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224
B22 MAJOR CHANGES IN TAX
PROVISIONS
Effective Date
Bonus restriction
No restriction on deduction of bonus paid to employees. Y/A 2002 onwards
Current year basis
Change in assessment of income tax from the preceding year basis to current
year basis.

Y/A 2000 onwards
Entertainment expenditure
50% of expenses allowed and 100% for items as specified.
The definition of entertainment is amended to include expenses incurred by a
person for the purpose of promoting his business with or without consideration.

Y/A 2004 onwards
Y/A 2014 onwards
Export of professional services
Exemption of service tax on export of professional services.

25 Oct 1996
onwards
Foreign source income
Foreign source income of resident companies exempted from income tax.
Foreign source income of a resident individual, trust body, cooperative or Hindu
joint family exempted from income tax.

Y/A 1995 onwards
Y/A 2004 onwards
IA for purchased industrial building
Initial allowance granted on purchased industrial building.

Y/A 2002 onwards
Investment holding company
Expenses incurred by Investment Holding Companies restricted for deduction to
a proportion of permitted expenses.

Y/A 1993 onwards
Leave passage
Leave passage disallowed as business deduction.
Allowed as business deduction if provided as a yearly event within Malaysia.

Y/A 1989 onwards
Y/A 2007 onwards
Life insurance and takaful business
Revision in basis of taxing life insurance and takaful business.
Revision in basis of taxing inward life re-insurance business.

Y/A 1995 onwards
Y/A 1998 onwards
Overlapping basis periods
Change in basis of determining adjusted income in 2 overlapping basis periods
so that the income in the overlapping periods will not be taxed twice.

Y/A 1999 onwards
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225

Effective Date
Proprietary rights
Expenditure on acquisition of proprietary rights allowed for deduction.

Y/A 1997 onwards
Real property company
Change in basis of determining deemed acquisition date and deemed
acquisition price for shares in real property company.

17 Oct 1997
onwards
Reinvestment allowance (RA)
Reinvestment allowance incentive extended to 15 years. Y/A 1998Y/A2008
Criteria and conditions for RA incentive have been amended and claim for RA is
made more restrictive as follows:
(a) Limit on eligibility to claim RA for company that has been in operation
from 12 months is extended to at least 36 months
(b) Claw back RA for assets disposed of within 2 years from the date of
purchase of the asset is extended to 5 years
(c) Definition for manufacturing has been given a more specific and strict
interpretation under Sch 7A of the Income Tax Act 1967 (ITA).
Processing of a product does not qualify for RA.
Disallow RA claim in respect of assets acquired from a related company where
RA has been claimed on the same asset.
Y/A 2009 onwards
RA incentive cannot be claimed in the same basis period if a company is also
enjoying other incentives such as pioneer status, investment tax allowance,
industrial adjustment allowance and investment tax credit.
Y/A 2011 onwards
The term factory is defined under Para 9 to Sch 7A of the ITA, as the portion
of the floor areas of a building or extension of a building used for the purposes
of a qualifying project to place or install plant or machinery or to store any raw
materials, or goods or materials manufactured prior to sale. However, if the total
storage area exceeds 10% of the total floor area of the factory, the portion
relating to the storage space would not qualify for RA.
Companies with qualifying projects located in promoted areas comprising the
states of Sabah, Sarawak, the Federal Territory of Labuan, Perlis, and the
Eastern Corridor of Peninsular Malaysia are no longer entitled to claim the
highest set-off rate of 100% against the statutory income for a year of
assessment. Only companies which have achieved the level of productivity as
prescribed by the Minister of Finance shall be allowed the maximum set-off rate
of 100%.
Y/A 2012 onwards
Monthly tax deduction
Monthly Tax Deduction scheme for Peninsular Malaysia.

1 Jan 1995 onwards
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226

Effective Date
Self assessment system
Change from Official Assessment System to Self Assessment System for:
(a) Companies


Y/A 2001 onwards
(b) Businesses, partnerships and co-operatives Y/A 2004 onwards
(c) Employees Y/A 2004 onwards
(d) Upstream petroleum companies Y/A 2010 onwards
Tax Waiver (first 12 months in basis period) Y/A 2000 (preceding
year basis)
Training non-employees
Expenses incurred in providing practical training to residents who are not
employees of a company are allowed a deduction.

Y/A 2002 onwards
Websites
Cost of developing websites that are electronic commerce-enabled allowed
annual deduction of 20% over 5 years.

Y/A 2002 onwards
Withholding taxes
Exclusion of Offshore Services from withholding tax.
Rates for S. 107A reduced to 10% and 3%.
Exclusion of reimbursements relating to hotel accommodation in Malaysia from
withholding tax.
Introduction of a new withholding tax on other gains or profits of a non-
resident under S. 4(f) of the ITA subject to withholding tax at a rate of 10%.

21 Sep 2002
21 Sep 2002
1 Jan 2009

1 Jan 2009
Service tax and sales tax
No service tax or sales tax on bad debts.
Group Management services not subject to service tax.

1 Jan 2003
1 Jan 2003
Section 11 source
Abolition of S. 11 source income.

Y/A 2003
Industrial building allowance (IBA)
Simplifying the computation of IBA for used buildings from residual value to
current purchase price.

Y/A 2005
Zakat
Tax deduction for zakat on business income paid by companies up to 1/40th of
aggregate income.

Y/A 2005
Interest-in-suspense
Tax treatment on interest-in-suspense.

Y/A 2001
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227

Effective Date
REIT
Tax treatment for Real Estate Investment Trust.

Y/A 2005
Group relief
50% of current year unabsorbed losses can be set-off against the income of
another company within the same group, subject to certain conditions.
70% of current year unabsorbed losses can be set-off against the income of
another company within the same group, subject to certain conditions.

Y/A 2006

Y/A 2009
Treatment of unabsorbed losses and capital allowances
Unabsorbed losses and capital allowances of a dormant company will not be
allowed to be carried forward in the event there is a change of its shareholding
unless more than 50% of its paid-up capital is held by the same persons.

Y/A 2006
Income of investment holding company
Income of public listed investment holding company will be treated as business
income and the expenses will be given full deduction. However, unabsorbed
losses and capital allowances will not be allowed to be carried forward.

Y/A 2006
Initial tax estimate
Initial tax estimate can be at a level not less than 85% of the preceding years
tax estimate.

Y/A 2006
Small value assets
Special allowance of 100% or capital allowance at standard rates is given to
small value assets not exceeding RM1,000 each but not exceeding a total value
of RM10,000 (The maximum limit of RM10,000 is not applicable to small and
medium enterprises (SMEs) with effect from Y/A 2009).

Y/A 2006
REIT
Consultancy, legal and valuation fees incurred qualify for a tax deduction.

Y/A 2006
Deductibility of discount or premiums
Expenses incurred on discounts or premiums from the issuance of bonds
qualify for deduction on an accrual basis.

Y/A 2006
RPGT on residential properties
RPGT exemption on a residential property is given to both husband and wife on
one residential property each.

1 Oct 2005 onwards
Employee share option scheme
The value of the benefit for each share option is determined based on the
difference between the market price on the date the share option is exercised or
exercisable, whichever is the lower, and the discounted price offered by the
employer. The benefit is liable to tax in the year the option is exercised.

Y/A 2006
Deductibility of audit fees
Statutory audit fees incurred qualify for deduction.

YA 2006
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228

Effective Date
Advance rulings
The taxpayer is allowed to request for an advance ruling to promote clarity and
certainty in the interpretation and application of the law.

1 Jan 2007 onwards
Penalty on withholding tax
10% penalty on the amount of unpaid tax instead of the total payment.

2 Sep 2006 onwards
RPGT on transfer of property into stocks 2 Sep 2006 onwards
Special tax treatment for property development and construction
businesses

Y/A 2006
Deduction on donation for charitable activities
Limit on deduction given to companies on contributions for charity at 5% of the
aggregate income.

Y/A 2001
Limit on deduction given to companies on contributions for charity, sports and
projects of national interest is increased from 5% to 7% of the aggregate
income.
Limit on deduction given to companies on contributions for charity, sports and
projects of national interest is increased from 7% to 10% of the aggregate
income.
Y/A 2007


Y/A 2009
Tax treatment on payment for rental of ship
Rental payment of ships under voyage charter, time charter or bare boat charter
to a non-resident by a resident Malaysian shipping company is exempted from
withholding tax.

2 Sep 2006 onwards
RPGT exemption
No RPGT on disposal of chargeable assets after 31 Mar 2007.

1 Apr 2007
31 Dec 2009
Promotion of Investments (Amendment) Act
Major changes have been made via the Promotion of Investments
(Amendment) Act 2007.

Several
commencement
dates which take
effect from Y/A 2001
onwards
Single tier tax system
A single tier company income tax system is introduced. Under this single tier
system, tax on a companys profits is a final tax and dividends distributed to
shareholders will be exempted from tax.

Y/A 2008 onwards
Election for Labuan incorporated companies to be taxed under the ITA
Labuan companies can make an irrevocable election to be taxed under the ITA.

Y/A 2008 onwards
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229

Effective Date
Small and medium enterprise (SME)
Implications on re-definition of SME:
(a) Preferential tax rate of 20% shall not apply to a company if its paid up
capital is more than 50% owned (directly or indirectly) by a related
company which has paid up capital exceeding RM2.5 million in
respect of ordinary shares; and
(b) SME company exempted from furnishing an estimate of tax payable
for two years of assessment after the commencement of operations.


Y/A 2009 onwards


Y/A 2010 onwards
The preferential tax rate for SME will be reduced from 20% to 19%. Y/A 2016 onwards
Service tax
Rate increased from 5% to 6% on all taxable services.

1 Jan 2011
Withholding tax
Imposition of penalty under S. 113(2) of the ITA if payers fail to comply with
withholding tax under S. 107A/109/109B and 109F of the ITA where a claim for
deduction has been made.

1 Jan 2011 for Y/A
2011 onwards
Tax treatment of bonds for companies
Where there is insufficient or an absence of gross income from a source
consisting of discount/ premium, any unutilised discount expenses shall be
allowed a deduction against the adjusted income of the company from any
source consisting of a business.

Y/A 2011
Executors
Time frame of 3 years to make assessment/additional assessment from the
time the Director General is notified of the death of the individual by the
executor.

27 Jan 2011
Tax relief for contribution to an approved private retirement scheme
Tax relief of RM3,000 for contributions made to an approved private retirement
scheme.

Y/A 2012 Y/A 2021
Franchise fees
Franchise fees incurred on local franchise brands are allowed a deduction.

Y/A 2012 onwards
Exemption of shipping profits
The income derived from each Malaysian ship shall be treated as income from
a separate and distinct business source.
The income tax exemption for shipping companies is reduced from 100% to
70% of statutory income and the balance of 30% of statutory income is deemed
to be total income chargeable to tax.

Y/A 2012

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230

Effective Date
Life insurance business
The adjusted loss from a business of a life fund can only be set-off against the
statutory income of the life fund in subsequent years of assessment until it is
fully utilised.
The adjusted loss from a non-life fund business is allowable to be set-off from
the aggregate statutory income of a non-life fund business and any unabsorbed
business loss cannot be used to set-off against the statutory income of the life
fund in subsequent years of assessment.

Y/A 2012 onwards
Compensation for late refund of income tax
Taxpayers who have submitted their tax returns within the stipulated time and
are due for a tax refund are paid compensation of 2% per annum on the amount
of tax refunded late by the Director General.

With effect from
10 Feb 2012
Interest income as non-business income
Interest income will not be taxable under S. 4(a) unless the interest income is
related to debenture, mortgage or other source which forms or has formed part
of the stock in trade of a business of a person or the interest is receivable by a
person from the business of lending money and that business is licensed under
any written law.

Y/A 2013 onwards

Review of time bar for income tax assessment
The time bar for the Director General to raise income tax assessment or
additional assessment is reduced from 6 years to 5 years. This provision would
not apply to cases related to fraud, willful default or negligence.

1 Jan 2014

Limited liability partnership (LLP)
LLP is a taxable entity and has tax treatments and compliance requirements
similar to a company.

10 Feb 2012

Business trust
A company is defined to include a business trust. Hence, a business trust has
tax treatments and compliance requirements similar to a company.

28 Dec 2012
Monthly tax deduction as final tax
Individual taxpayers with employment income where Monthly Tax Deductions
have been made are no longer required to submit tax returns if they are
satisfied that their Monthly Tax Deduction is equal to the final tax payable. This
provision would not apply to individual taxpayers with non-employment income
or cases where the duration of employment under the same employer in a
calendar year is less than 12 months.

Y/A 2014 onwards
Abolishment of sales tax and service tax
To abolish Sales Tax and Service Tax when Goods and Services Tax is
introduced.

1 Apr 2015
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231

Effective Date
Goods and Services Tax
Introduction of Goods and Services Tax at 6%.

1 Apr 2015
Secretarial fee and tax filing fee
Secretarial fee and tax fee disallowed for claim of tax deduction.

Secretarial fee (of up to RM5,000 per year) and tax fee (of up to RM10,000 per
year) be allowed tax deduction as part of the tax incentive package in line with
GST implementation.

Y/A 2006 to
Y/A 2014
Y/A 2015 onwards
New tax rates for RPGT
Introduction of new RPGT tax rates for companies, individual citizens/
permanent residents and individual non-citizens.

1 Jan 2014
Tax treatment for compulsory acquisition
Any amount receivable by a person from the disposal of its stock in trade as a
result of compulsory acquisition or forced sale is treated as gross income of that
person from a business.

Y/A 2014 onwards
Determination of basis period for commencement of operation
The first basis period for a year of assessment on commencement of operation
by a company, LLP, trust body or co-operative society shall be the accounting
period.

Y/A 2014 onwards
Tax treatment for interest income from related party loan
Interest income deemed obtainable on demand by lender in a related party loan
transaction in the basis period where such interest is due to be paid and thus
brought to tax.

Y/A 2014 onwards
Tax treatment for deduction of interest expense
Interest expense shall be available for tax deduction in respect of money
borrowed when such interest is due to be paid.

Y/A 2014 onwards
Management expenses for Takaful general fund
Management expenses incurred by Takaful general business (resident and
non-resident operator) qualify for deduction to be consistent with the treatment
adopted by the conventional insurance business.

Y/A 2014 onwards
Commision payable and discount allowed for Takaful shareholders fund
Commission payable and discount allowed incurred in respect of Takaful
shareholders fund (resident and non-resident operator) qualify for deduction.

Y/A 2014 onwards
Requirements for submission of corporate tax return
It is mandatory for companies to submit tax returns via e-filing and the said
return must be based on audited financial statements prepared by professional
accountants.

Y/A 2014 onwards
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232

Effective Date
Special Provision Applicable to Loan or Advances to Director
Where a company gives any loan or advances from its internal funds to a
director, it is deemed to have interest income from such loan or advances for
the relevant periods.

Y/A 2014 onwards