Malaysia Budget 2003
 
INCOME TAX

1.   Exemption of Deduction for Corporate Debt Restructuring Expenditure
     
    Previously, under the Income Tax (Deduction for Corporate Debt Restructuring Expenditure) Rules 2001, any "corporate debt restructuring expenditure", incurred in respect of a corporate debt restructuring scheme completed between 1st January, 2001 until 31st December, 2001 under the supervision of the Corporate Debt Restructuring Committee of the Central Bank of Malaysia or under the Pengurusan Danaharta Nasional Berhad is tax deductible.

Pursuant to the Income Tax (Deduction for Corporate Debt Restructuring Expenditure) Rules 2002, the incentive is extended to corporate debt restructuring expenditure incurred in respect of a restructuring scheme, completed between 1st January, 2002 until 30th June, 2002.

These Rules as previously, shall not apply to any expenditure allowable under paragraphs 33(1)(a), 33(1)(b) or 33(1)(c) of the Act and shall be deemed to have come into operation on 1st January, 2002.
     
2.   Exemption of Income of Trade Association
     
    Pursuant to the Income Tax (Exemption)(No.7) Order 2002, with effect from year of assessment 2002, a trade association resident in Malaysia is exempted in respect of statutory income from memberís subscription fees in accordance with the formula :-

 

B

A

X

--------

 

 

C



where

A

is the statutory income from the business of the trade association in the basis period;
 

B

is the gross member's subscription fees in the basis period; and
 

C

is the gross income from the business of the trade association in the basis period.

This Order is effective from the year of assessment 2002.

Alternatively, according to the Income Tax (Exemption)(No.8) Order 2002, a trade association can be exempted up to an amount of 50% of the statutory income for a maximum period of 5 years of assessment depending on when the trade association was established. If a trade association was established before 1st January, 1996, the trade association is exempted up to an amount of 50% of its statutory income for each year of assessment from the year of assessment 1996 until the year of assessment 2000 (preceding year basis). However, if the trade association was established between 1st January, 1996 and 31st December, 2001, the association can be exempted for a maximum of 5 years of assessment from the year of assessment in the basis period in which the trade association was established.

In this connection, the Income Tax (Exemption)(No.8) Order 2002 revokes the previous Income Tax (Exemption)(No. 14) Order 1996.

For purposes of these two Orders, the definition of "trade association" is as described in Section 53(3) of the Act.
     
3.   Exemption of Income from Export of Qualifying Services
     
    Currently, pursuant to the Income Tax (Exemption)(No.2) Order 2001, a person resident in Malaysia is exempted from payment of income tax in respect of 10% of the value of increased exports of qualifying services provided from Malaysia to foreign clients.

The amount of income to be exempted is restricted to 70% of the statutory income for a year of assessment and the balance of statutory income will be taxed at the prevailing rate. Any unutilised amount of exempted income will be carried forward for set-off in future years until it is fully utilized. The exempt account arising is available for two-tier distribution of tax-free dividend.

Qualifying services specified in the schedule to the Order are :-

  • Legal
 
  • Building management
  • Accounting
 
  • Plantation management
  • Architecture
 
  • Private healthcare
  • Marketing
 
  • Private education
  • Business consultancy
 
  • Publishing services
  • Office services
 
  • Information technology and communication services (ICT)
  • Construction management
 


Pursuant to the new Income Tax (Exemption)(No.9) Order 2002, the rate of partial exemption of income from qualifying services to foreign clients has been increased from 10% to 50% of the increase in export value of the qualifying services exported.

This new Order 2002 is effective from year of assessment 2002. However, the previous Income Tax (Exemption)(No.2) Order 2001, is still in force.
     
4.   Extended Exemption Period for Local and Inbound Tourism
     
    Presently, under the Income Tax (Exemption)(No.6) Order 2001 and Income Tax (Exemption)(No.7) Order 2001, the tax exemption on income derived from domestic and inbound tours expires after the year of assessment 2001.

Pursuant to the Income Tax (Exemption)(No.10) Order 2002 and Income Tax (Exemption)(No.11) Order 2002, the incentive is extended from the year of assessment 2002 to year of assessment 2006, both years inclusive. The new Orders require the number of tourists on domestic or inbound tours to be certified by the Ministry of Culture, Arts and Tourism. To qualify for exemption in respect of domestic tours, the number of local tourists must be at least 1,200 while for inbound tours the number of tourists from outside Malaysia is not less than 500 in the basis period for a year of assessment to be eligible for the above incentive.
     
5.   Exemption of Income from Export Sales of Malaysian International Trading Company (MITC)
   
    The new Income Tax (Exemption)(No. 12) Order 2002 provides an exemption of income equivalent to 10% of the value of increased exports but as before, not more than 70% of the statutory income is exempted from tax in a year of assessment. The effect of the new Order is a simplification of the calculation of the incentive which previously was based on a formula.

To further encourage the setting up of MITC to do export sales, several conditions have been relaxed as follows:-

i) Malaysian shareholding reduced to 60% (previously 70%)
ii)   Annual sales must exceed RM10 million (previously RM25 million)
iii)   Export sales of related companies not restricted (previously not more than 20% of annual sales)


The incentive is given for 5 consecutive years of assessment from the year the company first qualified for the exemption.
     
6.   Additional Double Deduction for Promotion of Malaysian Brand Names
     
    The previous Income Tax (Deduction for Advertising Expenditure on Malaysian Brand Name Goods) Rules 1999 is revoked by the new Income Tax (Deduction for Advertising Expenditure on Malaysian Brand Name Goods) Rules 2002. Under the 2002 Rules, qualifying advertising expenditure for double deduction includes professional fees made to a company resident in Malaysia for advertising or promoting Malaysian brand name goods which was not included in the previous Rules.

Under the new Rules 2002, "qualifying advertising expenditure" means expenditure incurred within Malaysia in respect of:-

(a)   the cost of advertising Malaysian brand name goods through :-
 
i) advertisements on the internet where the host website is located in Malaysia;
ii)   advertisements in magazines and newspapers where the magazines and newspapers are printed in Malaysia;
iii)   advertisements on local licensed television stations;
(iv)   advertisements approved by the relevant local authority on advertisement hoardings located in Malaysia;
(v)   advertisements in trade publications where the trade publications are printed in Malaysia;
(vi)   advertisements in any form in the course of sponsoring an approved international sporting event held in Malaysia; and
(vii)   advertisements in any form in the course of sponsoring an approved international trade conference or an approved international trade exhibition held in Malaysia; and
(b)   Professional fees made to a company resident in Malaysia for advertising or promoting Malaysian brand name goods on behalf of the company which is the registered proprietor of the Malaysian brand name.


Double deduction for qualifying advertising expenses have effect from year of assessment 1998 whereas for professional fees is effective from year of assessment 2002.
     
7.   Increased Rate of Deduction for Cost of Acquisition of Proprietary Rights
     
    Under the new Income Tax (Deduction for Cost of Acquisition of Proprietary Rights) Rules 2002, the rate of deduction is 20% of the cost of acquisition of proprietary rights instead of 10% under the Income Tax (Deduction Cost of Acquisition of Proprietary Rights) Rules 1999.

This will accelerate the write off of proprietary rights acquisition cost. Manufacturing companies with at least 70% of its issued share capital owned by Malaysian will qualify for the above incentive. Deductible cost includes consultancy fees and legal fee connected with the acquisition. The faster write-off will further encourage the Malaysian ownership of new technologies.
     
8.   Exemption of Income from Trading on the Kuala Lumpur Options and Financial Futures Exchange
     
    Pursuant to the Income Tax (Exemption)(No.33) Order 2002, an individual who is allowed to trade on the Kuala Lumpur Options and Financial Futures Exchange for his own account in any futures market, is exempted from payment of income tax up to an amount equivalent to 70% of the adjusted income from that business for a year of assessment.

The Order is effective from year of assessment 2000 (current year basis) until year of assessment 2004.s
     
9.   Expansion of Projects for Approved Agricultural Projects
     
    Under the Income Tax (Approved Agriculture Projects) Order 2002, the scope of food products eligible for 100% allowance on capital expenditure incurred for purposes of Schedule 4A of the Act has been expanded to include:

No. Project Period (year) Minimum area (hectare)
i) Cultivation of crops 1 to 7 8 - 40
ii) Floriculture 2 8
iii) Forest Plantation Project 6 to 50 50.0
iv) Cultivation of vegetables, tubers, roots, herbs, spices, crops for animal feed and hydroponic based products 3 40.0
v) Ornamental fish culture - open system
(land/concrete pond)
2 5.0
vi) Ornamental fish culture - enclosure system 2 0.25
vii) Pond culture - fish and prawns (brackish water/fresh water) 2 20.0
viii) Tank culture - fish (brackish water/fresh water 2 1.0
ix) Off-shore marine cage culture - fish 2 0.5
x) Marine cage culture - fish (brackish water/fresh water) 2 0.5
xi) Cockle culture 1 10.0
xii) Mussel and oyster culture 2 0.5
xiii) Seaweed culture 1 5.0
xiv) Shrimp hatchery 2 0.25
xv) Prawn hatchery 2 0.25
xvi) Fish hatchery (seawater/brackish water/fresh water) 2 0.5


For agricultural projects in items (i) and (ii), the new Order shall be deemed to have effect from year of assessment 1989. However, for agricultural project in item (iii), the Order shall be deemed to have effect from year of assessment 1999. For the remaining agricultural projects in items (iv) to (xvi), the Order shall have effect from year of assessment 2002.
     
10.   Approved Food Production Projects
     
    The new Income Tax (Approved Food Production Projects) Order 2002 revokes the Income Tax (Approved Food Production Projects) Order 2001. Under the new Order 2002, the approved food projects for the purposes of Schedule 4C of the Act are :-

(a) Planting of kenaf, vegetables, fruits, herbs and spices
(b)   Aquaculture
(c)   Rearing of cattle, goats and sheep


The Order is effective from the year of assessment 2001.
     
11.   Tax Exemption of Political Association
     
    Pursuant to the Income Tax (Exemption)(No.22) Order 2002, a political association is exempted from the payment of income tax in respect of all income.

This Order is effective from the year of assessment 2001.
     


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© September 2002