Budget 2009 Q&A (Part III) : Closer look at tax exemptions

This is the third of a three-part question-and-answer series on various aspects of Budget 2009.
Q1: I use public transport like trains, buses and taxis. How do I claim the RM2,400 petrol and travel allowances? Do I use the ticket and petrol purchase receipts for the year?

You are given a tax exemption of up to RM2,400 a year if your employer pays you a travel allowance that means this benefit will not be declared in your tax return. If the travel allowance paid is less than RM2,400 a year, then the exemption is the actual amount of travel allowance paid. Please note that the exemption is applicable for years of assessment 2008 to 2010.

I would like to get further clarification on the following:

  1. Does the designation of person in an organisation have an influence in obtaining the RM6,000 and RM2,400 travel allowance exemption?
  2. Does the EA form have to segregate allowances related to official and non-official duties?
  3. What if there is no such segregation and whatever travel allowance given is for both official and non-official travels, with total travel allowance being more than RM8,400 per annum?

The travel allowance exemption is extended to all employees except directors of controlled companies, sole proprietors and partnerships.

Prior to 2008, the travel allowance without the support of actual receipt to prove business travel will be fully taxable. Budget 2009 proposes that such travel allowance would be exempted. This means that employers and employees can do away with the hassles of administering employee claims segregating business and personal travels and documenting nature of work during the tax return preparation stage. Any amount above the maximum allowed exemption for home to work travel and petrol allowances of RM2,400 and RM6,000 respectively will be taxable.

Q2. There is insufficient parking space in my building and therefore, my employer pays for my parking fees in the nearby parking area. In the past, I have been paying taxes on them. Will I still be taxed under the budget proposal?

Under the budget proposal, fees for parking paid by the employer are exempted from tax from year of assessment 2008.

Q3. I will be starting a new small business next year and would like to know the incentives available to the small and medium-sized enterprises (SMEs).

Budget 2009 announced the following tax incentives for SMEs:

  • Two new funds totalling RM1.2bil, funded by Bank Negara, has been set up to assist the modernisation of SME operations, especially for the purchase or upgrading of machines and equipment.
  • All plant and machinery acquired in years of assessment 2009 and 2010 will be given 100% capital allowance.
  • 100% capital allowance will be given to assets with value not exceeding RM1,000 each without any restriction to the total value of such assets.
  • In addition, 100% capital allowance on expenses incurred on information and communication technology equipment from year of assessment 2009 to 2013.

Apart from the above, the following incentives are currently enjoyed by SMEs:
  • Exemption from submitting tax estimates as well as paying instalments for the first two years of assessment.
  • Income tax is levied at a reduced rate of 20% on the first RM500,000 of chargeable income and the remaining at the prevailing corporate tax rate (26% for year of assessment 2008 and 25% for years of assessment 2009 onwards).

Please note that Budget 2009 proposes a requirement that all the controlled companies within the same group as the SME have issued ordinary share capital of less than RM2.5mil effective from year of assessment 2009 to enjoy the above incentives (year of assessment 2010 for exemption to submit tax estimate). To assist new businesses, Budget 2009 also proposes that the cost of recruiting workers such as expenses incurred in participation in job fairs, payment to employment agencies and head-hunters before the start of operations be allowed as a tax deduction.

Q4: What is the Advance Pricing Arrangement (APA) announced in this year’s Budget? How will it benefit multinational organisations like mine in terms of transfer pricing?

An APA is an agreement between the taxpayer and one or more tax authorities on the taxpayer’s transfer pricing methodology. Such an agreement is formed to resolve any uncertainties covering cross-border transactions, agreements or arrangements between related parties and the potential double taxation, by allowing the taxpayer and tax authorities to address and resolve international transfer pricing issues on a prospective basis. An APA will provide the taxpayer with certainty and comfort on the transfer pricing methodology applied


This article first appeared in The Star, StarBiz 2 September, 2008.