The Budget 2021 was announced on 6 November 2020 with the Theme, “RESILIENT AS ONE, TOGETHER WE TRIUMPH”.

We are pleased to append below some highlights from the budget proposals relating to INCOME TAX for your reading pleasure.

 

2021 MALAYSIA BUDGET PROPOSALS– INCOME TAX

CHANGES AFFECTING INDIVIDUALS

Reduction in income tax rate for resident individuals

It is proposed that the income tax rate for resident individuals be reduced by 1 percentage point for the chargeable income band of RM50,001 – RM70,000 as follows:

Chargeable income

(RM)

New tax rate

(%)

0 – 5,000 0
5,001 – 20,000 1
20,001 – 35,000 3
35,001 – 50,000 8
50,001 – 70,000 13
70,001 – 100,000 21
100,001 – 250,000 24
250,001 – 400,000 24.5
400,001 – 600,000 25
600,001 – 1,000,000 26
1,000,000 – 2,000,000 28
Exceeding 2,000,000 30

 

Non-resident individuals are still subject to income tax at a flat rate of 30%.

The tax savings resulting from the proposed reduction in tax rate by 1 percentage point would be RM200

 Effective from the Year of assessment (Y/A) 2021

Increase in limit and expansion of scope of income tax relief for medical   expenses for self, spouse and child

 Current:

 Income tax relief up to RM6,000 is given to resident individual on medical expenses for serious diseases for self, spouse and child as well as fertility treatment for self and spouse. The relief also includes the expenses incurred for full medical check of up to a maximum of RM500.

Proposed:

It is proposed that the income tax relief to be increased from RM6,000 to RM8,000 and the limit of full medical check-up will be increased from RM500 to RM1,000. The scope of tax relief be expanded to include vaccination expenses of up to RM1,000.

Vaccines that are eligible for the relief include:-

  1. Pneumococcal
  2. Human Papillomavirus(HPV)
  3. Influenza
  4. Rotavirus
  5. Varicella
  6. Meningococcal
  7. Combination of tetanus-diphtheria-acellular pertussis; and
  8. Covid-19 vaccine

Effective from Y/A 2021

Increase of tax relief for medical expenses for parents

Current:

Income tax relief up to RM5,000 is given to a taxpayer on medical treatment, special needs and carer expenses which includes:-

i)              Treatment in clinics and hospitals;

ii)             Treatment in nursing homes;

iii)           Dental treatment, not including cosmetic dental treatment; and

iv)           Treatment and care at home, day care centres and home care centres.

Proposed:

It is proposed that the income tax relief for medical expenses for parents to be increased from RM5,000 to RM8,000

Effective from Y/A 2021

Review of income tax relief for lifestyle

Current:

Income tax relief for lifestyle of up to RM2,500 is given to individual taxpayer on the followings:-

i.              Purchase of books/ journals/ magazines/ printed newspapers/ other similar publication (not banned reading materials)

ii.             Purchase of sports equipment for sports activity defined under the Sports Development Act 1997 and payment of gym membership; and

iii.            Payment of monthly bill for internet subscription

Proposed:

It is proposed that

i)              The limit for lifestyle tax relief be increased from RM2,500 to RM3,000 where up RM500 is specifically provided for expenses incurred relating to sports including entry/ rental fees for sports facilities and participation fee in sports competitions; and

ii)             Expansion of scope for printed newspapers to include subscription for electronic newspapers

Effective from Y/A 2021

Income tax relief for disabled spouse 

Current:

An individual taxpayer with a disabled spouse is given an additional tax relief of RM3,500

Proposed:

Tax relief for fee disabled spouse be increased from RM3,500 to RM5,000

Effective from Y/A 2021

Tax relief on contribution to private retirement scheme (PRS) 

Current:

Income tax relief of up to RM3,000 is given to individual who contributes to PRS from Y/A 2012 to 2021

Proposed:

The above tax relief be extended to another four (4) Y/As till Y/A 2025

 

Tax relief on net annual savings in the National Educational Savings Scheme (SSPN) 

Current:

Income tax relief of up to RM8,000 is given to individual for net annual savings in the SSPN from Y/A 2019 to 2020

 Proposed:

The above tax relief be extended to another two (2) Y/As i.e Y/A 2021 and Y/A 2022

 

Tax relief for expenses on study fees

 Current:

Income tax relief of up to RM7,000 is given to individual for any of the following courses of study undertaken in any institution or professional body in Malaysia recognized by the Malaysian Government or approved by the Minister of Finance:-

Level of Study Field of Study
Certificate/ Diploma/ Bachelor Law, accounting, Islamic finance, skills or vocational, technical, industrial, scientific and technological skills
Master/ Doctorate All fields

 Proposed:

The scope of relief of RM7,000 a year is expanded to cover fees for attending up-skilling and self-enhancement courses in any field of skills recognised by the Department of Skills Development, Ministry of Human Resources limited to RM1,000 for each Y/A.

Effective from Y/A 2021 to 2022

 

Income tax exemption on compensation for loss of employment

 Current:

Section 13(1)(e) of the Income Tax Act (ITA) 1967 provides that compensation received for loss of employment is a gross income from employment and subject to income tax.  However, the employee is entitled for exemption of income tax under paragraph 15(1) of Schedule 6 of the ITA 1967 under the following circumstances:

i.              Full exemption on income tax on compensation for loss of employment if the Director General of Inland Revenue is satisfied that the compensation is received due to health problems; or

ii.             Exemption on income tax of RM10,000 for each full year of service with the same employer or companies within the same group.

Proposed:

The income tax exemption limit for loss of employment with the same employer of companies within the same group be increased from RM10,000 to RM20,000 for each full year of service

Effective from Y/A 2020 and 2021

 

Special Income tax rate for non- resident individuals holding key positions in companies investing in new strategic investments

Current:

Non-resident individuals are subject to income tax rate at a flat rate of 30%.  Income tax treatment at a flat rate of 15% is given to the following individuals:

i.      Malaysian citizens who are categories as experts and approved under the Returning Expert Program and return to work in Malaysia;

ii.     Individual knowledge workers in Iskandar Malaysia; and

iii.    Individual knowledge workers in Malaysia-China Kuantan Industrial Park.

Proposed:

A flat rate of 15% be given to non-residents holding key positions/ C-Suite positions for 5 consecutive years. This tax incentive is limited to 5 non-residents employed in each company that has been granted relocation tax incentive under PENJANA initiative.

To qualify for the flat rate of 15%, an individual must:

i.              receive a monthly salary of not less than RM25,000; and

ii.             a Malaysian tax resident for each year of assessment throughout the flat rate tax treatment

Effective for applications received by MIDA from 07.11.2020 until 31.12.2021

Tax incentive for Returning Expert Programme (REP)

Current:

Tax incentives for REP are as follows:

Year Tax incentive
2011 – 2014 Flat rate of 15% on employment income tax for a period of five consecutive years of assessment
2014 – 2020 Flat rate of 15% on employment income tax for a period of five consecutive years of assessment

Proposed:

i.         The application period for the REP incentive be extended for another 3 years until 31 December 2023

ii.       Flat personal tax rate of 15% for a period of five consecutive years of assessment.   

For applications received by Talent Corporation Malaysia Berhad from 01.01.2021 till 31.12.2023

 

TAX INCENTIVES
Review of tax incentives for companies relocating their operations to Malaysia and undertaking new investments

Current:

New and existing companies that relocate their business of manufacturing activities from overseas to Malaysia are eligible for the following tax incentives:

Investment in fixed assets New companies Existing companies
Tax incentive Period Tax incentive Period
RM300 million – RM500 million Income tax rate 0% 10 years Investment Tax Allowance 100% 5 years
Above RM500 million 15 years

The above incentives are made available for eligible companies in manufacturing sector (except for non-qualifying activities) and subject to the following conditions:

  • First capital expenditure is to be incurred within 1 year from the date of approval of the incentive; and
  • Investment in fixed assets is to be incurred within 3 years from the date of the first capital expenditure incurred.
  • Applications to MIDA must be made from 01.07.2020 to 31.12.2021.

Proposed:

The above tax incentives be reviewed as follows:

  • The application period for the tax incentives be extended for another 1 year till 31.12.2022;
  • The scope of tax incentives be expanded to companies in selected services sector including companies adapting Industrial Revolution 4.0 and digitalisation technology with investment that contributes to significant multiplier effect in the following services:

a.    provision of technology solution, or more typically technology company which develops technology and provides technology solutions based on substantial scientific or engineering challenges;

b.    provision of infrastructure and technology for cloud computing;

c.     research and development/design and development activities;

d.    medical devices testing laboratory and clinical trials; and

e.    any services or manufacturing related services as determined by the Minister of Finance.

These tax incentives are given as follows:

·        New company

Income tax rate of 0% to 10% for a period of up to 10 years.

·        Existing company with new services segment

Income tax rate of 10% for a period of up to 10 years.

(Effective date:

  • For manufacturing sector, applications received by MIDA until 31.12.2022
  • For selected services sector, application received by MIDA from 07.11.2020 to 31.12.2022)

 

Tax incentives for companies manufacturing pharmaceutical products including vaccines

Proposed:

The following tax incentives be given to manufacturers of pharmaceutical products including vaccines especially COVID-19 vaccine:

  • Income tax rate of 0% up to 10% for the first 10 years; and
  • Income tax rate of 10% for the subsequent 10 years.

(Effective for application received by MIDA from 07.11.2020 to 31.12.2022)

Review and expansion of scope of tax incentive for commercialisation of research and development findings

Proposed:

  • Tax incentive for commercialisation of non-resource-based R&D findings be reintroduced;
  • Tax incentive for commercialisation of R&D findings by public research institutions including public higher learning institutions be extended to private higher learning institutions.
Type of company Tax incentives
Investor company Tax deduction equivalent to the amount of investment made in the subsidiary company that commercialises the R&D findings of public research institutions including public higher learning institutions and private higher learning institutions.
Subsidiary company that commercialises R&D findings of public research institutions including public higher learning institutions and private higher learning institutions Income tax exemption of 100% of statutory income for 10 years

The resource based and non-resource based activities or products are subject to the list under the Promotion of Investment Act 1986.

(Effective for applications received by MIDA from 07.11.2020 to 31.12.2025)

Tax incentive for global trading centre

Current:

Principal Hub which carries out services and trading activities are eligible for special tax rate of 0% or 5% on statutory income on the qualifying activities for a period of up to 10 years.  This incentive will be expiring on 31.12.2020.

Proposed:

A new incentive scheme is to be introduced as Global Trading Centre and be given an income tax rate of 10% for a period of 5 years and renewable for another 5 years.

(Effective for applications received by MIDA from 01.01.2021 to 31.12.2022)

Review of tax incentive for Principal Hub

Proposed:

To further encourage more companies to establish their Principal Hub in Malaysia, it is proposed that:

i.       the application period for Principal Hub incentive for companies undertaking qualifying services activities be extended for another 2 years; and

ii.      the conditions for the number of high value job, annual operating expenditure and the number of key post for renewal of the tax incentive for the second 5 years be relaxed.

(Effective for applications received by MIDA from 01.01.2021 to 31.12.2022)

Tax incentive for investment in equity crowdfunding

Proposed:

To encourage more individual investors to invest in equity crowdfunding, it is proposed that individual investors be given an income tax exemption on the aggregate income equivalent to 50% of the amount of investment made in equity crowdfunding and be subject to the followings:

i.       the eligible amount for tax exemption is limited to RM50,000 for each year of assessment;

ii.      the deductible amount is limited to 10% of the aggregate income for that year of assessment, any excess amount will be disregarded;

iii.     the investor, investee company and amount of investment made must be verified by the Securities Commission Malaysia;

iv.     the investor must not have any family relationship with the investee company;

v.      investment must be made through equity crowdfunding platform approved by the Securities Commission Malaysia; and

vi.     the investment must not be disposed of either in full or in part within 2 years from the date the investment made.

(Effective for investment made from 01.01.2021 to 31.12.2023)

Extension of period of tax incentive for export of private healthcare services

Current:

Private healthcare companies are eligible for tax exemption equivalent to 100% of the value of increased export of healthcare services which is to be set-off against 70% of the statutory income derived from the export of healthcare services.  The healthcare services are provided to the foreign patients either in Malaysia or from Malaysia, subject to the following conditions:

i.       at least 10% of the total number of patients receiving private healthcare services for each year of assessment are comprised of qualified healthcare travellers; and

ii.      at least 10% of the gross income for each year of assessment is derived from qualified healthcare travellers.

This incentive is available up to year of assessment 2020.

Proposed:

The existing tax incentive is to be extended to Y/A 2022.

(Effective for Y/As 2021 and 2022)

 

Review of tax incentive for manufacturers of Industrialised Building System components

Current:

Manufacturers of Industrialised Building System (IBS) components such as columns, beams, slabs, walls and roof trusses and IBS systems such as precast concrete system, formwork system, steel framing system, block work system, timber framing system, innovative system, and modular system/components are provided with the following tax incentives:

CATEGORY 1 CATEGORY 2
Companies producing at least 3 basic components of IBS or IBS system that use at least 3 basic IBS components Companies producing at least 4 or more basic components of IBS or IBS system that use at least 4 basic IBS components
Income tax exemption of 70% of statutory income for a period of 5 years

OR

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

Income tax exemption of 100% of statutory income for a period of 5 years

OR

Investment Tax Allowance of 60% on qualifying capital expenditure incurred within 5 years. This allowance can be set off against 100% of statutory income.

The above tax incentives are effective for application received by MIDA from 10.09.2015 to 31.12.2020.

 

Proposed:

·            The above tax incentives are to be extended for another 5 years.

·            Category 1 and Category 2 are to be merged whereby companies are only required to produce at least 3 basic components of IBS or IBS system that use at least 3 basic IBS components be given an Investment Tax Allowance of 60% on qualifying capital expenditure incurred within 5 years.  This allowance can be set off against 70% of statutory income for each year of assessment.

(Effective for applications received by MIDA from 01.01.2021 to 31.12.2025)

Extension of period of tax deduction for employment of senior citizens, ex-convicts, parolees, supervised persons and ex-drug dependants

Current:

A further deduction is given on the remuneration paid by employers who employ senior citizens (60 years old & above), ex-convicts, parolees, supervised persons and ex-drug dependents from Y/A 2019 to 2020.  The eligibility criteria of employee are as follows:

i.           Full time employee;

ii.          Monthly remuneration does not exceed RM4,000;

iii.        Employer and employee are not the same person; and

iv.        Employer is not a relative of the employee

Proposed:

The further tax deduction on remuneration be extended for a period of 5 years.

(Effective from Y/A 2021 to 2025)