This is a three-part Q&A series on Budget 2008 (Part 2)
Q: What are the types of professionals and consultants that would be affected by the change in the service tax rules announced in Budget 2008?
A: The abolition of the previous licensing threshold of RM150,000 per annum is only applicable to certain professionals (i.e. accountants, lawyers, engineers, architects, surveyors, valuers, appraisers and real estate agents), consultants and management service providers.
These professionals and consultants would have to be licensed for service tax with effect from Jan 1 to collect service tax in respect of their income. Such businesses are advised to start the licensing process before the effective date. The current rate of service tax is 5%.
Q: Now that the Government has mandated that audit committee members fully comprise non-executive directors, will we see improved corporate governance from public-listed companies?
A: Theoretically, yes. As we know, the audit committee reports its findings and provides views to the board of directors. The tightening of the corporate governance rules to prohibit the appointment of executive directors on the AC puts in place an effective control that would promote independence of the function of the audit committee, thereby allowing for unbiased decisions by the board.
Q: I operate a company with less than RM2.5mil paid-up capital. The Budget 2008 proposed that small and medium enterprises be exempted from submitting their estimates of tax payable as well as instalment payments.
Does that mean my company now does not need to pay instalment payment of taxes but can make payments at the point of submission of my income tax returns (not later than seven months from the date of closing of accounts)?
A: According to the Budget announcement, this proposal is effective from year of assessment 2008 and is only applicable to companies commencing operations. Generally, this exemption is given for the first two years of assessment beginning from the year of assessment the company began its operations.
Therefore, this proposal is not applicable for small and medium companies that are already in business.
Q: I currently employ some disabled employees in my company. The Budget 2008 announcement mentioned that renovation costs of the workplace for disabled workers by the employer would be allowed as deduction for income tax. What type of renovation costs is allowed as a tax deduction?
A: There was no detailed explanation on the type of renovation costs of the workplace for disabled workers that would be allowed as a deduction for income tax. As described in the Budget announcement, the renovation costs will have to be in relation to the workplace and the purpose is to enable a safe and conducive working environment for disabled workers.
Q: My company is involved in developing a township, and my plan is to build access roads for the public. In line with the Budget announcement, expenses incurred in the provision of infrastructure that significantly benefit the public are allowable for income tax purposes. Will I get a deduction from this expenditure?
A: The infrastructure (such as the access road) must be used by the public and is free of charge. However, prior approval must be obtained from the Finance Minister.
Q: I am a financial controller for a public-listed company. Due to the nature of my work, my company has incurred professional indemnity insurance premium for me. I understand that although my company has incurred this insurance premium, my company is not eligible for tax deduction on such premium paid. With the Budget 2008 announcement on this professional indemnity insurance, would it make a difference to my company?
A: According to the Public Ruling No. 5/2006, premium paid on professional indemnity insurance is an expense that is not eligible for tax deduction, as the policy is taken to cover a personal liability or risk.
However, where the purchase of professional indemnity insurance is compulsory, the premium paid for purchase the minimum coverage as stated in the Act, rules or by-laws, the premium is eligible for tax deduction.
With the proposed Budget, the professional indemnity insurance premium will be allowed for tax deduction. This proposal will supersede the Public Ruling No. 5/2006.
By PwC Tax Team: Executive Director Fung Mei Lin, Managing Consultants Chee Ying Cheng, Farah Rosley and Wong Yoke Lin, Senior Consultants Chandran Ramasamy and Lee Kooi Thing.
This article was first published in The Star on 10 Sept 2007
