available to the IRB upon request.

The proposal is effective from 1 January 2012.

8. Transfer of Residential Property and Stamp Duty Thereon

In order to increase middle-class individuals’ ownership of residential properties, it is proposed that instruments of loan agreements executed for the purchase of a residential property not exceeding MYR 300,000 under Skim Perumahan Rakyat 1Malaysia (“PR1MA”) be given full stamp duty exemption. PR1MA is established by the government as the sole agency to develop and maintain affordable and quality houses, specifically for middle-income individuals. PR1MA will be the developer for projects on land owned by the government.

The proposal is effective for sales and purchase agreements executed from 1 January 2012 to 31 December 2016.

October 17, 20112011-170

9. Personal Income Tax Rates/ Thresholds for 2011

ForResident IndividualsChargeable

Percentage Rate

Base Tax
Income

(%)

(MYR)
0 -2500

0

0
2,501 -5,000

1

25
On 5,000 Next 5,000

3

25150
On 10,00 Next 10,000

3

175300
On 20,000 Next 15,000

7

4751,050
On 35,000 Next 15,000

12

1,5251,800
On 50,000 Next 20,000

19

3,3253,800
On 70,000 Next 30,000

24

7,1257,200
On 100,000 Over 100,000

26

14,325……….

 

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