14. Industrial Building Allowance for Buildings Constructed
on a Build-Lease-Transfer Basis [New Paragraphs
16A and 67B Schedule 3]
The Finance Bill seeks to introduce new provisions which cater
for cases where pursuant to an agreement with the Government, a person constructs
a building on a build-lease-transfer basis. The building, subject to the approval
of the Minister of Finance, will be regarded as an industrial building qualifying
for industrial building allowance (IBA). The IBA to be given shall consist of an
initial allowance of 10% and an annual allowance of 6% or such other rate as may
be prescribed. The annual allowance is given provided that at the end of the basis
period for a year of assessment, the building was on lease to the Government.
Any compensation received will reduce the residual expenditure
for IBA purposes and the disposal value of the asset will be treated as zero when
the agreement with the Government expires or is terminated.
The above proposal is to be effective from year of assessment 2000
(preceding year basis).
15. Tax Treatment on Interest-in-Suspense
In the 1999 Budget, it was proposed that for the years
of assessment 1999 and 2000, 50% of the interest-in-suspense shall not be considered
as income for income tax purposes and will only be taxed when it is received. This
proposal has yet to be gazetted.
To reduce the tax burden of financial institutions, it is proposed
that for the year of assessment 2000 (current year basis), 100% of the interest-in-suspense
be deemed as a specific provision for bad debts and allowed as a deduction in the
computation of income tax. The interest-in-suspense will however be taxed when it
Capital Industry [Section 60D deleted and
Presently, venture capital companies which provide capital
to investee venture companies enjoy certain tax exemptions under Section 60D of the
Income Tax Act, including the following :-
- gains accruing to a venture capital company upon divestment of
shares in venture companies are tax exempt unless the disposal takes place after
3 years of the shares becoming listed in Malaysia;
- losses incurred by a venture capital company on a disposal of
shares in venture companies or incurred on a liquidation thereof qualify for tax
deduction in computing the aggregate or total income of the venture capital company,
- permitted expenses not utilised in a year of assessment may be
carried forward for future use; and
- tax exempt dividends may be paid out of amounts exempted from
To promote the venture capital industry, it is proposed that venture capital companies
be given a new incentive instead of the above which are to be withdrawn.
The new incentive is full tax exemption on all sources of income at statutory income
level for a period of up to 10 years or the life span of the fund, whichever is the
To qualify as a venture capital company, the following criteria
must be fulfilled :-
- the life span of the fund should not exceed 10 years;
- at least 70% of the funds of the venture capital company must
be invested in venture companies in the form of seed capital, start-up or early stage
- the investee venture company must be involved in products and
activities promoted by the Government such as projects listed in the promoted list
for pioneer status / investment tax allowance or MSC-status project; and
- the venture capital company should not invest in a company within
its group or in a company in which it has equity participation.
The commercialisation of agricultural research adopted from local
research institutes such as MARDI is also a promoted activity. The venture capital
company must obtain an annual certification from the Securities Commission that the
conditions imposed for the aforesaid incentives have been complied with. The said
certification is to be submitted to the Inland Revenue Board together with the annual
tax returns of the venture capital company concerned.
Concurrent with the aforesaid proposals which are to be contained
in an Income Tax Order, the existing Section 60D of the Income Tax Act on venture
capital companies is to be deleted.
The proposals are to be effective from year of assessment 2000
(current year basis).
17. Income Tax Exemption for Government Sponsored
Currently, only the Amanah Saham Bumiputera, Amanah Saham Nasional
and Amanah Saham Wawasan 2020 are granted income tax exemption on all income. Unit
trusts sponsored by the State Governments and MARA unit trusts sponsored by the Federal
Government are only given tax exemption on profits derived from sale of shares and
certain interest income whilst income such as dividends and rental are subject to
In order to assist all Federal and State Government sponsored unit
trusts, it is proposed that they be given income tax exemption on all income for
years of assessment 2000 (current year basis) and 2001.
18. Corporate Debt Restructuring Expenses
Companies restructuring their loans to reduce their debt
burdens are laden with additional costs. To encourage companies to restructure their
loans, it is proposed that all instruments involved in the corporate debt restructuring
scheme as certified by the Corporate Debt Restructuring Committee or Danaharta from
30th October, 1999 to 31st December, 2000 be exempted from stamp duties and all expenses
incurred in debt restructuring scheme be allowed as a deduction for tax purposes.
19. Incentive for Tourism Sector
Currently, tour operating companies are eligible for tax
exemption on income derived from the business of operating domestic tour packages
- at least 500 inbound tourists per year; or
- at least 1,200 local tourists per year.
To further enhance the tourism sector and assist in the economic
recovery, the said incentive will be extended to year of assessment 2001.
20. Incentive for Banks Achieving Loan Growth Target
To encourage banks to intensify their efforts towards achieving
loan growth higher than the 8% target required by the Government, it is proposed
that interest income derived from growth in net lending of 8% be exempted from income
tax provided that the bank achieves at least 10% growth in net lending in productive
The proposal will be effective for the year of assessment 2000
(current year basis) only.
21. Incentives for Mergers of Insurance Companies
and Stockbroking Firms
To encourage mergers of insurance companies and stockbroking
firms, the following incentives have been proposed:-
- 50% of the accumulated losses of the acquired insurance companies
and stockbroking firms be allowed as a deduction to the acquiring entity in the form
of tax credit to be utilised within 2 years;
- real property gains tax and stamp duty exemptions on all instruments
executed between the dates mentioned below be granted to stockbroking firms that
undergo merger exercises from 30th October, 1999 to 31st December, 2000; and
- the stamp duty and real property gains tax exemptions that have
already been approved for insurance companies will be extended to 30th September,