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 is realised.

16. Venture Capital Industry [Section 60D deleted and replaced]

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 :-

  1. 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;
  2. 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, as applicable;
  3. permitted expenses not utilised in a year of assessment may be carried forward for future use; and
  4. tax exempt dividends may be paid out of amounts exempted from tax.

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 lesser.

To qualify as a venture capital company, the following criteria must be fulfilled :-

  1. the life span of the fund should not exceed 10 years;
  2. 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 financing;
  3. 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
  4. 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 Unit Trusts

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 income tax.

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 with:-

  1. at least 500 inbound tourists per year; or
  2. 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 sectors.

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:-

  1. 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;
  2. 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
  3. the stamp duty and real property gains tax exemptions that have already been approved for insurance companies will be extended to 30th September, 2000.


This report is reproduced with permission from Kassim Chan Tax Services Sdn Bhd (36421-T) and Deloitte Touche Tohmatsu Tax Services Sdn Bhd (151497-P).
Address: Level 16, Uptown 1, 1 Jalan SS21/58, Damansara Uptown, 47400 Petaling Jaya, Malaysia.
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