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Volume 2 - Issue 1- 30 October 2014
Budget 2015
Malaysia
Budget 2015
Theme
Balancing economic development and well-being
of the rakyat.
Did you know?
1
Budget allocation
RM b
Budget 2015 sets an annual development plan
and is part of Malaysia’s National Development
Strategy (MyNDS) for the 11th Malaysia Plan,
focused on:
1.
2.
3.
4.
5.
High-impact projects
Low-cost programmes
Efficient and rapid implementation
Collaboration
Sustainability
7
CAGR 2010-2015f: 7%
2
Government revenue
RM b
CAGR 2010-2015f: 7%
main strategies
in balancing between Malaysia’s capital and
people’s economy
1
Strengthening economic growth
2
Enhancing fiscal governance
3
Developing human capital and
entrepreneurship
4
Advancing bumiputera agenda
3
Budget deficit
% of GDP
4
Government debt/GDP ratio
%
5
Upholding role of women
6
Developing national youth
transformation program
7
Prioritizing well-being of the rakyat
5
Operating and development expenditure
Operating
Development
RM b
RM b
CAGR 2010-2015f: 8%
Notes:
• e = estimate
• f = forecast
Sources:
• World Bank data - Malaysia
• Bank Negara Malaysia (BNM) annual reports
• Budget speeches from 2010 to 2015
• Ministry of Finance’s (MoF) economic reports
Take 5 - Budget 2015 Malaysia
CAGR 2010-2015f: -0.31%
Operating
Development
2
Economic directions
Malaysia’s economic growth accelerated, driven by higher exports and strong private investments:
%
Real GDP vs. CPI
GDP: 5-6%*
CPI: 4-5%*
Malaysia’s real GDP is expected to register growth of 5%
to 6% in 2015, driven by resilient domestic demand and
an improving external environment.
Malaysia’s CPI is expected to increase slightly by 1%
with the implementation of GST and the phasing-out of
fuel subsidies.
*2015
Trade (goods and services)
RM b
Export: 787.2*
Import: 713.1*
Total trade is expected to sustain above the RM1.5 trillion
mark. While exports and imports have been increasing
steadily, the trade balance remains in surplus. China
continues to be Malaysia’s largest trading partner and
ASEAN, Singapore and EU are key regional trading
partners.
*2015
Net international reserves
RM b
2014: 422.3*
0
Malaysia’s net international reserves position remained
strong supported by current account surplus. As at 15
September 2014, the total reserves are adequate to
finance 8.9 months of retained imports and are 3.2 times
the short-term external debt.
*as at 15/09/2014
Growth by sectors
Services and manufacturing continue to be
the major contributors to Malaysia’s economic
growth. In 2015, all sectors are expected to
record positive growth. Construction growth
is still buoyant, driven by residential and nonresidential sub-sectors.
With the completion of a number of new
deepwater oil and gas facilities, production for
the mining sector is anticipated to increase.
Sources:
• Bank Negara Malaysia (BNM) annual reports
• Ministry of Finance’s (MoF) economic reports
Take 5 - Budget 2015 Malaysia
3
Sectoral highlights
Financial services
Investment Account Platform
Exchange traded bond and sukuk
A new Shariah compliant investment product:
• Provides opportunities to investors in financing
entrepreneurial activities and developing viable SMEs
• Platform to attract institutional and individual investors
including high net worth individuals to invest in the Islamic
financial market
• To promote IAP, the Government proposes individual investors
be given income tax exemption on profits earned from
qualifying investments for three consecutive years.
• Tax exemption shall only be accorded for three
consecutive years starting from the first year profit is
earned.
• The investment is made for a period of three years
starting from the operation date of IAP.
• Tax incentives shall only be accorded for investment
activities in Malaysia, in venture companies owned by
Malaysian or locally incorporated companies.
• Tax exemption shall only be accorded for investments
made in SMEs (as per latest definition issued by SME
Corporation Malaysia) and venture companies in any
sectors.
Proposes that Malaysian Government Securities and Government
Investment Issues be listed and traded in Exchange Traded Bond
and Sukuk (ETBS)
Sukuk issuance
To expand the sukuk market at the international level, proposes
that deduction on the expenses incurred for the issuance of sukuk
under the principles of Ijarah and Wakalah be extended for another
three years.
Effective date – from year of assessment 2016 to year of
assessment 2018
Shipping insurance
Establish Protection and Indemnity (P&I) Club under EXIM Bank to
assist owners of cargo ships with gross tonnage not exceeding 300
tonnes. The Club offers third-party liability protection at reasonable
premiums.
IAP scheduled to be effective from 1 September 2015 to 31
August 2018.
Oil and gas
Infrastructure - PIPC
Pengerang Integrated Petroleum Complex (PIPC, RM69b) that includes the Refinery and Petrochemical Industry Development (RAPID)
Sources:
• Budget speech, 2015
• Ministry of Finance’s (MOF) - The 2015 Budget
Take 5 - Budget 2015 Malaysia
4
Sectoral highlights
Hospitality, property and infrastructure
Property
Real property gains tax (RPGT)
The sum to be retained by the acquirer of real property on the
acquisition of the property is to be increased to 3% of the total
consideration (from 2% of the total consideration).
Where a donor disposes of an asset by way of gift to a recipient, the
disposal shall be deemed to be a disposal at the market value of the
asset. Where the donor and recipient are husband and wife, parent
and child or grandparent and grandchild:
• T
 he donor shall be deemed to have received no gain and
suffered no loss on the disposal and the recipient shall be
deemed to have acquired the asset at an acquisition price equal
to the acquisition price paid by the donor plus the permitted
expenses incurred by the donor.
• In the case of a donor who is not a citizen or permanent
resident, the recipient shall be deemed to have acquired the
asset at an acquisition price equal to the acquisition price paid
by the donor plus the permitted expenses incurred by the donor;
and
•
In the case of a donor who is a citizen or permanent resident and
the gift is made within five years after the date of acquisition by
the donor, the recipient shall be deemed to have acquired the
asset at an acquisition price equal to the acquisition price paid
by the donor plus the permitted expenses incurred by the donor.
Introduction of self assessment system for Real Property Gains Tax
with effect from 2016
Stamp duty - purchase of first residential property
To reduce the cost of ownership of the first residential property,
it is proposed that 50% stamp duty exemption on instrument of
transfer and loan agreement be extended to the purchase of the first
residential property priced not exceeding RM500,000.
Stamp duty exemption is only eligible for Malaysians who have never
owned a residential property.
For sale and purchase agreement executed from 1 January 2015 to
31 December 2016
Infrastructure
Proposed road and rail projects include:
• Pan-Borneo Highway (Sarawak and Sabah) – RM27b
• Second MRT line (Selayang to Putrajaya) – RM23b
• LRT 3 Project (link Bandar Utama to Shah Alam and Klang) –
RM9b
• Sungai Besi – Ulu Klang Expressway (SUKE) – RM5.3b
• West Coast Expressway (from Taiping to Banting) – RM5b
• Damansara – Shah Alam Highway (DASH) – RM4.2b
• Eastern Klang Valley Expressway (EKVE) – RM1.6b
• East Coast railway line upgrade (Gemas to Tumpat) – RM150m
Proposed telecommunication projects:
• New telecommunication towers (1,000) and undersea cables –
RM2.7b (over next three years)
Tourism
Year of Festivals 2015
With 2015 tourism campaign plans for Malaysia – Year of Festivals,
and the targeting of 29.4 million tourist arrivals with expected
income of RM89b, RM316m has been allocated for various
programmes under the Ministry of Tourism and Culture.
Proposed water-related projects include:
• Formulation of a National Water Blueprint
• Holistic management of rivers
• Construction and improvement of water treatment plants
• Diversification of water supply sources - groundwater
exploration and reuse of treated water for industries and
agriculture and expanding use of storm water retainer system
• Construction of Air Langat 2 water treatment plant to address
water shortage in Klang Valley (RM3b)
Electric vehicles
• Sustainable Mobility Fund to develop the electric vehicle
manufacturing industry, e.g. electric buses (RM70m under SME
bank)
Tax incentive for medical tourism
New companies and existing companies engaged in expansion,
modernization and refurbishment of private healthcare facilities,
with at least 5% healthcare travellers in their total number of
patients, to be given exemption on income equivalent to Investment
Tax Allowance of 100% of qualifying capital expenditure incurred
for a period of five years.
Effective date – for applications received by MIDA from 1 January
2015 to 31 December 2017
Sources:
• Budget speech, 2015
• Ministry of Finance’s (MOF) - The 2015 Budget
Take 5 - Budget 2015 Malaysia
5
Sectoral highlights
Other programmes
SMEs
Establishment of Principal Hubs
SME assistance schemes
Customized incentives for Principal Hubs to be introduced in 2015
to further encourage multinational companies to set up global
operational centres in Malaysia.
•
•
Commercialization of innovation
•
•
RM1.3b allocated to the Ministry of Science, Technology and
Innovation to implement various programmes, including:
• 360 high-impact innovative products to be
commercialized within the next five years
• Various high impact R&D&C programmes (RM290m)
• Public Research Network (RM50m)
• Strengthen Technology Commercialization Platform
Programme (RM50m)
Research Incentive Scheme for Enterprises (RISE) (RM10m):
to encourage companies to set up research centres in high
technology, ICT and knowledge-based industries
•
•
•
Services Guarantee Scheme (RM5b) – maximum financing of
RM5m with 70% government guarantee; expected to benefit
4,000 SMEs
Tabung Ekonomi Kumpulan Usaha Niaga (TEKUN) funds
(RM500m) to assist SMEs to kick-start and further expand
their businesses
Service Export Fund (SEF) (RM300m) to encourage SMEs
to conduct market feasibility studies and understand export
promotion to penetrate new markets
Strengthening the Franchise Development Scheme under
Ministry of Domestic Trade, Co-operatives and Consumerism
in collaboration with the Malaysian Franchise Association
(RM200m)
SME Technology Penetration and Upgrading Programme and
technology auditing to rebrand SIRIM
Others
•
•
•
SME Investment Partner – to accelerate participation of SMEs
in economic activities
Soft Loan Scheme for Automation and Modernization of
SMEs (Malaysian Industrial Development Finance Berhad)
to enhance the use of new technology, automation and
innovation (RM80m)
Business Accelerator Programme (SME Corp, RM10m)
Creative industry
Digital Content Industry Fund
Setting-up of the Digital Content Industry Fund (RM100m) under the Ministry of Communications and Multimedia to develop the creative
industry such as animation, filming, designing and cultural heritage
Agriculture industry
•
•
Allocation of RM6b to the Ministry of Agriculture and agro-based industry to strengthen food supply chain
Accelerate development of four new Integrated Agriculture Development Area for paddy cultivation in Rompin, Batang Lupar, Kota Belud
and Pekan (RM100m)
Sources:
• Budget speech, 2015
• Ministry of Finance’s (MOF) - The 2015 Budget
Take 5 - Budget 2015 Malaysia
6
Sectoral highlights
Education and training
Education initiatives
Tax incentive for scholarships
•
Double deduction to be given to encourage companies that provide
scholarships in the field of vocational and technical training.
Eligibility criteria for incentives are maintained.
•
•
•
•
•
•
•
Allocation of RM56b to Ministry of Education for various
teaching and learning programmes
Allocation of RM1.2b for vocational and technical
transformation programmes and upgrade of colleges
Allocation of RM250m for School Improvement Specialist
Coaches and School Improvement Partners programmes
RM100m to Ministry of Education for 10,000 placements in
technical and vocational private colleges
RM10m to expand 20 more Trust Schools
Additional allocation of RM112m for MyBrain15 Programme
(to produce 60,000 PhD holders by 2023) – currently for
private sector but is proposed to be extended to civil servants
and employees of statutory bodies who are keen to further
their studies on a part-time basis in local higher learning
institutions
TalentCorp will provide RM30m for Industry Academia
Collaboration programme – collaboration between
universities, Government entities and industries to develop
curriculum, internship programmes and industrial training
Establishment of a Professional Accounting Centre in
University Teknologi MARA in collaboration with Malaysian
Institute of Accountants
Developing human capital and entrepreneurship
•
•
•
•
Double deduction incentives to companies conducting Skim
Latihan 1Malaysia (SL1M) until 31 December 2020
Globally Recognised Industry and Professional Certificate
Programme (1MalaysiaGRIP) – RM300m in matching
grants between the Government and the Human Resource
Development Fund to train 30,000 workers
Double shift training capacity for full time programmes (176
courses) with high demand in the labour market
• Students with Malaysia Skills Certificate (SKM)
• University or college graduates
• Semi-skilled industrial workers
Position the country as a choice location for startups in the
region – establishment of MaGIC
• Paid-up capital for startups – RM75,000
• Eligible expatriate startup entrepreneurs will be given
work pass for one year.
Effective date – from year of assessment 2015
Tax incentive for Structured Internship
Programme
To encourage companies to extend the Structured Internship
Programme (SIP) to full-time students pursuing training at the
vocational and diploma levels, it is proposed that expenses incurred
in implementing the SIP programme for students in these courses
be given double deduction.
The eligibility criteria for students and conditions for the companies
under the current SIP programme are to be maintained.
Effective date – from year of assessment 2015
Tax incentive for training
To support the Government’s effort to strengthen the development
of human capital, it is proposed that further deduction be given
on the training expenses incurred by companies for the employees
to obtain industry-recognized certifications and professional
qualifications such as in the field of accounting, finance and project
management.
Training programmes are those approved by agencies appointed by
the Ministry of Finance.
Effective date – from year of assessment 2015
Sources:
• Budget speech, 2015
• Ministry of Finance’s (MOF) - The 2015 Budget
Take 5 - Budget 2015 Malaysia
7
Corporate tax highlights
Proposed reductions in income tax rate for companies and cooperatives as follows:
Companies
Income tax shall be charged for a year of
assessment on the chargeable income of:
•
A company
•
A trust body
•
An executor of an estate of a deceased
individual who domiciled outside
Malaysia at the time of his death
•
A receiver appointed by court
•
A limited liability partnership
Current
(%)
Proposed
(%)
25
24
Income tax shall be charged for a year of assessment on the
chargeable income of a company resident and incorporated
in Malaysia which has a paid-up capital in respect of ordinary
shares of RM2.5m and less at the beginning of the basis period
for a year of assessment at the following rates:
Rate of income tax
Chargeable income for
companies
RM
Current
(%)
Proposed
(%)
For every ringgit of the first
500,000
20
19
For every ringgit exceeding
500,000
25
24
Income tax shall be charged for a year of assessment upon the
chargeable income of co-operatives at the following rates:
Rate of income tax
Chargeable income for
companies
RM
Current
(%)
Proposed
(%)
For every ringgit of the
first
30,000
0
0
For every ringgit of the
next
30,000
5
5
For every ringgit of the
next
40,000
10
10
For every ringgit of the
next
50,000
15
15
For every ringgit of the
next
100,000
20
18
For every ringgit of the
next
250,000
22
21
For every ringgit of the
next
250,000
24
23
For every ringgit of the
next
750,000
25
24
Incentive for industrial area management
•
100% income tax exemption for 5 years to encourage
the private sector to manage, maintain and upgrade
industrial estates in less developed areas
•
70% income tax exemption for 5 years to the private
sector to manage industrial estates in other areas
Capital allowance on automation of labour-intensive industries
Industry category
Capital allowance on
automation expenses
Incentive period
High labour intensive
industries (e.g. rubber
products, plastics,
wood, furniture and
textiles)
200% on first RM4m
expenditure incurred
2015 to 2017
Other industries
200% on first RM2m
expenditure incurred
2015 to 2020
Sources:
• Budget speech, 2015
• Ministry of Finance’s (MOF) - The 2015 Budget
Take 5 - Budget 2015 Malaysia
8
GST highlights
Exempt and zero-rated supplies
The supply of goods and services determined as GST exempt and GST zero-rated includes the following:
GST zero-rated supplies
Selected
products
and
services
GST zero-rated supplies include selected products and
services within the following sub-groups:
•
Food items (e.g. various types of meat, fruits, rice and
noodles, herbs, sauces and preparations)
•
Medicines and medical gas
•
Port handling services
•
Financial services (include Syariah compliant):
•
Insurance and reinsurance
•
•
•
•
•
•
Telecommunication services
Inward remittance transactions
Global hubbing services for international remittance
Online services for newspapers
Printed books, brochures, leaflets
Newspapers, journals and periodicals
GST exempt supplies
•
Financial
services
•
•
•
Current account, savings deposit account or investment
account
Loan, advance or similar facility
Hire-purchase, conditional sale, credit sale or lease
agreement
Exchange of currency or the transfer of ownership of any
derivative relating to the exchange of currency
•
•
•
•
•
Private child care
Pre-school, primary and secondary school education
Tertiary education
Canteen operator
Course materials
Excursions or field trips
Provision of food
•
Education
services
•
•
•
•
•
•
•
Healthcare
services
Private healthcare services:
•
Medical, dental, nursing, midwifery, allied health,
pharmacy and ambulance services
•
Related accommodation
•
Services for screening, diagnosis or treatment
•
Services for preventive or promotive health purposes
•
Services provided by any healthcare para-professionals
Transport
services
Funeral
services
Others
•
•
•
•
•
•
•
Bonds, debentures, notes
Securities or derivatives relating to securities
Debt securities
Equity securities
Futures contract or transfer of ownership of derivatives
relating to commodities
Life insurance or life reinsurance
Provision of accommodation (including cleaning,
maintenance, electricity, gas and air condition)
Transportation services
Administrative services
Examination services
Services for curing or alleviating any abnormal condition
of the human body by the application of any apparatus,
equipment, instrument or device or any other medical
technology
Food services
Mortuary services
The transport of passengers:
•
Vehicle licensed by the Commercial Vehicle Licensing Board
•
A bus excluding a chartered bus
•
A taxi excluding a hire and drive car
•
Rail services
•
Ship or vessel licensed as passenger craft
Funeral services related to:
•
Ceremonial and tribute, disposition of remains or memorialization
•
Pre-need funeral plan programme, i.e. the reservation of columbarium or burial plot
•
•
Tolled highways
Land or buildings used for residential purposes
•
•
Agricultural land and land for general use
Child care services
Source:
• Federal Government Gazette, Goods and Services Tax (Zero-Rated Supply) Order 2014 and Goods and Services Tax (Exempt Supply) Order 2014,
13 October 2014, Attorney General’s Chamber
Take 5 - Budget 2015 Malaysia
9
GST business preparations
Broadly, top management needs to set the strategic directions for the GST infrastructure set-up and
enhancement of GST reporting.
Strategic direction
1
• Set the right tone
• Formalize structure and
organization
• Implement systems and
processes
2
Embed critical issues in business operations and processes
• Services
• Sales and
marketing
• Procurement
• Human resource
3
• Accounts
• Supply chain
management
• Legal
Implement GST infrastructure
• Record-keeping
• Systems and
accounts
• Internal controls
Understand and interpret
•
•
•
Understand the implications in
issuing the full or simplified tax
invoices and the 21-days rule
Analyze valuation issues on
supply made for consideration in
kind and open market value
Understand the requirements to
claim input tax credit
Review and action
•
•
•
•
Review and perform transaction
mapping
Review and develop relevant
documentation pertaining to
“tax invoices” for supply of
goods and/or services
Review and select accounting
systems
Cost benefit analysis on the
compliance cost that will be
incurred
Engage and communicate
•
•
•
Engagement with Government
via respective organizations
/ associations or business
chambers
Appoint senior team members
to conduct staff training on GST
Ensure that marketing
personnel understand the basis
for price displays
Sources:
• Handbook for goods and services tax (GST) for businesses, MOF
• EY analysis
Take 5 - Budget 2015 Malaysia
10
GST business preparations
GST programmes and schemes
Considerations to meet
GST requirements
•
Any need for change in the accounting period?
•
Any need to register individually or as a group?
•
Any need for separate records for different rates,
bad debts?
•
What is the precise stage at which GST needs to be
charged for each type of supply?
•
What are the implications of blocked inputs not
claimable?
•
What are the input tax claims and capital goods
adjustments for mixed suppliers?
•
What is the bad debt relief and the implications?
•
Depending on the taxation of stocks and
capital goods under the sales tax regime and
the transitional provisions for refund, do such
purchases need to be advanced or delayed?
Checkpoints
• Cashflow and
transaction activities
• Cash registers or pointof-sales (POS)
• Contract obligations
• Pricing policies
• Credit terms to
customers
• Procurement policies
• Gifts
• H
and-holding Programme
Designed to assist businesses in the transition from
existing sales and service tax system to the GST system
• Approved Trader Scheme (ATS)
This scheme is provided to alleviate cash flow to the
businesses.
• Approved Toll Manufacturer Scheme (ATMS)
This scheme is provided to disregard any supply made by
the local toll manufacturers to the overseas clients.
• Approved Jeweller Scheme (AJS)
This scheme is to provide cash flow relief to jewellery
manufacturers.
• Warehousing Scheme
This scheme is provided to disregard supplies within a
warehouse before the duty point and the last supply is
subject to GST.
• Flat-Rate Scheme (FRS)
This scheme is to allow certain category of approved
sectors (e.g. farmers) to get some form of compensation
of the GST paid on their inputs even though they are not
GST registrants.
• Tourist Refund Scheme
This scheme allows tourists to claim GST paid on goods
purchased and brought back to their respective countries
by air mode only.
• E-voucher for SMEs
SMEs that purchase or upgrade their GST-compliant
software from one of the software providers certified by
the Royal Malaysian Customs Department (RMCD) will be
given assistance in the form of ‘one-off’ grants whereby
each eligible company will receive financial assistance to
a maximum of RM1,000.
• Staff fringe benefits
Sources:
• Handbook for goods and services tax (GST) for businesses, MOF
• Malaysia Goods and Services Tax (GST), Royal Malaysian Customs Department
website, October 2014
• EY analysis
Take 5 - Budget 2015 Malaysia
11
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© 2014 Ernst & Young Advisory Services Sdn. Bhd.
All Rights Reserved.
APAC no. 07000294
ED None
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Contacts
Yeo Eng Ping
Partner, Tax Leader
Malaysia
+603 7495 8214
[email protected]
Chow Sang Hoe
Managing Partner, Advisory
Malaysia
+603 7495 8696
[email protected]
Anil Kumar Puri
Partner, International Tax Services
Malaysia
+603 7495 8413
[email protected]
Azwan Baharuddin
Business Development Leader
Asia Pacific
+603 7495 8750
[email protected]
Bernard Yap
Partner, Indirect Tax Services
Malaysia
+603 7495 8291
[email protected]
For further information about EY Malaysia or our thought leadership, please visit:
• Website: www.ey.com/my
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