Current tax issues

@ copyright of KTP &THK
Contents of this presentation are adapted from the current of legislation at the time of presentation. No person should rely on the contents of this
publication without first obtaining professional advice. We, KTP or THK, shall expressly disclaim all and any liability and r esponsibility to any person in
reliance in whole or any part of this contents.
“CURRENT TAX ISSUES”
Prepared by: Chan Zi Yun (Hadey)

REDUCTION IN CORPORATE TAX RATE
- EXEMPTION ON INCREMENTAL OF CHARGEABLE INCOME
% of Increase in Business Chargeable
Income as Compared to Immediate
Preceding YA
% Point Reduction
Reduced Tax Rate Applicable
to the Incremental Business
Income (%)
less than 5.00% NIL 24
5.00% - 9.99% 1 23
10.00% - 14.99% 2 22
15.00% - 19.99% 3 21
20.00% and above 4 20
Gazette Order - Income Tax (Exemption)(No.2) Order 2017
[P.U.(A)117/2017]
*** Applicable to YA 2017 and YA 2018 only

the incremental amount of chargeable income shall be ascertained
without regard to any unabsorbed loss or unabsorbed allowance in the
YA and the YA immediately preceding that YA pursuant to - ….
Paragraph 4(4) of the Order

Example - para 4(4) of the Order
YA 2016
Without applying the Order
Note:-
(1) Reinvestment allowance
(2) Losses
RM Note
Statutory Business Income 1,000,000
Less: Reinvestment Allowance (700,000) 1
300,000
Less: Losses b/f (100,000) 2
Chargeable Income 200,000
RM
Balance b/f 1,000,000
Add: Current year claim 500,000
1,500,000
Less: Amount utilised (700,000)
Balance c/f 800,000
RM
Balance b/f 100,000
Add: Amount utilised (100,000)
Balance c/f -
Applying the Order
Note:-
(2) Losses
RM Note
Chargeable Income 500,000
RM
Balance b/f 1,000,000 (Disregarded)
Add: Current year claim 500,000
Balance c/f -
RM
Balance b/f 100,000 (Disregarded)

Example - para 4(4) of the Order
YA 2017
Without applying the P.U. Order
Note:-
RM Note
300,000
RM
Balance b/f 800,000
Balance c/f 100,000
Applying the P.U. Order
Note:-
RM Note
Statutory Business Income /
Chargeable Income 1,000,000 1
RM
Balance b/f 800,000 (Disregarded)

FOR SME, CHARGEABLE INCOME < RM500K
YA 2016 YA 2017
RM RM
Statutory Business Income 70,000 260,000
Rental Income under Section 4(d) 60,000 120,000
Interest Income under Section 4(c) 10,000 80,000
Aggregate Income 140,000 460,000
Less: Donation 30,000
Chargeable Income 140,000 430,000
Example:-
Step 1:
Calculate the IACI (from a business source)
* The formula is to calculate the amount after deducting approved donation
= (
RM260,000
x RM430,000 ) - (
RM70,000
x RM140,000 )
RM460,000 RM140,000
= RM243,043
-
RM70,000
= RM173,043
A B
A-B
IACI is part of the amount of the first RM500k of Chargeable Income

Step 2:
Calculate the percentage of IACI (from business sources)
* For increase in chargeable income of 93.60%, the reduced tax rate to be used in Step 3 is 20%
=
IACI
x 100%
Chargeable income (from business sources) for YA2016
=
RM173,043
x 100%
RM70,000
= 247.20%
B
A-B
Step 3:
Calculate the exempted chargeable income from the carrying on of a business for YA2017
* Step 3 is NOT applicable since the IACI is part of the amount of the first RM500,000 of the chargeable income in the
basis period for the YA and hence the exemption under the Order shall not apply.
Step 4:
Calculate the tax payable for YA2017
RM430,000 x 18% = RM77,400

FOR SME, CHARGEABLE INCOME > RM500K
YA 2016 YA 2017
RM RM
Statutory Business Income 370,000 780,000
Rental Income under Section 4(d) 60,000 120,000
Interest Income under Section 4(c) 10,000 80,000
Aggregate Income 440,000 980,000
Less: Donation 80,000
Chargeable Income 440,000 900,000
Example:-
Step 1:
Calculate the IACI (from a business source)
* The formula is to calculate the amount after deducting approved donation
= (
RM780,000
x RM900,000 ) - (
RM370,000
x RM440,000 )
RM980,000 RM440,000
= RM716,327
-
RM370,000
= RM346,327
A B
A-B
IACI is NOT part of the amount of the first RM500k of Chargeable Income

Step 2:
Calculate the percentage of IACI (from business sources)
* For increase in chargeable income of 93.60%, the reduced tax rate to be used in Step 3 is 20%
=
IACI
x 100%
Chargeable income (from business sources) for YA2016
=
RM346,327
x 100%
RM370,000
= 93.60%
B
A-B
Step 3:
Calculate the exempted chargeable income from the carrying on of a business for YA2017
=
(RM216,327 x 24%) - (RM216,327 x 20%)
x RM216,327
RM216,327 x 24%
= (
RM51,918 - RM43,265
) x RM216,327
RM51,918
= RM36,054
RM500,000 - RM370,000 =RM130,000 not subject to exemption for YA2016 (tax rate 18%, <20%)
RM346,327 - RM130,000 = RM216,327 subject to exemption

Step 4:
Calculate the tax payable for YA2017
Effectively, the company’s total Chargeable Income of RM900,000 is taxed as follow:-
Net Chargeable Income = Chargeable Income - Exempted Chargeable Income
= RM900,000 - RM36,054
= RM863,946
Chargeable Income Prevailing tax rate Tax Payable
(RM) (%) (RM)
First
500,000 x 18 90,000
Next 363,946 x 24 87,347
863,946 177,347
Chargeable Income Prevailing tax rate Tax Payable
(RM) (%) (RM)
500,000 x 18 90,000
216,327 x 20 43,265
183,673 x 24 44,081
900,000 177,347

“This Order shall NOT apply to a qualifying person who in the basis period for a YA-
(a) has made a claim for reinvestment allowance under Schedule 7A or investment allowance under Schedule 7B;
(b) have been granted any incentive under Promotion of Investments Act 1986;
(c) have been granted an exemption under Section 127;
(d) have made a claim for group relief under Section 44A;
(e) is an investment holding company under Section 60F or Section 60FA;
(f) is a unit trust which is defined under subsection 63C(5);
(g) has a debt that has been released under subsection 30(4) – waiver of debt ”
*** mutual and exclusively
To avoid the loophole of taxpayers taking advantage to enjoy the exemption on incremental chargeable income in respect of
debts (loan and advances) waived by its related companies.
MIA request IRB to grant a concession for cases where taxpayers obtain genuine trade discounts from their suppliers in the
ordinary course of business (purchase goods/services, so that they can continue enjoy the exemption under the Order.
IRB’s reply :
if the trade discount mentioned above is related to the routine business activity then it is not subject to subsection 30 (4)
ITA1967. However, if the trade discount has an element of debt discharged such as loan debt or advances from a related
company which is released, it is subject to such subsection.

TAX IMPLICATIONS ARISING FROM THE
COMPANIES ACT 2016
1. Exemption from Appointment of Auditor under Section 267(2) of Company Act 2016 (Practice Directive No. 3/2017 -
Qualifying Criteria for Audit Exemption for Certain Categories of Private Companies)
➤ Section 77A of Income Tax Act 1967 requires an Income tax return to be furnished based on Audited Financial
Statements
➤ IRB has previously clarified that, if it stipulate under Company Act 1965 that a company is not required to submit
audited financial statements, then S77A(4) would not apply to the company. However, the company must submit its
income tax return based on information in the final accounts. (Announcement by IRB dated 19 March 2014, but this
Section 77A(4) makes reference to CA1965. Therefore, would need to be amended to take cognizance of the CA2016
which became effective from 31 January 2017).
Conclusion:-
➤ Minutes of Desire Meeting No. 1/2018 on 1/4/2018 (dialog) – IRB agree, follow SSM practice
* For those companies qualified for audit exemption, can use full set of management account (must keep all the
supporting documents)

2. Abolishment of Share Premium Account
• Section 618 of CA 2016 - share premium account & capital redemption reserve will no longer be applicable
• Section 74 of CA2016 - any amount standing in credit in the company’s share premium accounts and capital redemption
reserve shall become part of the company’s share capital
ie. Previously
Paid up capital - RM2million
Share premium - RM1million
∴ SME
Currently
Share caital - RM3million (RM2million + RM1million)
∴ not SME
A transitional period of 24 months will be given for companies to utilise the amount standing in credit in company’s share
premium accounts
➤ The above will eventually increase the paid-up capital of a company.
➤ Therefore, how will this impact the definition of SME in para 2A, Schedule 1 of ITA1967 and gazette order? (ie. will be
amended? )

CAPITAL ALLOWANCE FOR ICT EQUIPMENT, COMPUTER
SOFTWARE PACKAGES AND CUSTOMISED SOFTWARE
Before Budget 2018
Budget 2018 : IRB will be issuing detailed guidelines/rules
ICT Equipment and Computer Software Package
IA 20% AA 80%
(up to YA 2016)
Development of customised software - consultation fee,
licensing fee and incidental fee
No deduction and No CA
ICT Equipment and Computer Software Package
IA 20% AA 20%
(WEF YA 2017) - Gazette Order P.U.(A) 156/2018)
Development of customised software - consultation fee,
licensing fee and incidental fee
IA 20% AA 20%
(WEF YA 2018)
Still waiting for detailed gazette order

DOUBLE DEDUCTION
(1) Employment of Disable Person
Previously
Remuneration paid to handicapped employees (must have OKU certificate)
Currently
Salary paid to employee who has been affected by accidents or critical illnesses and certified by Medical Board of SOCSO
that he/she is able to work within his/her capabilities
ie.
injury recovery
Salary paid entitle to DD
WEF: YA2018
(2) Expenses Incurred in Obtaining Certificate for Quality Systems and Standards
- Not being capital expenditure
- Obtain certificate from approved certification bodies be given to companies registered with M’sia Healthcare Travel
Council that provide dental and ambulatory healthcare services
WEF: YA2018
Question is how to determine
the recovery?
∴ Waiting for the gazette
order

CHANGE OF ACCOUNTING PERIOD
New Section 21A(3A) of ITA 1967 introduced to provide that where a company, limited liability partnership, trust body or co-
operative society has changed its accounting period, shall notify DGIR in a prescribed form, CP204B:-
• in the case where the accounting period is shorten, 30 days before the end of the new accounting period; or
• in the case where the accounting period is lengthen, 30 days before the end of the original accounting period; or
WEF: YA2019
Failure to comply with S21A(3A) upon conviction be liable to
- a fine of not less than RM200 and not more than RM20,000; or
- imprisonment for a term not exceeding 6 months; or
- Both
WEF: 30th December 2017

PENALTY RATE - INCORRECT TAX RETURN
Incorrect tax return:-
Penalty rate (based on
S113(2) ITA)
Concessionary penalty rate
(Tax Audit Framework 2015)
Concessionary penalty rate
(Tax Audit Framework 2017)
(i) Voluntary disclosure before
case is selected for audit
up to 100%
“x” period from the due date for furnishing
the tax return:
- within 60 days : 10%
- after 60 days to 6 months : 15.5% (10% +
5%)
- After 6 months to 1 year : 20%
- After 1 years to 3 years :25%
- Beyond 3 years : 30%
“x” period from the due date for
furnishing the tax return:
- within 60 days : 10%
- after 60 days to 6 months : 15.5%
(10% + 5%)
- Beyond 6 months : 35%
(ii) Voluntary disclosure after
case has been selected for
audit but before
commencement of audit
up to 100% 35%
No reduced penalties for voluntary
disclosure after audit has commenced
(iii) Discovery during a tax
audit
up to 100% 45%
45%
Note: 100% penalty if repeated
offence after letter of “Deliberate Tax
Defaulter” has been issued to taxpayer
Imposition of Maximum penalty under S113(2) of ITA from 1 January 2018, announced by IRB on 17 April 2017
➤ Implementation of the above will be deferred until further notice from IRB, due to new government

AGGRESSIVE TAX PLANNING
TAX AVOIDANCE (ATP) TAX MITIGATION
Tax driven Tax savings is secondary or incidental
No commercial justification
- Commercially justified
- Consequent to the requirements of law
- Accepted business practices
General Anti-Avoidance Rules (GAAR) &
Specific Anti-Avoidance Rules (SAAR)
Permissible
General Anti-Avoidance Rules (GAAR) Specific Anti-Avoidance Rules (SAAR)
Section 140(1) of ITA1967
DG has reason to believe that any transaction has the direct
or indirect effect of:-
(a)altering the incidence of tax…
(b)relieving any person form any liability which has arisen…
(c)evading or avoiding any duty or liability which is
imposed…
(d)hindering or preventing the operation of this Act
Section 44A
Group relief for companies - have to pass the 70% residual
profits and residual asset test
Section 140A
Power to substitute the price and disallowance of interest
on certain transactions
Section 140B
Loans or advances to directors
Section 141
Powers regarding certain transactions by non-residents

Sabah Berjaya Sdn Bhd v KPHDN (1999)
Donations instead of dividend payment to Sabah Foundation
Decision:-
- Income tax is mitigated by a taxpayer who reduces his expenditure in circumstances which reduce his assessable
income
- Arranging one’s affairs to enjoy a tax benefit which is permissible under the ITA does not amount to tax avoidance
Sabah Foundation
(approved institution under
S44(6) of ITA1967)
- Holding Company -
Sabah Berjaya Sdn Bhd
shares
Supposed give dividend to
Sabah Foundation, instead
of donation
tax
deducted
not tax
deducted

REINVESTMENT ALLOWANCE (RA)
Qualifying capital expenditure incurred on:
- Factory building
- Plant and machinery
***meaning of Factory:
Prior to YA 2012 - as defined in Sch 3
From 2012 onward, the term “factory” is now defined in
Schedule 7A of ITA 1967
“portion of the floor areas of a building or an extensions
of a building used for the purpose of qualifying project
to place or install plant or machinery or to store any raw
materials, or goods or materials manufactured prior to
sales; provided that in respect of portion of the building
or extension of the building used for the storage of raw
material, or goods or materials, or both, it shall not be
more than 1/10 of the total floor areas of that building
or extension”
For the purpose of qualifying project:
Building used for manufacturing
activities
(not a qualifying project)
Extension of building used
for a qualifying project –
diversification
Storage
space
≤10%
RA is allowed on 100% of the total
floor areas extended that is
considered a factory as the
factory area used as storage space
is less than 10% of the total floor
area of the extension

REINVESTMENT ALLOWANCE (RA)
***meaning of Plant and machinery:
Definition in Schedule 7A (WEF 2016)
“Machinery” means a device or apparatus consisting of fixed and
moving parts that work together to perform function in respect of
a manufacturing activity, which is directly used in carrying out that
activity in a factory
“Plant” means an apparatus used in respect of a manufacturing
activity, which is directly used in carrying out that activity in a
factory
- includes whatever apparatus used in respect
of the manufacturing activity
- includes a device or apparatus consisting of
fixed and moving parts
- include HP assets (claimed based on capital
portion paid in the YA
- provided it does not exceed the entitlement
of 15 consecutive YAs
Example 23 (PR 9/2017 – Manufacturing Activity)
Company U, manufacturer (YE 31st Dec) embarked on an expansion project in 2015 and acquired 2 forklifts for this purpose.
Forklift A – used to unload raw mat from lorry outside factory building to be weighed and inspected before being placed in storage
Forklift B – used in factory to move the materials throughout the production line.
Forklift A is not used in the factory, it is not qualifying machinery for the purpose of RA
Forklift B is used in the factory for the conveyance of materials and product to be sold and would be considered a qualifying machinery for
the purposes of RA.

Budget 2011 & 2012
Amendments be made to the non-application paragraph in Schedule 7A of the ITA 1967 in particular the word
“period” be replaced by “basis period”
With the amendments, RA incentive cannot be claimed in the same basis period when a company is also enjoying PS
(Budget 2011) or ITA (Budget 2012)
Effective : YA2011

01/01/2012 31/03/2012 31/12/2012
PS/ITA ceased
x
Incurred QCE for RA on
01/09/2012
– NOT eligible for RA
Basis period
YA2007 -
YA2008 PS/ITA
YA2009 PS/ITA
YA2010 PS/ITA
YA2011 PS/ITA
YA2012 PS/ITA or RA (only choose one – mutually exclusively)
*** If YE Changed to 30/06/2012, then
YA 2012 – continue claim PS/ITA
YA2013 – can claim the RA on asset acquisition during the YA
Example:
XYZ Sdn Bhd (YE 31/12/2012)
PS/ITA period : 01/04/2007 – 31/03/2012

Budget 2016
A company be entitled to make a claim for special RA for another 3 years of assessment to encourage reinvestments
by companies that have exhausted their eligibility to RA claim (ie. Completed the 15 cons. YAs).
Illustration:-
Effective : YA2016 – YA2018
Special RA incentive for:-
YA2016 YA2017 YA2018
15 Consecutive YAs of RA Ended in:-
YA2015 or prior years ✔ ✔ ✔
YA2016 N/A ✔ ✔
YA2017 N/A N/A ✔
SPECIAL RA

Thank You

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