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.
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.
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
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.
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.
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.
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:
- the term "companies in the same group" refers to
related companies where 70% of the equity is being owned by the same shareholder;
- 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;
- at least 80% of sales is for domestic market;
- the project must be implemented within one year from the date
of approval; and
- 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.
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.
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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Tax Services Sdn Bhd.