In this article, Yeoh Yu Xian sets out the key highlights from Malaysia’s 2021 budget.
On 6 November 2020, the Malaysian Minister of Finance, Tengku Datuk Seri Zafrul Tengku Abdul Aziz, unveiled the Malaysian Budget 2021 (“Budget”). This Budget’s allocation of RM 322.5 billion is the largest on record for the country1.
Individual income tax rate
It was proposed in the Budget with effect from the year of assessment (“YA”) 2021, the income tax rate for resident individuals within the chargeable income band of RM50,001 to RM70,000 be reduced from 14% to 13%. Please note that this Budget proposal has now been implemented vide the Finance Act 2020.
Income tax relief (Please note that the following Budget proposals relating to income tax relief have now been implemented vide the Finance Act 2020.)
- Increase in limit of income tax relief on expenses for medical treatment, special needs and carer for parents
Previously, individual taxpayers were eligible to claim income tax relief of up to RM5,000 in regard to expenses for medical treatment, special needs and carer for parents. It was proposed that with effect from YA 2021,such income tax relief be increased from RM5,000 to RM8,000.
- Review of income tax relief for medical treatment expenses for self, spouse and child
Previously, individual taxpayers were eligible to claim income tax relief up to RM6,000 on medical expenses incurred on self, spouse, and child for serious diseases.
It was proposed that with effect from YA 2021:
− such income tax relief be increased from RM6,000 to RM8,000. The tax relief for full medical check-up expenses included in this amount will be increased from RM500 to RM1,000; and
− the scope of the relief be expanded to include expenses incurred for specific vaccinations for pneumococcal, human papillomavirus (“HPV”), influenza, rotavirus, varicella, meningococcal, combination of tetanus-diphtheria-acellular-pertussis (“Tdap”) and Coronavirus Disease 2019 (“COVID-19”).
- Increase in the limit of income tax relief for disabled spouse
It was proposed that with effect from YA 2021, individuals with a disabled spouse will be eligible for additional tax relief whereby the relief will be increased from RM3,500 to RM5,000.
- Review of income tax relief for lifestyle expenses
Previously, individual taxpayers were eligible to claim income tax relief for lifestyle expenses up to RM2,500 on the purchase of reading materials, personal computers, smartphones/tablets, internet subscriptions, sports equipment and gymnasium membership fees.
It was proposed that with effect from YA 2021:
− the income tax relief limit for lifestyle expenses be increased to RM3,000 in which the additional amount of up to RM500 is allocated for the cost of purchasing sports equipment, entry/rental fees for sports facilities and participation fees in sports competitions; and
− the scope of relief to the extent that it applies to printed daily newspapers be expanded to include the subscription for electronic newspapers.
INCOME TAX EXEMPTION
- Tax exemption on compensation for loss of employment
It was proposed that for YAs 2020 and 2021, the income tax exemption limit for compensation for loss of employment be increased from RM10,000 to RM20,000 for each year of service. Please note that this Budget proposal has now been implemented vide the Finance Act 2020.
- Tax incentive for investments in equity crowdfunding
Equity Crowdfunding (“ECF”) is an alternative financing method which complements bank financing and provides access to financing resources to start-up companies to meet their needs for capital injection at various stages of development.
It was proposed that income tax exemption on aggregate income equivalent to 50% of the investment amount be given for investments made from 1 January 2021 until 31 December 2023 subject to the following conditions being met:
− the exemption is limited to RM50,000 for each YA;
− the deduction is limited to 10% of the aggregate income for that YA;
− the investor must not have any family relationship with the investee company;
− the investment must be made through an ECF platform approved by the Securities Commission Malaysia;
− the investor, investee company and amount of investment made must be verified by the Securities Commission Malaysia; and
− the investment must not be disposed of either in full or in part within two years from the date of the investment.
Please note that the relevant subsidiary legislation to implement this Budget proposal has yet to be gazetted at the time of finalisation of this article.
STAMP DUTY EXEMPTION
- Stamp duty exemption for the purchase of first residential home
Previously, a 100% stamp duty exemption was available for instruments of transfer and loan agreements for the purchase of the first residential home priced up to RM300,000 by Malaysian citizens.
It was proposed that the stamp duty exemption be enhanced to cover the purchase of first residential home priced up to RM500,000 where the sale and purchase agreement is executed between 1 January 2021 to 31 December 2025. Please note that the relevant subsidiary legislation to implement this Budget proposal has yet to be gazetted at the time of finalisation of this article.
- Imposition of excise duty on electronic cigarette
Previously, electronic cigarettes including vapes were not subject to excise duty.
It was proposed that with effect from 1 January 2021:
− excise duty at the rate of 10% will be imposed for all types of electronic and non-electronic cigarette devices including vapes; and
− excise duty at the rate of RM0.40 per mililiter will be imposed for liquid or gel used in electronic cigarettes including vapes.
Please note that this Budget proposal has now been implemented vide the Excise Duties (Amendment) Order 2020 [P.U.(A) 417/2020].
- Expansion of the scope of imposition of tourism tax on accommodation booked through online platforms
Previously, tourism tax was only imposed on tourists (excluding Malaysian tourists and permanent residents) staying in accommodation premises registered under the Tourism Tax Act 2017 at a flat rate of RM10 per room per night.
To support the recovery of the tourism sector affected by the COVID-19 pandemic, tourism tax has been exempted from 1 July 2020 until 30 June 2021.
It was proposed that with effect from 1 July 2021, the imposition of tourism tax be expanded to accommodation premises reserved through online platform providers as well. Please note that the Tourism Tax (Amendment) Act 2020/2021 to implement this Budget proposal has yet to be gazetted at the time of finalisation of this article.
Other amendments proposed vide Finance Bill 20202 (Please note that these proposed amendments have now been implemented vide the Finance Act 2020.)
- Tax payable notwithstanding institution of proceedings under any other written law
It was proposed that a new Section 103B be inserted into the ITA so that with effect from 1 January 2021, the institution of any proceedings under any other written law against the Government or the Director General of Inland Revenue (“DGIR”) shall not relieve any person from liability for the payment of any tax, debt or other sum for which he is or may be liable to pay.
Similar provisions were also proposed in the Real Property Gains Tax Act 1976 (Section 21C), Petroleum (Income Tax) Act 1967 (Section 48A) and Labuan Business Activity Tax Act 1990 (Section 13B).
- Failure to furnish contemporaneous transfer pricing (“TP”) documents
Previously, there was no provision in the Income Tax Act 1967 (“ITA”) to penalise taxpayers for failure to furnish contemporaneous TP documentation.
It was proposed that a new Section 113B be inserted into the ITA so that with effect from 1 January 2021:
(a) any person who makes default in furnishing contemporaneous TP documentation in respect of any YA within the stipulated timeframe shall be guilty of an offence and shall, on conviction, be liable to a fine between RM20,000 and RM100,000 or to imprisonment for a term up to six months or both;
(b) upon conviction, the court may make a further order for the said TP documentation to be furnished within 30 days (or such other period as the court deems fit) from the date of the order; and
(c) if no prosecution has been instituted in respect of the default in furnishing contemporaneous TP documentation, the DGIR may by notice in writing or in the notice of assessment require that person to pay a penalty of between RM20,000 and RM100,000. The taxpayer may appeal against this to the Special Commissioners of Income Tax within 30 days.
The word “plant” was not defined in the ITA and the determination of whether an asset amounts to a “plant” for the purposes of claiming capital allowances has always been made by reference to case law and the facts of each case.
It was proposed that with effect from YA 2021, the word “plant” is to be defined as follows: “an apparatus used by a person carrying on his business but does not include a building, an intangible asset, or any asset used and that functions as a place within which a business is carried on”.
- Definition of “chargeable profits”
The phrase “chargeable profits” was not defined in the Labuan Business Activity Tax Act 1990 (“LBATA”).
It was proposed that with effect from YA 2020, the “chargeable profits” of a Labuan entity carrying on a Labuan business activity for the purposes of Section 2B(1A) of the LBATA shall be the “net profits as reflected in the audited accounts in respect of such Labuan business activity of the Labuan entity for the basis period for that year of assessment”.
It was also proposed that the stamping of instruments through an electronic medium or digital stamping be recognised under the Stamp Act 1949.
For further information regarding tax and revenue matters, please contact our Tax and Revenue Practice Group.