2020 has been a turbulent year to say the least, with the Covid-19 pandemic wreaking havoc on global markets, causing declining growth rates across the board even in the most resilient of economies. Amidst this backdrop, the concept of business resiliency has never been more important.
In Budget 2021, the Malaysian Government has set the country on the pathway to revitalisation. Following the first round of economic stimulus in the form of the PRIHATIN Economic Stimulus Package and three subsequent stimulus packages, all of which total RM305 billion, the government of the day has met the on-going crisis head on by tabling an expansionary budget. With its theme of Resilient as One, Together we Triumph, this budget provides for the largest expenditure in Malaysia’s history, amounting to RM322.5 billion, including a specific allocation of RM17 billion to the Covid-19 fund to combat the crisis.
The message is clear, to provide stimulus for economic sectors that require it and support to all levels of society. Development expenditure stands at RM69 billion, an increase from RM56 billion in the prior year, indicating that the government’s focus would be to act as a catalyst for growth. An allocation of RM15 billion to infrastructure projects such as MRT 3 as well as RM7.4 billion to build and upgrade broadband services, showcase the government’s commitment to supporting growth through increased connectivity in both physical and digital spaces.
From a tax perspective, the Malaysian Government has moved to capitalise on the on-going effort by companies to relocate global supply chains amidst the global crisis. Several incentives have been introduced to position Malaysia as a strategic investment destination including relaxation of existing incentives and introduction of new ones. The ordinary citizen is also set to benefit from a host of reliefs and a reduction in personal income tax for the M40 Group.
While these short-term measures are necessary, Malaysia’s fiscal deficit is set to widen from 3.2% to 6% of GDP as a result. Therefore, we can expect that proactive measures will be taken to increase revenue to offset the large amount of expenditure. With a forecasted growth of tax revenue from RM153 billion (2020) to RM174 billion (2021), taxpayers should take note that an ambitious tax revenue target could come at the cost of greater tax compliance efforts.
Our overall opinion is that the Malaysian Budget 2021 is practical and supportive of the revitalisation of the economy amidst the unprecedented crisis. We hope the insights provided herein act as a guiding light for you and your business as you navigate through these uncertain times.
Application period for tax incentives for companies relocating their business operations to Malaysia and undertaking new investments is extended to 31 December 2022 whilst the tax incentives of 0% to 10% tax rate for a period of ten (10) years are expanded to include selected services sector.
Special income tax rate will be given to companies manufacturing pharmaceutical products including vaccines.
Reintroduction of tax incentives for the commercialisation of non-resource based R&D findings and the inclusion of private higher learning institutions as public research institutions.
New tax incentive known as Global Trading Centre that comes with a preferential tax rate of 15% for a period of five (5) years will be introduced.
Application period for income tax exemption on the Sustainable and Responsible Investments sukuk grant is extended to 31 December 2025.
The period for claiming the Principal Hub incentive is extended to 31 December 2022.
The period for claiming the tax incentive for export of private healthcare services is extended to 31 December 2022.
The period for claiming tax incentive for manufacturers of Industrialised Building System (IBS) components is extended to 31 December 2025.
The period for claiming tax deduction for companies employing senior citizens, ex-convicts, parolees, supervised persons and ex-drug dependants is extended to the Year of Assessment (YA) 2025.
The application period for tax incentives for businesses operating in Iskandar Malaysia, East Coast Economic Region and Sabah Development Corridor is extended until 31 December 2022.
The period of Sales Tax exemption for the purchase of buses by the bus operators is extended to 31 December 2022.
The period for Stamp Duty exemption on the purchase of first residential home is extended to 31 December 2025 and the exemption is expanded to include residential home priced up to RM500,000.
The period of Stamp Duty exemption for Perlindungan Tenang products is extended to 31 December 2025.
Reduction of income tax rate by 1% for resident individuals under the chargeable income band of RM50,001 to RM70,000.
Income tax relief for medical expenses for parents will be increased from RM5,000 to RM8,000.
An additional tax relief for a disabled spouse will be increased from RM3,500 to RM5,000.
Tax relief on medical expenses for serious diseases for taxpayer, spouse and child and fertility treatment will be increased to RM8,000 and the relief includes complete medical examination expenses of up to RM1,000 and vaccination expenses of up to RM1,000.
The period for claiming personal tax relief for contribution to Private Retirement Scheme (PRS) is extended to YA 2025.
Lifestyle tax relief will be increased to RM3,000 where up to RM500 is specifically provided for expenses incurred on sports equipment and sports activities. Subscription to electronic newspapers will now qualify under this relief.
Tax relief for savings made under the National Education Savings Scheme (SSPN) of up to RM8,000 will be extended for another two (2) years i.e. until YA 2022.
Scope of tax relief on further education fees of RM7,000 a year will be expanded to include fees for attending up-skilling and self enhancement courses but this is restricted to RM1,000 for each YA.
Income tax exemption limit for compensation for loss of employment with the same employer or companies within the same group will be increased from RM10,000 to RM20,000 for each full year of service for YA 2020 and YA 2021.
Permodalan Nasional Berhad (PNB) through Amanah Saham Nasional Berhad or ASNB will introduce wakaf services to all ASNB unit trust holders. Under this service, unit holders can endow some of their units into ASNB wakaf fund and be eligible for an income tax deduction.
Application period for tax incentive for Returning Expert Programme (REP) is extended to 31 December 2023 and the 15% flat tax rate will not be restricted to employment income only.
Review of income tax exemption for individuals investing in equity crowd funding from 1 January 2021 until 31 December 2023.
Review of tax rate of 15% for foreign individuals holding key positions in companies making strategic new investments by relocating their operations to Malaysia.
Matching grants of up to RM20 million is allocated to encourage the private sector employers to provide childcare centres for their employees.
Grants to Rukun Tetangga Areas are increased from RM4,800 to RM6,000 each.
Employers can claim a grant of up to RM4,000 for training programs for the new graduates who participate in the apprenticeship program.
Matching grants of up to RM30,000 are allocated to the Pertubuhan Peladang Kawasan for purchasing agriculture equipment based on the Internet of Things (i.e. drones).
Matching grants of up to RM20,000 are allocated for micro entrepreneurs to purchase equipment to develop high-value aquaculture livestock such as lobster and grouper.
Matching grants of RM30 million are introduced to encourage the oil palm industry’s investment in mechanisation and automation.
Grant Khas Prihatin of RM1,000 will be given to 20,000 traders and hawkers in Sabah as well as to taxi drivers, e-hailing, rental cars and tour drivers in Sabah.
Additional funds amounting to RM150 million are provided under the SME Digitalization Grant Scheme and the Automation Grant.
RM30 million is allocated to a matching grant that will be invested into Equity Crowd Funding platforms under the supervision of the Securities Commission.
Through the concept of matching grants, the Government together with Yayasan Hasanah has funded initiatives such as income generation especially for those affected during COVID-19.
A grant of RM100 million is allocated to NGOs involved in job creation, addressing social issues and environmental protection with a matching grant from GLC-owned foundations.
A one-off grant of RM500 is allocated to police retirees who received the National Hero Service Medal.
Bantuan Prihatin Rakyat of between RM350 and RM1,800 will be provided to eligible households and singles.
Jaringan PRIHATIN Programme in the form of telecommunication credit worth RM180 will be given to eligible B40 group.
Targeted Loan Repayment Assistance is enhanced to include B40 borrowers and micro enterprises whilst the application process is simplified for M40 borrowers.
Minimum employees’ EPF statutory contribution rate will be reduced from 11% to 9% for a period of twelve (12) months commencing from January 2021.
Individuals who have lost their jobs will be given an option to withdraw their EPF savings from Account 1 of up to RM500 per month for a period of twelve (12) months starting from January 2021.
Job Search Allowance covered under the SOCSO’s Employment Insurance System will be extended for an additional period of three (3) months in year 2021.
The Wage Subsidy Program at a rate of RM600 per month for workers earning RM4,000 and below will be extended for an additional period of three (3) months and is catered specifically for the tourism and retail sectors.
EPF members will be allowed to withdraw from EPF Account 2 to purchase insurance and takaful products relating to life and critical illnesses coverage for the members and their family approved by the EPF.
Businesses in the tourism sector and companies affected by the Covid-19 crisis will be given an exemption from payment of HRDF levies for a period of six (6) months effective from 1 January 2021.
License and conditions for importation and shipment of cigarettes will be tightened. All duty free cigarettes will be treated as taxable goods from 1 January 2021.
The government has received a commitment from the four major gloves manufacturers to contribute RM400 million collectively in the fight against COVID-19 pandemic.
Crowe Chat (Special Budget Edition) Part 2