“ 1Malaysia, Generating Transformation ”
Summary & Highlights – Tax Changes & Proposals
EPF relief scope extended but limit not increased
Existing EPF relief of maximum RM6,000 is extended to include employees’ contributions to Private Pension Fund (PPF) to be set up by the government in 2011. Employers are allowed for tax deductions for contributions made to the Private Pension Fund. In other word, apart from mandatory contribution to EPF, employees and employers (including self-employed) can now opt to make additional contributions to Private Pension Fund to be set up by the government.
This benefits the lower income group as most of the medium to high income group may already claiming up to the maximum relief of RM6,000 as the relief of RM6,000 is also include the life insurance premium, apart from employees’ own EFP contributions. For employers, this may open up an additional tax planning for tax deductions on such contributions to PPF while rewarding the employees or better structuring the staff remuneration package, as there is a cap allowed for tax deductions in respect of employers’ EPF contributions for staff. Presently, employer contributions to the approved schemes (eg. EPF) in excess of 19% of the employee’s remuneration will be disallowed as tax deductions. However, employer contributions to this new PPF will be allowed for tax deductions and will not count towards the 19% cap.
However, will the employers happy to subscribe to this new PPF? They can always increase the employer (portion) EPF contribution as long it is not exceeding the 19% tax deduction limit. The structure, investment policies as well as return to the new PPF are unknown, compared to the well-established EPF. For those employees who are already claimed at the maximum limit of RM6,000, would they willing to contribute to PPF, in additional to the current mandatory EPF contribution, which may reduce their disposable income but no tax efficiency will be achived as tax relief claimed may already at the maximum limit.
How this new PPF will benefit self-employed persons? If a person carried out a business under the sole proprietorship or partnership (referred to as “business” herewith), the EPF contributions made by the business are not allowed as tax deductions but instead the contributions will be added back and form part of the profit derived from the business by that person and assess for individual tax accordingly. With the introduction of new PPF, contributions made by the business will be allowed for tax deductions.
Parent medical relief scope extended but limit not increased
Current individual tax relief of up to RM5,000 for parents’ medical expenses be extended to cover expenses to care for parents. These expenses are for parents who suffer from diseases or with physical or mental disabilities and who need regular treatment certified by a qualified medical practitioner. This include treatment and care at home, day care centres or home care centres. Currently the tax relief of up to RM5,000 medical expenses for parents are for treatment in clinics and hospitals, treatment in nursing homes and dental treatment (exclude cosmetic dental treatment).
50% stamp duty exemption on housing S&P and loan agreements
First-time Malaysian citizen house buyers will be given stamp duty exemption of 50% on (1) instruments of transfer (i.e sale and purchase agreement) and (2) loan agreement on a residential house price not exceeding RM350,000 during 1 Jan 2011 to 31 Dec 2012. Residential property include a terrace house, condominium, apartment or flat. Question here is – would serviced apartments erected on commercial land be scope out?
Service tax increase to 6%
Service tax rate will be increased from 5% to 6% with effect from 1 Jan 2011. This will impact quite a number of service industry as well as individual consumptions. This may be a temporary measure to increase government revenue while pending the implementation of Goods and Services Tax (GST).
ASTRO monthly subscription fee will be increased with a service tax of 6% with effect from 1 Jan 2011. Service tax of 6% will be imposed on paid satellite broadcasting services in which this service was not subject to service tax previously.
The Budget is more focusing on a macro economy and it appears not too many announcements or tax proposals that are affecting the individuals and companies directly.
No new taxes were introduced. No new policies announced on tackling the speculative buying of real properties, in particular the loan to value cap ratio at 70% or 80%.
No tax reductions for individuals and corporate. There was no announcement on withholding tax on dividend income from Real Estate Investment Trust (REIT).
Nothing was announced on bonus for civil servants.
This Budget is very plain and there was not many tax changes or proposals.
Download the Malaysia Budget 2011 Speech, Appendices and Finance Bill: