Budget Proposals




Budget Proposals

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7

Present Position

Currently, loans which are in arrears for a period of 6 months or more, in respect of principal or interest payments, are categorised as non-performing loans (NPL). Interest from NPLs are credited into the interest in-suspense account. Interest income under the interest in-suspense accounts are taxed based on accrual. This means that financial institutions are taxed on income in the interest in-suspense account although the income has not been received. Under the present economic condition, financial institutions are experiencing an increase in the amount of interest in-suspense due to the marked increase in NPLs.

Proposal

In order to assist the financial institutions during the economic downturn, it is proposed that 50 per cent of the amount in the interest in-suspense account will not be considered as income for purposes of income tax. However, such income will be taxed once it is realized.

This proposal will be effective for the year of assessment 1999 and 2000.


8
 



Current Status

 

Mergers that satisfy the provisions under Section 15 of the Stamp Act 1949 and Schedule 2 of the Real Property Gains Tax Act 1976 are eligible for duty/tax exemptions.

Under the current economic situation, measures undertaken by financial institutions to merge are significant in order to ensure that they are viable and efficient. This action is in line with the Government objective to enable financial institutions to prepare themselves to face competition due to the impending liberalization of the financial sector.

 

Proposal

As a means to reduce the cost of mergers, it is proposed that stamp duty and real property gains tax pertaining to mergers be exempted.

These exemptions will be accorded to mergers completed between 24 October 1998 to 30 June 1999.


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Present Position

Presently, companies engaged in food production qualify for Pioneer Status (PS) or Investment Tax Allowance (ITA) under the Promotion of Investments Act 1986 or 100% capital allowance under Schedule 4A of Income Tax Act 1967. Those that reinvest for expansion or diversification are eligible for Reinvestment Allowance (RA) under the Income Tax Act 1967.

Proposal

As a continuous effort to increase food production, it is proposed that companies engaged in food production be given "group relief" where losses incurred by these companies be allowed as deductions from the income of other companies in the same group. The qualifying criteria are as follows:

  1. the term "companies in the same group" refers to related companies where 70% of the equity is being owned by the same shareholder;
  2. products that are eligible for the incentive must be approved by the Minister of Finance. Maize cultivation for feedmeal and cattle rearing have been approved for this incentive;
  3. at least 80% of sales is for domestic market;
  4. the project must be implemented within one year from the date of approval; and
  5. this incentive is mutually exclusive with PS, ITA, capital allowance under schedule 4A and RA. Expansion or diversification projects are eligible for the RA if the companies surrender the "group relief".

Applications should be submitted to the Ministry of Agriculture and should be received by 31 December 1999.


10
 

Present Position

Currently, freight income received by resident companies from the business of transporting cargoes and passengers on board of "Malaysian ship" is exempted from income tax under Section 54A, the Income Tax Act, 1967. The objective of this incentive is to encourage the growth and development of the shipping industry as well as to address the problem of large outflows of freight payments which have partly contributed to the deficit in the service account of the balance of payments. Shipping operations through "time charter" and "voyage charter" form part of shipping activities and currently, income from these activities is not exempted from income tax.

Proposal

As a means to further develop the shipping industry, it is proposed that the rental income received by residents from "time charter" and "voyage charter" of "Malaysian ship" be exempted from tax.

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

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