Budget 2009 Q&A (Part II): Encouraging CSR

Currently, a tax deduction is given for businesses incurring expenses on charitable or community projects approved by the Minister of Finance. The tax deduction is given for contributions made towards charitable or community projects relating to education, health, housing, infrastructure, and information and communication technology.

The Government has now proposed in Budget 2009 that the scope of charitable and community projects eligible for tax deduction be extended to include projects relating to increasing the income of the poor as well as for the conservation or preservation of the environment. Please note that to claim a tax deduction for such expenditures an application has to be made and approved by Minister of Finance.

In addition to the aforesaid enhancement, it is also proposed in the Budget that the maximum allowable tax deduction for companies contributing cash donations to approved institutions, organisations or funds for charitable purposes be increased to 10% of the aggregate income.

This is compared with the current maximum allowable deduction of 7% of the aggregate income. It should be noted, however, that this increase in percentage of maximum deduction only applies to companies and not individuals. For individuals, the current restriction of 7% of the aggregate income is still applicable.

Q2: I realised I have made a mistake in my income tax form after the tax submission deadline. Can I still re-submit my tax returns? Will I be penalized for the mistake?

Taxpayers are now allowed to amend their tax returns submitted without incurring any penalty for the under-declaration of income or over-claim of deductions in the original tax return submitted. This is provided that the amended returns are made within a period of 6 months from the due date.

However, the amendment is only allowed once and any penalty for late payment of any additional tax arising from the amendment will still be applicable.

Q3: I am a pensioner and have investments in Real Estate Investment Trust (Reit). Are there further enhancements to the incentives for Reit?

The income distribution you receive from your investment in Reit is currently taxed at 15%.

To increase the attractiveness of Reits, it is proposed that the withholding tax rate for distributions from Reit be reduced from 15% to 10% for non-corporate resident individuals and non-resident individuals including pensioners like you, and from 20% to 10% for foreign institutional investors.

Q4: My bonus is received in arrears and I was always told to submit a revised tax return to account for the bonus which is quite cumbersome. I understand that this is no longer required under the recent Budget. Can you please confirm?

It is proposed that bonus and directors fees are to be treated as income in the year of receipt and taxed accordingly regardless of the period the income is attributed to.

Effective from year of assessment 2009, you are no longer required to revise your prior years’ tax return when you receive bonus in relation to prior years.

Q5: In 2007, I received an Excellence Award of RM1,800 for my contribution to the company in increasing its productivity and efficiency. I have been nominated to receive this award again this year. How will this award be taxed differently?

Prior to 2008, an excellence award is exempted from tax up to RM1,000 per year. The excess of RM800 would be taxable.

However, under the proposed legislation, the exemption has been increased to RM2,000 per year, and therefore your Excellence Award of RM1,800 would be fully exempted.

Q6: My company provides me a mobile phone for both business and personal use. The company even pays for my telephone bills and Internet subscription at home. How will I be taxed on this benefit?

Prior to 2008, you will be taxed on the mobile phone as part of benefits-in-kind provided by the company, while the total amount paid by the company on your telephone bills and Internet subscription would be fully taxable on you. However, with effect from year of assessment 2008, the mobile phone, telephone bills and Internet subscription paid by your employer will be exempted from tax.

Q7: I was previously made to understand by my tax agent that I would need to withhold taxes in respect of hotel accommodation and air fare expenses reimbursements made to non-residents rendering technical services to my company in Malaysia. Has there been any change to this ruling?

The tax authorities have issued a Public Ruling to include reimbursements and disbursements on technical services rendered in Malaysia by non-residents to be subject to withholding tax. It has been proposed in the Budget that reimbursements relating to hotel accommodation in Malaysia be excluded from the scope of withholding tax.

However, all other reimbursements or disbursements made in relation to the technical services rendered by the non-residents such as air fares and telephone bills would still be subject to withholding tax.

Q8: My company pays commission to its related company overseas. Do I need to deduct withholding tax?

Previously, such payment is not subject to withholding tax. However, in the 2009 Budget, it is proposed that payment of commission to non-residents will be subject to withholding tax of 10% effective Jan 1, 2009.

Q9: Malaysia has introduced the single-tier system in the last budget but my company still has Section 108 credit and intends to pay franked dividends to its shareholders. Will the shareholders still be entitled to the Section 110 tax credit?

Yes, the shareholders will still be eligible for the Section 110 credit, provided the dividend paid to them is in cash.

This article first appeared in The Star, StarBiz 1 September, 2008.