Budget 2012 questions & answers

The PwC team answers questions from readers on the RPGT rate hike, compensation for late payment of tax refunds, Reinvestment Allowance incentive and other incentives for  the automotive industry, expatriates and individual owners of budget taxis.

Q: The Real Property Gains Tax (RPGT) rate was increased from 5% to 10%. Is it effective immediately from the date the sales & purchase (S&P) agreement is signed or after Jan 1, 2012?

A: The increased RPGT rate of 10% is applicable for disposal of properties starting Jan 1, 2012, for S&Ps signed on or after that date. However, in circumstances where the disposal of property is conditional and requires the Government's approval, state government or an authority/committee appointed by the Government or state government, the date of disposal will be the date when all such conditions are satisfied and not when the S&P is signed.

 

Q: From the budget, houses sold within one to two years will be imposed an RPGT rate of 10%. However, I am not a speculator and I have reasons to sell it (which can be substantiated). Can I be exempted from RPGT?

A: Although you may have valid reasons to substantiate that you are not a speculator, RPGT at 10% would still be applicable if you dispose of your property on or after Jan 1, 2012 within two years of acquisition. However, in general, the proposed increase in RPGT rate will not burden genuine property owners as the following exemptions are available:

• Gains arising from disposal of one unit of residential property once in a lifetime by an individual who is a citizen or permanent resident of Malaysia;
• Gains from disposal of property between parent and child, husband and wife, grandparent and grandchild and
• Exemption up to RM10,000 or 10% of the net gains, whichever is higher, for an individual.

In addition, RPGT is only chargeable on net gains after all related costs such as purchase price, enhancement costs to the building and incidental costs (e.g. legal fees and stamp duty) are taken into account.

 

Q: Finally, taxpayers are compensated for late payment of tax refunds. Is the compensation given to both companies and individuals and how are they calculated? Does it cover all types of tax repayable from the Inland Revenue Board?

A:Taxpayers eligible for the compensation are salaried individuals, individuals with business income and companies who have filed their tax returns before the expiry of the stipulated due date as stated below:

• Salaried individuals not later than April 30.
• Individuals with business income not later than June 30.
• Companies not later than seven months from the expiry of the accounting period.

 The proposed 2% (per year) compensation which is effective from year of assessment 2013 is calculated on a daily basis commencing one day after 90 days from the due date for those who use e-Filing and 120 days from the due date for those who do it manually. Therefore, a tax refund due of RM1,000 which is refunded 160 days late will be entitled to a compensation payment of RM8.77 (RM1,000 x (160 / 365) x 2%).

The compensation is only applicable to refunds of income tax overpaid and not other taxes such as RPGT. It is also not applicable to those who failed to furnish a tax return for a year of assessment, filed their tax returns late and those who appeal against an assessment. The refund is also not applicable in respect of excess amount repayable arising from tax credits deducted at source from dividends.
 

Q: I am an expatriate from the United Kingdom working in Malaysia. Currently, I am entitled to Employees Provident Fund's (EPF) contributions. I heard that I could withdraw a portion of the EPF to purchase a house. Will I be taxed upon withdrawal?

A: An expatriate can participate in the EPF on an election basis. The expatriate and the employer, electing for voluntary contribution, would contribute to the EPF at the minimum statutory rate of 11% (for the expatriate) and minimum monthly sum of RM5 (for the employer). Currently, the expatriate making voluntary EPF contributions is not allowed to make withdrawals to purchase a house. However, the budget recognises the contributions of expatriates to the economic development of the country. Therefore, it has been proposed that similar to the EPF rules applicable on Malaysians, the expatriate employee is now able to withdraw from Account 2 for the purchase of a house. Any withdrawal from the EPF is exempted from tax.

 

Q: I represent a company which owns a fleet of budget taxis. My company intends to purchase new budget taxis. Can I enjoy the proposed sales tax exemption on budget taxis?

A: The 2012 Budget announcement proposes that only individual owners of budget taxis (and hire cars) are eligible for the proposed sales tax exemption on budget taxis and hire cars, effective Oct 8, 2011. It appears that company-owned budget taxis (and hire cars) are not eligible for the sales tax exemption. However, any person (whether company or individual) who is granted a taxi-cab licence or hire-car licence would continue to be eligible for excise duty exemption on such vehicles, subject to conditions gazetted in the law.

 

Q: Our company is a manufacturing company and has been claiming Reinvestment Allowance (RA) incentive since year of assessment 1999 and we were made to understand that 2012 will be the last year for our company to claim the incentive. Is there any extension to RA incentive announced in 2012 Budget?

A: A company is eligible to claim RA incentive for a period of 15 consecutive years from the year the first claim was made. There was no announcement on extension of this 15-year eligibility period. However, there are some amendments made to the RA incentive which the company may wish to be aware of especially with regard to the more restrictive definition of “factory” for RA incentive purposes which will take effect from year of assessment 2012.

Previously, the definition of factory was not legislated although Public Ruling 2/2008 provided that the literal meaning should be adopted. “Factory” is now defined within the legislation, to mean portion of floor areas of a building or extension of a building used to place or install plant or machinery or store of raw material, goods or materials manufactured prior to sale.

Area used for storage will qualify as factory only to the extent that it is not be more than one-tenth of the total floor areas of that building or extension. Other changes include excluding a company from claiming the RA incentive if in the same year, it is also granted the approval for Investment Tax Allowance incentive (with effect from year of assessment 2011) and rationalisation of RA incentive in respect of promoted areas (with effect from year of assessment 2012).

 

Q: For hybrid cars and electric cars, the Government has proposed to extend import duty and excise duty exemption for another two years i.e. until Dec 31, 2013. Why hasn't it reduced the sales tax burden on hybrid cars and electric cars?

A: Although the Government has not granted sales tax exemption on hybrid cars and electric cars, the exemption of import duty and excise duty will result in reduction of sales tax.

 

The PwC team answers questions from readers on incentives for senior citizens, tertiary students, households earning less than RM3,000 per month and other tax benefits to stimulate the economy.

Q: What is there in the budget for senior citizens (pensioners and non-pensioners alike) who represent nearly 10% of the population?

A: Senior citizens aged 60 and above will no longer be required to pay for any outpatient registration fees in all government hospitals, health clinics (including 1Malaysia clinics) as well as government dental clinics. In addition, senior citizens are entitled to a 50% discount on LRT and monorail fares.

Poor senior citizens will also receive an assistance of RM300 a month from the 1Malaysia Rakyat's Welfare programme (KAR1SMA).

Government pensioners will receive RM500 assistance and an annual pension increment of 2% effective from 2013.

 

Q: My father is 75 years old and I understand that senior citizens can get a monthly RM300 assistance. How can I claim the allowance for him?

A: Based on the budget speech, the RM300 monthly assistance is only available to poor senior citizens. Details of the criteria and procedure to claim the said allowance will be given in due course.

 

Q: I am single. I live with my mother and brother. Am I eligible for the RM500 incentive if my household income is less than   RM3,000 per month? If yes, how do I apply for this? How does the Government define a household and how do you determine the household's total monthly income?

A:A household with a monthly income of RM3,000 and below will be eligible for the RM500 cash assistance.

A household is defined as a domestic unit consisting of members of a family who live together. So a family of five comprising father, mother and two sons, of whom one of the sons is married and living together with the family will still be considered as one household.

Total household income is determined by aggregating the incomes of the members of the household. For example, a household that has an employed father with a monthly income of RM1,500 and a son who is also employed with a monthly income of RM1,000 will have a total household income of RM2,500. As such, they will be eligible for the RM500 incentive which will be done through banks and post-offices.

To claim the incentive, the head of each household must be registered with the Inland Revenue Board. While the “head of household” is not defined, it would generally be the individual who is responsible for the well-being of the household.

More details of the procedure to claim this incentive is expected to be given in due course.

 

Q: A book voucher of RM200 will be given to students of higher learning in public and private higher institutions in the country. Can you explain how to claim the book voucher? Does it apply to Malaysian undergraduates who are studying overseas or are about to start their degree programme overseas?

A: The one-off cash assistance in the form of a book voucher worth RM200 will be given to all Malaysian students attending public and private local institutions of higher learning, matriculation as well as Form Six.

The authorities will issue further details on how Malaysian students can claim the voucher soon.

 

Q: Please explain more on the private retirement scheme (PRS) and the benefits for a company to set up this scheme.

A: The PRS (previously known as Private Pension Fund) was introduced by the Government last year to benefit private sector employees, to allow the self-employed to have enhanced savings to tide them over the retirement years and encourage robust growth in the Malaysian capital market.

The Capital Markets and Services (Amendment) Act 2011 was legislated recently to provide the legal framework and administration of the PRS. As a scheme regulated by the Securities Commission (SC), the PRS will allow:

• employees with sufficient financial resources to make additional voluntary contributions to supplement their retirement savings, within a well-structured and regulated environment; and
• provide the self-employed and those outside the current pension system a means of enhancing their post-retirement income.

The PRS will benefit employers who wish to make voluntary contributions in addition to the mandatory Employees Provident Fund (EPF) contribution. We believe that the mechanics as to how an employer can participate in the PRS will be addressed through a guideline soon.

From a corporate standpoint, income received by PRS is now tax exempt. On top of that, employers who make contributions to the PRS on behalf of their employees are allowed to claim tax deduction on the amount of contribution made (up to 19% of employees' remuneration).

The 19% threshold includes contributions that the employers already make to EPF and other approved schemes.

So, if an employer is already making a statutory contribution of 12% to the EPF for their employees and would like to make additional contributions to the PRS of 10%, the employer is only eligible to claim corporate tax deduction on the PRS contribution of 7% of the employee's remuneration.
 

Q: Can you please highlight to me the additional personal relief(s) if any, under Budget 2012?

A: Budget 2012 saw the introduction of just one additional tax relief for the individual taxpayer. This new relief is an expansion of the existing relief granted for life insurance premiums and EPF contributions. Currently, an individual may claim relief up to:

• RM6,000 on contributions to EPF and life insurance; and
• an additional RM1,000 for deferred annuity scheme premiums.

An individual may now claim an additional relief of up to RM3,000 for contributions made to a PRS which is approved by the SC. However, the current tax relief of RM1,000 for deferred annuity scheme premiums is now included as a component of the proposed maximum relief of RM3,000 for contributions to the PRS. 

According to the Budget 2012 announcement, this new relief is limited to only 10 years.

Exemption is accorded on withdrawals of contributions from the PRS by employees upon maturity or reaching the mandatory retirement age. Any withdrawals made prior to fulfilling these conditions will be taxed.
 

Q: I would like to know how tax deduction for donations to places of worship and government schools works, i.e. whether it is a deduction after the computation of tax liability (like zakat for individuals) or deduction from the chargeable income?

A: Currently, financial contributions to approved institutions or organisations which have been granted tax-exempt status are given tax deductions. Budget 2012 has extended the tax-exempt status facility to registered places of worship.

Educational institutions have all along been included in the list of eligible institutions that will be considered for tax exemption, but Budget 2012 indicated that the Government would expedite the tax-exempt status approval for these institutions.

Once the tax-exempt status is granted, tax deductions will be allowed for financial contributions made to these institutions.

The tax deduction is calculated against the aggregate of statutory income from business and non-business sources (after adjustment for any carry-forward losses) as an approved donation before arriving at chargeable income.

For companies, a deduction of up to 10% of aggregate income is allowed. On the other hand, for individuals, deductions of up to 7% of the individual's aggregate income is allowed. Do note that the deduction limit is inclusive of other approved donations.

 

Q: Is there a 5% sales tax on car price, inclusive of all duties?

A: Generally, completely built-up (CBU) cars are subject to a 10% sales tax rate. Sales tax is levied on the value of CBU cars, inclusive of import duty and excise duty. With the exemption of import duty and excise duty on new CBU hybrid and electric cars, the sales tax paid will be lower.

 

Q: When will Malaysia enlarge its tax base, like most countries in the world today, with a goods and services tax (GST)? Do we have the systems and proper machinery to activate this GST?

A: Although not mentioned in the Budget 2012 speech, the Government has announced in the past that a broad-based consumption tax, i.e. GST, will be implemented in Malaysia to replace the current narrow-based consumption taxes of sales tax and service tax.

However, the definite GST implementation date has yet to be announced. The Government has indicated that it wants to ensure greater public acceptance of GST before it is implemented. Businesses and the public will be given a lead time of 12 to 18 months from the next official announcement by the Government on GST to prepare for its implementation.

In the meantime, the Government primarily through the Tax Review Panel of the Finance Ministry and the Royal Malaysian Customs Department is continuing its efforts to ensure that proper systems and machinery are in place, ready for GST implementation. 

  

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