Budget 2018 Proposal Highlight Part 2 of 3

eKTP 47

Reference is made to our last eKTP 46 regarding to the Malaysian Budget 2018 announced on 27 October 2017. Let us share more information as below:

CORPORATE TAX

1. Capital allowance for information and communication technology (ICT) equipment and software

Current Position
Expenditure incurred on the purchase of ICT equipment and software package is eligible for Accelerated Capital Allowance (ACA) until year of assessment 2016. Expenditure incurred on consultation fee, licensing fee and incidental fee for the development of customized software is not eligible for capital allowance for deduction for income tax purpose.

To assist companies to remain competitive in the digital era and adopt latest technology, it is proposed that companies be allowed to claim capital allowances on qualifying expenditure as follows:

Proposal 1
Expenditure incurred on the purchase of ICT equipment and computer software packages.

Proposal 2
Expenditure incurred on the development of customized software comprising of consultation fee, licensing fee and incidental fee related to software development.

The capital allowance rates for above both proposal is Initial Allowance 20% and Annual Allowance 20%

Effective date:
Proposal 1: From year of assessment 2017
Proposal 2: From year of assessment 2018

2. Review of tax incentives for automation

Current Position
A manufacturing company is eligible for Accelerated Capital Allowance (ACA) and Automation Equipment Allowance (AE) on expenses incurred in the purchase of automation equipment as follows:

Category 1
Labour-intensive Industry (rubber, plastic, wood and textile products)
ACA of 100% and AE of 100% on the first RM4 million for qualifying capital expenditure incurred during the basis period of year assessment 2015 to 2017

The tax incentive is effective from 1 January 2015 to 31 December 2017

Category 2
Industries other than Category 1
ACA of 100% and AE of 100% on the first RM2 million for qualifying capital expenditure incurred during the basis period of year assessment 2015 to 2020

Proposal
To further promote automation in the manufacturing sector, particularly in enhancing productivity and efficiency in the labour intensive industries, it is proposed that the incentive period for Category 1 be streamlined with Category 2. Therefore, the period for the incentive be extended for another 3 years. This allowance is fully claimable within 1 year.

The tax incentive is effective for applications submitted to MIDA as follows:
Category 1 – Effective from 1 January 2018 to 31 December 2020
Category 2 – Remain unchanged

3.Tax incentive for transformation to industry 4.0

Current position
The Government has provided various tax incentives for the manufacturing sector and its related services. In order to move up the value chain and increase productivity, companies are encouraged to adopt advanced technology, commonly known as Industry 4.0, which among others includes the following technology drivers:

i)        Big data analytics;
ii)       Autonomous robots;
iii)      Simulation;
iv)      Industrial internet of things;
v)       Cyber security
vi)      Horizontal and vertical system integration;
vii)     Cloud computing;
viii)    Additive manufacturing;
ix)      Augmented reality; and
x)       Artificial Intelligence.

Proposal
To encourage the transformation to Industry 4.0 which involves the adoption of those technology drivers by the manufacturing sector and its related services, it is proposed that the Accelerated Capital Allowance and Automation Equipment Allowance be provided on the first RM10 million qualifying capital expenditure incurred in the year of assessments 2018 to 2020 and is fully claimable within 2 years of assessment.

Effective date: For applications received by MIDA from 1 January 2018 to 31 December 2020.

4. Expansion of tax incentives for hiring the disabled

Current position
Employers who employ disabled persons, certified by the Department of Social Welfare (JKM), are eligible to claim a further deduction on salary paid to the disabled persons.

This incentive is made available from the year assessment 1982.

However, employers who employ workers affected by accidents/critical illness, and those employees are not being certified by the JKM are not entitled for further deduction on the salary paid.

Proposal
To support those who have been affected by accidents/critical illness and are able to secure suitable employment, it is proposed that a further deduction be given to their employers. The Medical Board of the Social Security Organisation (SOCSO) needs to certify that these employees are able to work within their capabilities.

Effective date: From year of assessment 2018.

5. Expansion of period for application of incentives for new 4 and 5 star hotels

Current position
The period of applications of incentives for new 4 and 5 star hotels is until 31 December 2018. The application has to be submitted to the Malaysian Investment Development Authority (MIDA) by hotel operators undertaking new investments.

The incentives are as follows:

Location - Peninsular Malaysia
Pioneer Status
Exemption of 70% of statutory income for a period of 5 years.

Investment Tax Allowance
Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within a period of 5 years. This allowance can be set-off against up to 70% of statutory income.

Location - Sabah & Sarawak
Pioneer Status
Exemption of 100% of statutory income for a period of 5 years.

Investment Tax Allowance
Investment Tax Allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years. This allowance can be set-off against up to 100% of statutory income.

Proposal
In order to promote tourism sector and in line with the Visit Malaysia Year 2020 campaign, it is proposed that the application period for the existing tax incentives for investment in new 4 and 5 star hotels in Peninsular Malaysia, Sabah and Sarawak be extended for another 2 years until 2020.

Effective date: For applications submitted to MIDA until 31 December 2020

6. Extension of period of tax incentives for tour operating companies

Current position
Tour operating companies are given 100% income tax exemption on their statutory income derived from the business of operating tour packages as follows:

i) Tour packages within Malaysia participated by not less than 1,500 local tourists annually; and

ii) Tour packages to Malaysia participated by not less than 750 foreign tourists annually.

This incentive is available from year of assessment 2007 until year of assessment 2018.

Proposal
To further encourage tour operating companies to boost tourism activities in conjuction with the Visit Malaysia Year 2020 campaign, it is proposed that the above tax incentives be extended for another 2 years.

Effective date: From year of assessment 2019 until year of assessment 2020.

Darren YapNovember 10, 2017