BUDGET 2019 Part 2 of 3

eKTP 89

2019 Budget: Tax Implications on Businesses

RPGT: Increase in tax rate for properties disposed after 5 years of ownership

Capital gains tax was widely speculated prior to the Budget. There’s no capital gains tax but the tax rate applicable to companies on any gain on disposal of real properties such as land and building after 5 years of ownership is doubled from 5% to 10%. The new Real Property Gains Tax (RPGT) rate is effective 1st January 2019, and is applicable when the gain is not an income under the Income Tax Act 1967.

For RPGT rates on disposals by individuals, the RPGT rates for gains from the disposal of real properties in the 6th and subsequent years, have been proposed from 0% to 5%. For more details, kindly refer to our e-Alert @03 Nov 2018 on “2019 Budget: Implications on Individuals”.

Note: For disposals within 5 years from acquisition, the RPGT rates are between 30% and 15% (depending on the length of ownership). These rates are not affected by the Budget.

Stamp Duty

In the 2017 Budget, it was announced that the stamp duty tax rate for the property transactions be increased from 3% to 4% effective 1st January 2018 in respect of any value in excess of RM1 million. This, however, was not implemented – as pointed out in our e-Alert @27th Oct 2017. In the 2019 Budget, it has been announced that such increase would be implemented effective 1st January 2019.

SST 2.0 updates including “digital tax”

To ensure equal treatment for services supplied by both local and foreign service providers, it is proposed that service tax be imposed on the taxable services imported into Malaysia. The imposition of service tax on imported services will be carried out in phases as follows:

i. Services imported by businesses (business to business - B2B) be implemented from 1 January 2019; and

ii. Services imported by consumers (business to consumer - B2C) be implemented from 1 January 2020.

For importation of prescribed services by businesses (B2B), a new provision will be introduced in the Service Tax Act 2018 to enable the recipients of the imported services to account, declare and pay the service tax to the Royal Malaysia Customs Department.

For importation of digital products and services by consumers (B2C), a new provision will be introduced in the Service Tax Act 2018 requiring the foreign suppliers who provide such services to consumers in Malaysia to register and charge service tax.

“Sugar tax” in the form of excise duty for packaged beverages

Taxation may also be used as a tool to influence people’s behavior. Prior to the Budget, there were speculations whether a new tax would be introduced encourage healthy eating habits.

Structurally, there’s no new tax but the scope of excise duty is to be widened effective 1st April 2019 to include sugar sweetened beverages. The ready-to-drink non-alcoholic beverages are subject to tax at the rate of RM0.40 per litre should the sugar exceed the following levels:

12 grams per 100 mililitres in the case of packaged fruit juices and vegetable juices.
5 grams per 100 mililitres in the case of other packaged drinks including carbonated drinks.

This new tax should encourage manufacturers of these beverages to ensure the sugar content is below the levels above to ensure the product can be priced competitively.

Interestingly, the “sugar tax” or, more formally excise duty, does not apply to food products such as chocolate bars or on drinks that are mixed and served in restaurants.

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

To be continued.

Darren YapNovember 30, 2018