BUDGET 2009 SUMMARY

SMALL AND MEDIUM ENTERPRISES (SMI) TAX RATE STREAMLINE

TAX INCENTIVE FOR SMI

(a) Resident
(b) Paid up capital ≤ RM2.5million
(c) Not controlled by company with share capital > RM2.5million

DEDUCTION ON EXPENSES FOR RECRUITMENT OF WORKERS

- Pre-commencement business expenditure
- Includes: Expenses incurred in participation in job fairs,    payment to employment agencies and head-hunters.

TAX INCENTIVE TO ENHANCE THE USE OF ICT

IT Equipment – Computer hardware and software

EXTEND TAX INCENTIVE TO ENHANCE SECURITY CONTROL (YA 2009 –2012)

Accelerated Capital Allowance (100% IA 20% & AA 80%) on security control equipment be extended to all business premises. Security control equipment eligible for the allowance are:

i.     equipment anti-theft alarm system;
ii.    infra-red motion detection system;
iii.   siren;
iv.   access control system;
v.    closed circuit television;
vi.   video surveillance system;
vii.  security camera;
viii. wireless camera transmitter; and
ix.   time lapse recording and video motion detection.

TAX TREATMENT ON COSTS OF DISMANTLING AND REMOVING ASSETS AS WELL AS RESTORING THE SITE

Cost of Dismantling + Removing P & M + Restoring the site (Cost X)

Effective from YA 2009
TAX INCENTIVES TO ENHANCE TRAINING IN SELECTED FIELDS

Double deduction be given on expenses incurred by employers in training their employees in the following fields:

i.   post graduate courses in information communication and
    technology (ICT), electronics and life sciences;
ii.  post basic courses in nursing and allied health care; and
iii. aircraft maintenance engineering courses.
    (effective from YA 2009 – YA 2012)

10% withholding tax exemption is given to non-resident experts on income received by providing technical training services in the above fields.

(Effective from 30 Aug 2008 – 31Dec 2012)

THE APPLICATION OF ARM’S LENGTH PRINCIPLE ON BUSINESS TRANSACTIONS CARRIED OUT BETWEEN RELATED COMPANIES

                                    > Market value <

A

B

- Sales of goods
- Provision of services
- Provision of loan
Documentation on pricing: Arm’s length

Relations between A and B
a) Companies & companies
b) Individual & companies
c) Individual & individual (relatives)

(Effective from 1 Jan 2009)

IMPLEMENTATION OF ADVANCE PRICING ARRANGEMENT (APA)

APA is a mechanism to predetermine prices of goods and services to be transacted in the future between a company and its related companies for a specified period. APA has been in practice in many countries to determine transfer pricing for cross border transactions on a prospective basis involving Unilateral, Bilateral and Multilateral approaches. The parties involved in APA consist of the Tax Authority and:

i. a resident company in respect of transactions with its related
   companies abroad (Unilateral APA);
ii. a resident company in respect of transactions with its related
    companies abroad with the Tax Authority of the foreign nation
    (Bilateral APA); or
iii. a resident company in respect of transactions with more than one
    of its related companies and with more than one Tax Authorities of
    foreign nations (Multilateral APA).

To manage transfer pricing issues more effectively and efficiently compared to transfer pricing audit, it is proposed that companies be allowed to apply for APAs to the Director General of Inland Revenue Board. The objective of establishing APAs is to determine transaction prices for income tax purposes.

(Effective from 1 Jan 2009)

WITHHOLDING TAX ENFORCEMENT

	Non resident
Technical fees Installation fee
Capitalised as plant cost : Capital allowance claimed

Non payment of withholding tax 10% to IRB, exclude the cost as “plant”
Cost

PROVISION TO DETERMINE AND COLLECT TAX ON OTHER INCOMES OF
NON-RESIDENTS

	Prior 1.1.2009		1.1.2009 onwards
a) Commission	-
b) Guarantee fees	-
c) Introducer’s fee	-		10% withholding tax on gross income
d) Others Sec 4(f)	-

REVIEW OF WITHOLDING TAX ON TECHNICAL FEES

New definition of Gross income :-

REINVESTMENT ALLOWANCES – RESTRICTION (w.e.f. YA 2009)

PREVENTING TAXPAYER LEAVING MALAYSIA (with effect Finance Act
gazette date)

Extended to
a) Penalty 10% on excess estimates (Company & individual)
b) Tax on amended return
c) Withholding tax on REITs

SELF AMENDMENT FOR ADDITIONAL ASSESSMENT OF INCOME TAX

Under the Self Assessment System, a tax payer declares his income and
computes tax payable in the income tax form. Where the tax payer commits an error by under-declaring his income or claiming excessive deductions or expenses, the existing provisions do not allow him to make amendments to the self-assessed return.

To enhance the Self Assessment System, it is proposed that a new provision be introduced in the Income Tax Act 1967 to allow tax payers to make self amendment for additional assessment. The conditions for self amendment are as follows:

i) Within 6 months after submission
ii) Maximum late payment 10% + 5% = 15.5% (60 days)
iii) a) income under declared b) Expenses overly claimed
iv) Once in a year assessment

WIDENING THE SCOPE OF APPEAL TO SPECIAL COMMISSIONERS OF
INCOME TAX

Form Q need to be submitted.

INCREASING THE LIMIT FOR TAX DEDUCTION ON CONTRIBUTIONS

TAX TREATMENT ON BONUS AND DIRECTORS’ FEES

Income tax on bonus and directors’ fees is based on the year such incomes are receivable. However, generally bonus and directors’ fees are received in the following year. Hence, the tax payer will declare the bonus and directors’ fees in the year such incomes are received. This involves a review of income tax for previous years of assessment.

In line with Self Assessment System, it is proposed that bonus and directors’ fees be taxed in the year such incomes are received.

Effective from YA 2009

REVIEW OF INCOME TAX TREATMENT ON ALLOWANCES, BENEFITS IN KIND AND PERQUISITES

Benefit in kind tax exempt ( YA 2008 – YA 2010)
i.     petrol card or petrol allowance or travel allowance between the   home
      and work place up to RM2,400 a year;
ii.    petrol card or petrol allowance or travel allowance and toll card for
      official duties up to RM6,000 a year;
iii.   allowance or fees for parking;
iv.   meal allowance;
v.   allowance or subsidies for childcare of up to RM2,400 a year;
vi.   telephone and mobile phone, telephone bills, pager, personal data
      assistant (PDA) and internet subscription;
vii.  employers’ own goods provided free of charge or at discounted value
      where the value of the discount does not exceed RM1,000 a year;
viii. employers’ own services provided free or at a discount   provided such
      benefits are not transferable;
ix.  subsidies on interest on loans totaling up to RM300,000 for housing,
      passenger motor vehicles and education. The exemption be given to
      existing and new loans;
x.   medical benefits exempted from tax be extended to include expenses
      on maternity and traditional medicines; and
xi.  existing perquisites be extended to awards related to innovation,
      productivity and efficiency such as the Six Sigma Award and the
      exemption be increased from RM1,000 to RM2,000 a year.

The above exemptions are not extended to directors of controlled companies, sole proprietors and partnerships.