BUDGET 2019 Part 1 of 3

eKTP 88

2019 Budget: Tax Implications on Businesses

Reduced penalty for voluntary disclosure of unreported income

A tax amnesty termed as Special Voluntary Disclosure (“SVD”) program is launched with immediate effect. This program offers the reduced penalty rates for taxpayers whom voluntarily declare any “unreported income” for Malaysian tax purposes, including that which is in offshore accounts. The reduced penalty rates are as follows.

The SVD program applies to “unreported income”, a term which has been clarified in the IRBM’s Operational Guide issued shortly after the Budget to comprise not only under-declaration of gross income (such as revenue) but also any tax adjustment arising in relation to expenses or allowance. It has also been clarified that this program applies to ongoing tax audit and investigation cases.The scope of the SVD Program comprises of Income Tax, Real Property Gains Tax (“RPGT”) and Stamp Duty.

There is no announcement on whether reduced penalty would also apply to any incidental adjustments for taxes administered by Customs, such as GST during the periods in 2015 to 2018.

*Important note on operational penalty rates: The law empowers penalty up to 100% to be imposed (where there’s fraud or wilful default, higher rate of 300%). In practice, penalties used to be imposed at 45% but the Budget announcement appear to imply that the penalty rates in practice may be increased to a new minimum of 80% upon expiry of the SVD program.

Reduction of tax rates for SMEs

SMEs, being companies with paid-up capital not exceeding RM2.5 million, are subject to preferential tax rate on the first RM500,000 of their chargeable income. The preferential tax rate is reduced from 18% to 17% effective the year of assessment (“YA”) 2019.

The tax rate for any income in excess of RM500,000 remains constant at 24%.

The reduction in the preferential tax rates results in savings in tax payable up to RM5,000 per annum for SMEs.

Time limit for unabsorbed business loss, capital allowance & reinvestment allowance

In the past, businesses were allowed to carry forward business losses and unutilised allowances indefinitely.

Effective from YA 2019, the following time restrictions apply for carry-forward of unutilised losses and allowances.

At the time of writing, it is unclear whether this restriction would apply only to losses incurred and allowances generated since YA 2019, or also to unutilised losses and allowances being carried forward from YA 2018 or earlier.

Important note on reinvestment allowance: Companies which have reached the 15 years’ time limit (i.e. qualifying period) were given special extension to claim reinvestment allowance until YA 2018. There’s no further extension in this Budget that extends to YA 2019 or beyond. Hence, care is needed to ensure that the 15 years’ time limit is monitored prior to making any claim for reinvestment allowance.

Group Relief for Losses

Where a company within a group incur business loss, up to 70% of the loss may be transferred to another company within the group (provided the companies are not SMEs).

The following restrictions are imposed effective YA 2019:

The company surrendering the loss must have been in operation for at least 12 months (i.e. new companies cannot surrender any loss incurred in their first year, or first two years).
Surrendering of loss is limited to 3 consecutive YAs.
The company which intends to claim the loss (claimant) should not have any unutilised pioneer loss or unutilised investment tax allowance (“ITA”).

* Source: Thenesh, Renga & Associates (TraTax Malaysia) Tax e-Alert @03 Nov 2018

To be continued.

Darren YapNovember 22, 2018