Budget 2013 questions & answers

PwC Malaysia provided a two-part question-and-answer series on various aspects of Budget 2013. Click on the links below to read our answers.

This is the first of a two-part Q&A provided by PwC on various aspects of Budget 2013. Part two will appear tomorrow.

As a property developer, I noticed that there are several abandoned housing projects in the Klang Valley. Are there any tax incentives available if I were to undertake to revive one?

Yes. A double tax deduction is given on interest expense and all costs involved in obtaining loans to revive the abandoned project. In addition, stamp duty exemption is also given on the transfer of land or houses and loan agreements to finance the abandoned projects.

As an employer, I would like to improve the well-being of working parents in my organisation. Are there any additional incentives as announced in the recent budget?

The tax incentive has been enhanced to give a double deduction on expenses for the provision and maintenance of child care centers and childcare allowansce given to employees, as compared with the single deduction granted previously.

The budget speech mentioned that to encourage companies to issue retail bonds and retail sukuk, tax deductions are available on these. What is the tax deduction given?

A double tax deduction will be given on expenses incurred on the issuance of retail bonds and retail sukuk. Examples of such expenses include rating rationale fee, underwriting and placement fees, facility agency fee, advertising cost and cost of printing prospectus. The double deduction is given for a period of 4 years effective from year of assessment 2012 to 2015.

An additional double deduction on sukuk issuance costs is also given to promote funding in the agricultural sector (subject to receiving approval from Securities Commission or Labuan Financial Services Authority).

Besides the double tax deduction, stamp duty exemption is also given on instruments relating to the subscription of retail sukuk and retail bonds executed by individual investors for instruments executed from Oct 1, 2012 to Dec 31, 2015.

I got married recently and am planning to buy a house. I am keen to know what Budget 2013 has in store for me.

As announced during the budget speech, for first time house buyers, the current 50% stamp duty exemption on the purchase of first residential property will be extended to Dec 31, 2014 (from Dec 31, 2012). This is for sales and purchase agreements executed between Jan 1, 2013 to Dec 31, 2014. In addition, the price of the residential property has been raised to properties not exceeding RM400,000.

I heard that the relief for deposits by an individual for his child into the Skim Simpanan Pendidikan Nasional account established under the Perbadanan Tabung Pendidikan Tinggi Nasional Act 1997 has been increased from RM3,000 to RM6,000. I deposited RM10,000 in one year but withdrew RM5,000. Will I still be entitled to the RM6,000 relief? My wife, on the other hand, deposited another RM6,500 for the same child in the same year. Can she get a deduction on the deposit made as well?

Only the net deposit would qualify for the relief, ie total deposit for the year less the withdrawal made. Therefore, in this case, only RM5,000 relief will be allowed instead of RM6,000. If your wife is filing her own tax return, she would be able to claim the RM6,000 relief for the deposits made by her for that year.

Do also take note that the increased relief is only applicable for years of assessment 2012 to 2017.

I have two children, both above 18 years of age and studying outside Malaysia. My first child is studying at the diploma level in the UK while my second child is pursuing a Master’s degree in the United States. Do I get the maximum child relief of RM6,000 for each of my children?

For children studying outside Malaysia, the maximum child relief of RM6,000 is only allowed if your child is studying at degree level (including a degree at Master or Doctorate level) or the equivalent of a degree. Therefore, in this case, you are entitled to RM1,000 relief for your first child and RM6,000 relief for your second child.

My company encourages me to contribute towards the Private Retirement Scheme (PRS) to support me for my future retirement, and to make the most of the additional RM3,000 relief on top of the RM6,000 relief which I am currently entitled to for my contribution towards the Employees Provident Fund. I am happy to contribute but I want the flexibility of withdrawing my contributions should the need arise. Can I withdraw from my PRS as and when I like? Are there any repercussions?

You may be aware that only 30% of your PRS savings can be withdrawn flexibly. Also, the amount withdrawn would be subject to a flat income tax rate of 8% on every ringgit of the contribution withdrawn, if the withdrawal is made before you are 55 (other than by reason of death or permanently leaving Malaysia).

The PM did not mention an implementation date for the goods and services tax (GST). Does this mean that the tax is not coming?

Even though there was no direct mention of GST, the Prime Minister reiterated that the tax system of Malaysia would continue to be reviewed with the objective of introducing a fairer tax system. This reference would suggest that GST remains a strategic policy for the government.

In response to concerns that GST would be inflationary, it would appear that the Prime Minister is preparing the lower and medium income groups for the tax when he announced a 1% reduction in personal income tax rates on bands of income between RM2,500 and RM50,000.

This measure, along with information programmes, education and extensive consultations, also appear to be preparatory steps for the introduction of GST in the near future.

This is the second part of a two-part Q&A provided by PwC on various aspects of Budget 2013.

Will the introduction of Goods & Services Tax (GST) impact the cost of living for the rakyat?

In drafting the legislation, the Government has considered the lower income groups and has proposed that the tax will not apply to basic essentials. Similarly education, healthcare, life insurance, loans and public transportation will not be taxed.

At present, some goods and services are subject to 10% sales tax and 6% service tax. With the removal of these, to be replaced with a proposed 4% GST, the cost of living is not expected to increase. What it would do, is change the way we pay tax to a more comprehensive and fair system. The Government has implemented the Price Control and Anti Profiteering Act in 2011. This is seen as an important step to keep inflation in check.

I am an operator of a private childcare centre. Do I qualify for any tax incentives?

Yes. New and existing operators of private childcare centres are give a tax exemption on income for a period of 5 years and Industrial Building Allowance at an annual rate of 10% for buildings used as childcare centres. The centres must be registered with the Social Welfare Department.

I have registered for Bantuan Rakyat 1Malaysia (BR1M) the last round. I heard that the Government has announced BR1M 2.0. Do I need to register again?

No. You do not need to register again. For new applicants, you may register commencing November 2012 online or at the State Development office, District Offices and Inland Revenue Board offices nationwide.

What is the difference between the new BR1M 2.0 and the previous BR1M?

Both initiatives are available to households where the head of the household earns less than RM3,000. BR1M 2.0 has also been extended to unmarried individuals aged 21 and above, who are earning not more than RM2,000. The assistance provided under BR1M 2.0 is RM250.

I purchased a new condominium last year and recently I have received requests from property agents to buy my condominium. Should I sell my property now?

If you were to sell the condominium before Dec 31, 2012, you would be imposed Real Property Gains Tax (RPGT) at the rate of 10%. This rate is increased to 15% effective from Jan 1, 2013 for disposals within two years. However, if you chose to sell the property after five years, you will not suffer any RPGT.

In addition to that, RPGT exemption would also be applicable in the following scenarios for owners who are not profit motivated and not involved in speculation:

  • Disposal of one residential property once in a lifetime;
  • Up to RM10,000 or 10% of the net gains from the disposal of property, whichever is higher; and
  • Disposal of property between husband and wife, parents and children, grandparents and grandchildren.

I am a venture capitalist who holds investments in various companies. I understand that a new incentive had been announced in the recent Budget. How would this new incentive benefit me?

Prior to this, you would only be granted deduction on the total value of your investments against your business income. Should you qualify for this new incentive, the deduction would now be granted against all your income. This incentive is effective for applications received by the Finance Ministry from Jan 1, 2013 to Dec 31, 2017.

I will be leaving my current company and they will be paying me gratuity of RM50,000 as a token of appreciation for the number of years that I have worked with the company. Will I be taxed on the gratuity payment and if yes, how will I be taxed? I am afraid that I would have to pay higher tax as my tax bracket will increase due to the huge sum.

Gratuity is part of employment income which is taxable on the individual. In this case, firstly you need to determine whether there is any income tax exemption applicable on the gratuity, i.e. the gratuity is received due to retirement and upon reaching the retirement age of 55 years and 10 years of service within the same company/group of companies.

If the above exemption is not applicable, the taxability of the gratuity payment will be spread back five years, i.e. it will be proportionately taxable as income for the year of receipt and the four preceding years, i.e. taxed equally at RM10,000 for each year of assessment in 2012, 2011, 2010, 2009 and 2008.

For the past eight years, I received about RM18,000 (net of allowable expenses) from renting out my condominium but I have never reported this income in my annual tax return form. Is it safe to say that the Inland Revenue Board could not go after me after six years of not reporting the income?

Under the open year system, the director general (DG) could make an assessment or additional assessments in that year, or within five years after expiration of that year, if they determine that an individual has been under-reporting his income for that year. In your case, however, this five-year limitation would not apply as this failure would fall under false declaration, willful evasion and negligence.

Therefore, there is no limitation to the number of years. And the DG could raise an assessment or additional assessments for the under-reported rental income for the past eight years.

Currently I am earning more than RM150,000 per year and my chargeable income after taking into account the applicable relief and rebates is RM122,000. Do I benefit from the 1% decrease in the individual tax rate?

If your chargeable income is more than RM100,000, your income will be subject to the maximum tax rate of 26% but you will still benefit from the 1% decrease in the individual tax rate. Based on the proposed reduction in the tax rate, for the first RM100,000 income chargeable to tax, the tax payable has decreased from RM14,325 to RM13,850, which is a reduction in tax payable amounting to RM475.00.

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