Budget Proposals




Budget Proposals

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1

Present Position

At present, trading companies are eligible for the following tax incentives:

  1. double deduction for promotion of exports;
  2. double deduction on export credit insurance premium; and
  3. double deduction on insurance premium for exporters.

International trading activities play an important role in enhancing exports. However, it is observed that the involvement of Malaysian trading companies in international trade is still insignificant.

Proposal

In order to encourage Malaysian trading companies to be actively involved in international trade, it is proposed that companies approved as "International Trading Company" be given income tax exemption amounting to 70% of the statutory income arising from increased export sales. (Please refer to the illustration below). For the purpose of this incentive, export sales do not include trading commissions and profits derive from trading at the commodity exchange. This exemption is proposed for five (5) years.

To qualify as an ëInternational Trading Companyí, a company must satisfy the following criteria:

  1. be incorporated in Malaysia;
  2. achieve an annual sales turnover of more than RM25 million;
  3. equity holding of at least 70% by Malaysian;
  4. market manufactured goods, especially those from small and medium scale industry; and
  5. be registered with MATRADE.

In addition, the company must satisfy the following conditions to enjoy for the tax incentive:

  1. not more than 20% of annual sales is derived from trading of commodities;
  2. not more than 20% of annual sales is derived from the sales of the goods of related companies; and
  3. use local services such as banking, finance, insurance, shipping, ports, airports, haulage and warehousing.

This proposal will be effective from the year of assessment 1999.

An illustration to calculate the exemption:

Preceding year export sales     -   RM40 million
Current year export sales     -   RM50 million
Increase in export sales     -   RM10 million
Increased export sales over current year export sales     -   20 % (10/50)
Current year statutory income in relation to export sales     -   RM8 million
Statutory income for increased export sales
- (RM8mx20%)
    -   RM1.6 million
Eligible exemption
- (70% xRM1.6m)
    -   RM1.12million
Statutory income / chargeable income
- (RM8 m - RM1.12m)
    -   RM6.88 million

 

 


2
 

Present Position

Currently, interest, dividend and rental income of unit trusts and property unit trusts are subject to income tax at 28%. However, interest income received by an individual from certain savings or fixed deposits in financial institutions is exempted from tax.

Proposal

As a measure to develop unit trusts and property unit trusts as a collective investment vehicle, it is proposed that interest income received by them be exempted from tax. The interest income exempted from tax at the unit or property unit trustsí level will also be exempted from tax when it is distributed to their unit holders.

This proposal will be effective from the year of assessment 1999.



3
 


Present Position

Loan instruments are liable to stamp duty at RM2.50 for every RM500 as determined under Item 27 of the First Schedule of the Stamp Act 1949. Loan refinancing for the purpose of settlement of the original loan also requires a loan agreement. This new agreement for refinancing attracts stamp duty.

Proposal

As a measure to lessen the burden on borrowers who wish to undertake refinancing facilities to finance their business and trade activities, it is proposed that stamp duty be exempted on refinancing instrument with respect to term loans and subject to the following conditions:

  1. the refinancing facility represents a term loan for the purpose of funding the original loan. Refinancing for the purpose of funding an overdraft facility and for the working capital are not eligible for such exemption;
  2.  
  3. the exemption is limited for the purpose of funding the balance of the original loan; and
  4.  
  5. for syndicated loan, the amount of refinancing loan given by each bank has to be stipulated on the refinancing loan agreement.

This proposal will be effective from 24 October 1998.




4
 

Present Position

Effective from the year of assessment 1995, a life insurance company is taxed separately on its Life Fund (8%) and Shareholdersí Fund (28%). In addition, actuarial surplus apportioned from the Life Fund to the Shareholders' Fund is taxed based on the actuarial surplus available for apportionment (accrual) as in accordance with Insurance Order 1996 and not according to the actuarial surplus actually apportioned. It is observed that the tax treatment on the actuarial surplus based on accrual principle does not encourage shareholders to retain the surplus available for apportionment in the Life Fund.

Proposal

To encourage shareholders to retain their actuarial surplus in the Life Fund for the development of the life insurance industry, it is proposed that the income tax treatment on actuarial surplus apportioned to the Shareholders' Fund be changed from accrual principle to the surplus actually transferred.

This proposal will be effective from the year of assessment 1999

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