Presently, the statutory income of a resident company from the business of transporting passengers or cargo by sea on board Malaysian ships is exempted from tax.

In the case of Director General of Inland Revenue v. S. Kapal Sdn Bhd (Civil Appeal No. R1-14-1-96), the High Court held that income received from the time charter of Malaysian ship is taxable on the grounds that the income does not fall within the definition of "transporting passengers or cargo".

To encourage the growth and development of the shipping industry, it is proposed that effective year of assessment 1999, the current exemption be explicitly expanded to include the statutory income of a business of letting out on charter a Malaysian ship owned by that Malaysian-resident on a voyage or time charter basis.
   
 
Currently, the income of the life fund and the shareholders' fund of a life insurance business are regarded as separate sources of income and the chargeable income of each is subject to tax at 8% and 28% respectively. One of the components in arriving at the adjusted income of the shareholders' fund is an amount equal to the actuarial surplus for that period arising from the life fund, other than the surplus from the life insurance business, as is apportioned to the shareholders' fund. The actuarial surplus as aforesaid is subject to any adjustment as the Director General may think fit to make in accordance with the provisions of the Income Tax Act, 1967 (the Act).

Based on the current provisions of the Act, the actuarial surplus to be taxed is calculated on an accruals basis with the result that the shareholders' fund is taxed on an amount that is not actually transferred.

To rectify this anomaly and to encourage shareholders to retain the actuarial surplus in the life fund for the development of the life insurance industry, it is proposed that with effect from year of assessment 1999, the actuarial surplus to be taxed should be the actual amount that is transferred to the shareholders' fund.

Although the proposed amendment does not specifically exclude the actuarial surplus from life re-insurance business (which under the current legislation is regarded as a separate source from the life business and is treated as general business of the insurance company) one should seek to exclude the said surplus when computing the adjusted income of the shareholders' fund.
   



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