It is envisaged that deterrent penalties would be imposed to discourage evasion and promote correct tax returns.

The Inland Revenue is expected to intensify its tax education programs and issue public rulings and guidelines on a timely basis in view of the change to self-assessment.

Significant changes affecting reinvestment allowance (RA) were introduced through the 1998 Budget. From year of assessment 1998, where a company resident in Malaysia :

  1. has been in operation for not less than 12 months;

  2. has incurred in the basis period for a year of assessment capital expenditure on a factory, plant or machinery used in Malaysia for the purposes of a qualifying project; and

  3. has shown an increase in productivity in the basis period for that year of assessment or in the basis period for the following year of assessment,

the company will be eligible for RA equal to 60% of that expenditure.

It is proposed that paragraph (c) above be deleted with retroactive effect from year of assessment 1998.

By cancelling any need for an increase in productivity measured by the convoluted Process Efficiency Ratio, this incentive would be more readily available once again to resident companies.

Currently, interest income in the "interest-in-suspense" account is taxed on the accruals basis subject to a deduction in respect of debts admitted as wholly or partially irrecoverable. To alleviate the cash burden on financial institutions due to increases in non-performing loans, it is proposed that 50% of the interest income in the "interest-in-suspense" account shall not be considered as income for purposes of income tax. Such income will only be taxed once it is received.

This proposed amendment is to be effective for years of assessment 1999 and 2000 only.


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). 7th Floor, 3 Cangkat Raja Chulan 50200 Kuala Lumpur, Malaysia or P.O.Box 11151, 50736 Kuala Lumpur, Malaysia.
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