Executive Summary For Budget 2021

In Budget 2021, the government has proposed various fiscal measures to mitigate adverse impacts of economic recession caused by Covid-19. The key measures relevant to our clients are summarized as follows:

Personal Tax

1. To reduce personal income tax rate for tax resident by 1 percent for tax bracket between RM50,0001 to RM70,000.
2. To increase income tax relief limit on expenses for medical treatment, special needs and parental care from RM5,000 to RM8,000.
3. Tax relief on medical treatment expenses of serious illnesses for individual taxpayers, spouses and children and fertility treatment for taxpayers and spouses increased from RM6,000 to RM8,000.
4. Tax relief limit for full medical check-up expenditure is increased from RM500 to RM1,000.
5. Tax relief for disabled couples increased from RM 3,500 to RM 5,000. 
6. Tax relief RM3,000 on contributions to Private Retirement Scheme is extended for another 4 years.
7. Tax relief for lifestyle is increased from RM2,500 to RM3,000, the RM500 is dedicated to sports, admission/rental of sports facilities and payment of participation in sports services.
8. Tax relief RM8,000 on annual net savings in SSPN be extended for another 2 years. 
9. Tax relief for tuition fee expenses up to RM7,000 per annum for up-skilling or self-enhancement courses in any field recognized by the Department of Skills Development, Ministry of Human Resources. This additional scope is limited to RM1,000 per year of assessment.
10. Tax exemption on compensation for loss of employment with the same employer or company in the same group be increased from RM 10,000 to RM 20,000 per completed year of service.
11. 100% stamp duty exemption on transfer instruments and loan agreements for the purchase of first residence houses priced at RM500,000 and below for a period of 5 years.
12. Special tax incentives be given for experts return from overseas to Malaysia. Such incentives include income tax at a flat rate of 15% for a period of 5 consecutive assessment years; import duty and excise duty exemption for the purchase of a CBU vehicle or excise duty exemption for the purchase of a CKD vehicle subject to a limited amount of duty exemption of up to RM100,000.

Corporate Tax

1. Introduce new tax incentives for companies transferring operations to Malaysia and make new investments in manufacturing, technology and related service sectors:

-New company: income tax rate of 0% to 10% for a period of up to 10 years.

-Existing company: Income tax rate of 10% for a period of up to 10 years.

2. New incentive to encourage pharmaceutical manufacturers of vaccines especially for COVID-19 to invest in Malaysia:

-Income tax rate of 0% to 10% for the period up to the first 10 years; and

-Income tax rate of 10% for the next 10 years

Apart from the above tax incentives, strategic investments by the company may be considered for other facilities including grants, import duty and sales tax exemptions for machinery and equipment and raw materials.

3. 100% Tax exemption on income generated for R&D activities, and commercialisation of R&D of public research institutions including public institutions of higher learning are extended to private institutions of higher learning.
4. To allow double deduction for employment of senior citizens, former prisoners, parole people, supervised people and former drug addicts for a period of 5 years.
5. Tax rebates for an amount equivalent to its operating or capital expenditure which it has incurred limited to a maximum amount of twenty thousand ringgit for each year of assessment, for a period of 3 consecutive years from the year of assessment a SME company or limited liability partnership (LLP) first commences operation. The company or LLP must has commenced operation on or after 1 July 2020 but not later than 31 December 2021.
6. To increase prescribed value-added activities and additional activities operating in the Free Industrial Zone or Licensed Manufacturing Warehouse from 10% to 40% of the company’s annual sales. 
7. To amended Section 140A and introduce new Section 113A on failure to furnish Transfer Pricing (TP) documentation as requested by the Inland Revenue Board:

-A fine of at least RM20,000 to RM100,000 or to imprisonment for a term not exceeding six months or to both;

-The Court may order the person to comply with TP documentation within 30 days, or such other period as the Court deems fit, from the date the order is made;

-The Inland Revenue may audit the economic substance of any related party transactions viewed in totality, differs from those which would have been adopted by independent persons behaving in a commercially rational manner. The Inland Revenue may disregard any structure adopted by a person entering into such transactions, and make adjustments to the structure of that transaction as it thinks fit, to reflect the structure that would have been adopted by an independent person dealing at arm’s length having regard to the economic and commercial reality.

-The Inland Revenue may require the person to pay a surcharge of not more than 5 per cent of the amount of increase of any income generally, or reduction of any deduction or loss, as a consequence of exercising its powers to substitute the price to reflect an arm’s length price for that transaction or to disregard any structure adopted by a person in entering into a transaction.

8. Introduce new section 103B of the Income Tax Act, 1967 and Section 21C of the RPGT Act, 1976: The institution of any proceedings under any other written law against the Government or the Director General shall not relieve any person from liability for the payment of any tax, debt or other sum for which he is or may be liable to pay. These sections have curtailed the rights of taxpayers to delay payment of tax liabilities, even if the taxpayers have made an appeal to the Court to stay the payment of tax liabilities until the case is fully disposed of by the Court.

For understanding on further details on the budget proposals, please refer to Appendix I below.

Please feel free to contact us for clarifications and advice.

PCS Advisory Group
No. 4, 4-01, Jalan Rosmerah 2/13
Taman Johor Jaya
81100 Joho Bahru 
Johor, Malaysia
607-3553061/4061

APPENDIX 1

1. REVIEW ON RESIDENT INDIVIDUAL INCOME TAX RATES

Current Position

The income tax structure for resident individuals adopts a progressive tax rate of between 0% to 30% on taxable income as follows:

Taxable Income (RM)	Current 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	14
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
1,000,001 – 2,000,000	28
2,000,001 and above	30

Non-resident individual income tax is charged at a flat rate of 30%.

Proposal

As a measure to increase the disposable income of individual taxpayers and in particular assist middle-income taxpayers affected by the current economic situation, it is proposed that the income tax rate of the residents’ individuals to be reduced by 1 percent for the taxable income of RM50,0001 to RM70,000.

The tax saving for each individual from the tax reduction is as follows:

Taxable Income (RM)	Current Tax Rate (%)	Current Tax Payable (RM)	Baharu Tax Rate (%)	BaharuTax Payable (RM)	Tax Savings (RM)	Tax Savings (%)
0 – 5,000	0	–	–	–	0	0
5,001 – 20,000	1	0*	1	0*	0	0
20,001 – 35,000	3	200*	3	200*	0	0
35,001 – 50,000	8	1,800	8	1,800	0	0
50,001 – 70,000	14	4,600	13	4,400	200	4.55
70,001 – 100,000	21	10,900	21	10,700	200	1.87
100,001 – 250,000	24	46,900	24	46,700	200	0.43
250,001 – 400,000	24.5	83,650	24.5	83,450	200	0.24
400,001 – 600,000	25	133,650	25	133,450	200	0.15
600,001 – 1,000,000	26	237,450	26	237,250	200	0.08
1,000,001 – 2,000,000	28	517,450	28	517,250	200	0. 04
2,000,001 and above	30		30

*After RM400 rebate for income tax till RM 35,000

Effective Date

Beginning the year of assessment 2021.

2. INCREASED INCOME TAX RELIEF LIMIT ON EXPENSES FOR MEDICAL TREATMENT, SPECIAL NEEDS AND PARENTAL CARE

Current Position

Income tax relief up to RM5,000 is eligible to be claimed by individual taxpayers on medical treatment expenses, special needs and parental care limited to the following expenses:

1. treatment in clinics and hospitals;
2. treatment in a care home;
3. dental treatment excluding cosmetic dental treatments; and
4. home treatment and care treatment at day care centres and residential care centres.

Suggestion

To help ease the cost of financing medical care and parental care expenses, it is proposed that the income tax relief limit on expenses for medical treatment, special needs and parental care increased from RM5,000 to RM8,000.

Effective Date

Beginning the year of assessment 2021.

3. REVIEW ON INCOME TAX RELIEF ON PERSONAL, SPOUSE AND CHILD MEDICAL TREATMENT EXPENSES

Current Position

Income tax relief of up to RM6,000 is eligible to be claimed on medical treatment expenses of serious illnesses for individual taxpayers, spouses and children as well as fertility treatment for taxpayers and spouses. Tax relief claims must be proved by receipts and recommendations by medical practitioners registered with the Malaysian Medical Council confirming treatment given to taxpayers, spouses or children. This relief includes an amount of up to RM500 for full medical check-up expenses.

Proposal

To help ease the cost of financing the medical treatment expenses of individual taxpayers, spouses and children as well as encourage more Malaysians to obtain vaccinations, it is proposed as follows:

1. Limitation of tax relief on medical treatment expenses of serious illnesses for individual taxpayers, spouses and children and fertility treatment for taxpayers and spouses increased from RM6,000 to RM8,000;
2. The tax relief limit for the scope of full medical check-up expenditure is increased from RM500 to RM1,000; and
3. The scope of tax relief for medical treatment expenses is extended to include vaccination expenses incurred by individual taxpayers for themselves, spouses and children up to RM1,000. The types of vaccines eligible for tax relief are as follows:
   1. Pneumococcal;
   2. Human Papillomavirus (HPV);
   3. Influenza;
   4. Rotavirus;
   5. Varicella;
   6. Meningococcal;
   7. combination of tetanus-difteria-acellular pertussis (Tdap); and
   8. COVID-19 (subject to vaccine availability).

Effective Date

Beginning the year of assessment 2021.

4. INCREASED INCOME TAX RELIEF LIMIT FOR DISABLED SPOUSE

Current Position

Individual taxpayers with disabled spouses are given an additional tax relief of RM3,500.

Proposal

To assist individual taxpayers with disabled spouse, it is proposed that the additional tax relief limit for disabled couples increased from RM 3,500 to RM 5,000. 

Effective Date

Beginning of the year of assessment 2021.

5. EXTENSION OF PERIOD FOR  INCOME TAX RELIEF ON CONTRIBUTIONS IN PRIVATE RETIREMENT SCHEMES

Current Position

Income tax relief up to RM3,000 for contributions in the Private Retirement Scheme (PRS) is eligible to be claimed annually by the individual taxpayer from year of assessment 2012 to the year of assessment 2021.

Proposal

Income tax relief up to RM3,000 on contributions in PRS is extended for a period of 4 years.

Effective Date

From year of assessment 2022 to year of assessment 2025.

6. REVIEW OF INCOME TAX RELIEF FOR LIFESTYLE

Current Position

Beginning the year of assessment 2017, income tax relief for lifestyles up to RM 2,500 is available to individual taxpayers on the purchase of reading materials including e-book, printed daily newspapers, computers, smartphones/ tablets, internet subscriptions, sport equipment and gym membership fees. 

Proposal

To improve income tax relief for lifestyle, it is proposed:

1. Income tax relief limit increased from up to RM2,500 to RM3,000 where additional up to RM500 is dedicated to the purchase expenses of sports, admission/rental of sports facilities and payment of participation in sports services; and
2. The scope of tax relief for printed daily newspapers is extended to include subscriptions to electronic newspapers.

Effective Date

Beginning the year of assessment 2021.

7. EXTENSION OF INDIVIDUAL INCOME TAX RELIEF PERIOD ON ANNUAL NET SAVINGS IN NATIONAL EDUCATION SAVINGS SCHEME

Current Position

Individual income tax relief of up to RM8,000 is given to individual taxpayers on annual net savings in the National Education Savings Scheme (SSPN) from year of assessment 2019 to year of assessment 2020.

Proposal

To continue encouraging parents to save in tertiary child education financing, proposed individual income tax relief up to RM8,000 on annual net savings in SSPN is extended for a period of 2 years. 

Effective Date

For the year of assessment 2021 and 2022.

8. EXPANDATION OF SCOPE OF INCOME TAX RELIEF FOR TUITION FEE EXPENSES

Current Position

Individual payers of residents who pursue higher education in selected fields of study or at the master’s or doctoral levels in any field offered by institutions or professional bodies in Malaysia which is recognized by the Government of Malaysia or approved by the Minister of Finance are eligible to claim income tax relief on tuition fees. The clearance limit is up to RM7,000 per year and the eligible field of study is as follows:

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

Proposal

To encourage Malaysian citizens who are affected by the Covid-19 pandemic to enhance and renew skills and venture into new skills, it is proposed for income tax relief scope for tuition fee expenses up to RM7,000 per annum is expanded to cover the expense of attending up-skilling or self-enhancement courses in any field of skills recognized by the Department of Skills Development, Ministry of Human Resources. Income tax relief for this additional scope is limited to RM1,000 per year of assessment.

Effective Date

For the year of assessment 2021 and 2022.

9. INCREASED INCOME TAX EXEMPTION LIMIT FOR COMPENSATION ON LOSS OF EMPLOYMENT

Current Position 

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

1. Full income tax exemption for occupational loss if the Director General of Inland Revenue is satisfied that the compensation received from occupational loss is due to health problems; or
2. Income tax exemption of RM10,000 for each year of completion of service with the same employer or company within the same group.

The income tax exemption limit has been increased from RM5,000 to RM10,000 with effect from 1 July 2008.

Proposal

To assist taxpayers who lost their jobs due to the economic conditions affected by the COVID-19 pandemic, it is proposed that the income tax exemption limit for compensation for loss of employment with the same employer or company in the same group increased from RM 10,000 to RM 20,000 per year completion of service.

Effective Date

For the year of assessment 2020 and 2021.

10. REVIEW OF STAMP DUTY EXEMPTION FOR FIRST RESIDENTIAL HOUSE PURCHASE

Current Position

The Government has granted a 100% stamp duty exemption on transfer instruments and loan agreements for the purchase of the first home priced at up to RM 300,000 by Malaysian citizens.

For the purchase of the first house which costs more than RM 300,000 to RM 500,000, stamp duty on the instrument of transfer and the loan agreement is fully exempted limited to the first RM 300,000 of the value of the house. The remaining balance of the value of the house is subject to current stamp duty rate.

This exemption is in force for sale and purchase agreements executed from 1 January 2019 to 31 December 2020.

Proposal

To increase home ownership by Malaysian citizens who do not own their own homes, it is proposed a 100% stamp duty exemption limit on transfer instruments and loan agreements for the purchase of first residence houses increased from RM300,000 to RM500,000. The 100% stamp duty exemption period is extended for a period of 5 years.

Effective Date

For sale and purchase agreements completed from 1 January 2021 to 31 December 2025.

11. EXTENSION OF STAMP DUTY EXEMPTION FOR RESTORATION OF ABANDONED HOUSE PROJECTS

Current Position 

In support of the restoration of abandoned housing projects, stamp duty exemptions are given on the following instruments:

1. Contractor/Rescue developer
   1. Loan agreement for the purpose of financing for the recovery of abandoned housing projects; and
   2. Instrument of transfer for the purpose of transfer of land or abandoned housing projects

This exemption is granted on the instruments executed from 1 January 2013 to 31 December 2020.

2. Original buyers   of abandoned homes
   1. Loan agreement for additional financing purposes; and
   2. House transfer instrument.

This exemption is given on the instruments completed from 1 January 2013 to 31 December 2020.

Eligible abandoned housing projects must be certified by the Ministry of Housing and Local Government.

Proposal

To further encourage the involvement of contractors’ /rescue developers to restore abandoned housing projects and help to ease the financial burden of the original home buyer, it is proposed that the existing stamp duty exemption be extended for a period of 5 years.

Effective Date

Loan agreements and instruments of transfers executed from 1 January 2021 to 31 December 2025 for abandoned housing projects which are confirmed by Ministry of Housing and Local Government.

12. EXTENSION OF STAMP DUTY EXEMPTION PERIOD FOR “SAFE AND SECURE” PROTECTION PRODUCTS

Current Position

Stamp duty exemption is granted on the purchase of insurance policies and takaful certificates for all “safe and secure” products covering life, fire and flood insurance with premium value or annual contribution not exceeding RM100. This exemption has been granted for insurance policies and takaful certificates issued from 1 January 2019 to 31 December 2020.

Proposal

To further encourage more low-income earners to obtain insurance and takaful coverage, the proposed stamp duty exemption on all “safe and secure” products is extended for a period of 5 years.

Effective Date

For insurance policies and takaful certificates issued from 1 January 2021 to 31 December 2025.

13. EXTENSION OF STAMP DUTY EXEMPTION PERIOD FOR BURSA TRADING FUNDS SALE AND PURCHASE TRANSACTIONS

Current Position

Stamp duty exemption is granted on contract notes for Exchange Traded Fund (ETF) trading transactions conducted from 1 January 2018 to 31 December 2020.

Proposal

Stamp duty exemption on contract notes for extended ETF sale and purchase transactions for a period of 5 years.

Effective Date

For ETF sale and purchase transactions made from 1 January 2021 to 31 December 2025.

14. REVIEW OF INCOME TAX EXEMPTION ON SUSTAINABLE AND RESPONSIBLE INVESTMENTS SUKUK GRANTS

Current Position

The Securities Commission Malaysia through the statutory fund of capital Market Development Fund has provided a green sustainable and Responsible Investments (SRI) sukuk grant of up to RM6 million. Each issuer of the SRI Green Sukuk is required to apply to the Securities Commission Malaysia to obtain this grant used to finance the external review expenses incurred limited to an amount of RM300,000. Grants received by SRI Green sukuk is exempted from income tax for applications received from 1 January 2018 to 31 December 2020.

Proposal

To further encourage the issuance of SRI sukuk and bonds that achieve green, social and sustainable standards in Malaysia, it is proposed:

1. The existing income tax exemption on grants for the SRI Green Sukuk is extended to grants for all types of SRI sukuk and bonds reaching ASEAN Green, Social and Sustainability Bond Standards approved by the Securities Commission Malaysia; and
2. Income tax exemption on the above grants are granted for a period of 5 years.

Effective Date

For applications received by the Securities Commission Malaysia from 1 January 2021 to 31 December 2025.

15. STEPS MAKE MALAYSIA A PREFERRED DESTINATION FOR INVESTMENT AND SUPPLY CHAIN

A. REVIEW OF TAX INCENTIVES FOR COMPANIES TRANSFERRING OPERATIONS TO MALAYSIA AND MAKING NEW INVESTMENTS

Current Position

New companies and existing companies’ repositioning businesses or manufacturing activities from overseas to Malaysia are eligible for tax incentives as follows:

FIXED ASSET INVESTMENT	NEW COMPANY TAX INCENTIVES	NEW COMPANY PERIOD	EXISTING COMPANY TAX INCENTIVES	EXISTING COMPANY PERIOD
RM 300 million – RM 500 million	Income tax rate 0%	10 years	Investment tax allowance of 100%	5 years
Above RM 500 million	Income tax rate 0%	15 years	Investment tax allowance of 100%	5 years

This encouragement is provided to eligible companies in the manufacturing sector except for certain industries and are subject to the following conditions:

1. the company performs the first capital expenditure within 1 year from the date of approval of tax incentives; And
2. the company achieves fixed asset investment within 3 years from the date of first capital expenditure.

This tax incentive is in force for applications received by the Malaysian Investment Development Authority from 1 July 2020 to 31 December 2021.

Proposal

To further drive economic recovery through investment activities and to create a double impact on the economy, it is proposed that tax incentives for companies transferring operations to Malaysia and make new investments reviewed as follows:

1. the term of application for tax incentive is extended for 1 year; and
2. the scope of tax incentives extended to companies in selected services sectors including companies that adopt industrial Revolution 4.0 technology and digitisation that makes investments that have significant migration effects in services as follows: –
   1. provision of technology solution, or more typically technology company which develops technology and provides technology solutions based on substantial scientific or engineering challenges;
   2. provision of infrastructure and technology for cloud computing;
   3. research and development/design and development activities;
   4. medical devices testing laboratory and clinical trials; and
   5. any services activities or services related to manufacturing as may be prescribed by the Minister of Finance.

The tax incentives provided are as follows:

1. New company

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

2. Existing companies carrying a new services segment 

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

Effective Date

1. For the manufacturing sector, applications received by the Malaysian Investment Development Board until 31 December 2022.
2. For the selected services sector, applications received by the Malaysian Investment Development Board from 7 November 2020 to 31 December 2022.

B. TAX INCENTIVES FOR PHARMACEUTICAL PRODUCTS MANUFACTURERS INCLUDING VACCINES

Current Position

1. Tax Incentives Under The Promotion of Investment Act 1986 For Pharmaceutical Products Manufacturers.

Pharmaceutical products manufacturers are given tax incentives under the Promotion of Investments Act 1986 in the category of high-tech products. The tax incentives provided are as follows:

1. Pioneer Status

Income tax exemption of 100% of the fine income for a period of 5 years; Or

2. Investment Tax Allowance

An investment tax allowance of 60% on qualifying capital expenditure is carried out within 5 years. This allowance can be deducted by up to 100% of the statutory income for each year of assessment.

2. Tax Incentives For Bionexus-Rated Companies

Companies approved bioNexus status by Malaysian Bioeconomy Development Corporation Sdn. Bhd. which carries out pharmaceutical-related biotechnology activities including tax incentives are given the following tax incentives:

1. New company
   1. 70% income tax exemption on balanced income for a period of 10 consecutive year assessments commencing from the company’s first year of obtaining a fine income; Or
   2. Tax exemption equivalent to 100% investment tax allowance on eligible capital expenditure to be done within 5 years. This allowance can be deducted up to 70% of the statutory income earned each year.

2. existing companies undertaking expansion projects
   1. 70% income tax exemption on balanced income for a period of 5 consecutive year of assessment commencing from the company’s first year of obtaining a fine income; Or
   2. Tax exemption equivalent to 100% investment tax allowance on eligible capital expenditure to be done within 5 years. This allowance can be deducted up to 70% of the statutory income earned each year.
3. Income tax rate concession is 20% on the amount of income derived from eligible activities for a period of 10 years after the expiry of the tax exemption period (a) and (b).
4. Import duty exemption for raw equipment and materials.
5. Double tax deduction on expenses incurred for research and development activities
6. Building allowances on buildings built or purchased for research operation purposes.
7. Tax Incentives For Investors

Tax deductions equivalent to the amount of investment made in a BioNexus status company.

Tax incentives for BioNexus status companies and investors are in force for applications received by Malaysian Bioeconomy Development Corporation Sdn. Bhd. from 1 January 2019 to 31 December 2020.

Proposal

To encourage pharmaceutical manufacturers including vaccines especially COVID-19 vaccine to invest in Malaysia, it is proposed that the granting of tax incentives as follows:

1. income tax rate of 0% to 10% for the period up to the first 10 years; and
2. income tax rate of 10% for the next 10 years

Apart from the above tax incentives, strategic investments by the company may be considered other facilities including grants, import duty and sales tax exemptions for machinery and equipment and raw materials.

Effective Date

For applications received by the Malaysian Investment Development Board from 7 November 2020 to 31 December 2022.

C. REVIEW AND DEVELOPMENT OF THE SCOPE OF TAX INCENTIVES FOR THE COMMERCIALISATION OF RESEARCH AND DEVELOPMENT OUTCOMES

Current Position

Tax incentives for commercialising research and development (R&D) public research institutions including public institutions of higher learning in Malaysia are as follows:

1. Resource Based
   1. For investor companies

Tax deductions equivalent to the amount of investment made in subsidiaries commercialising R&D revenue of public research institutions.

2. For subsidiaries that commercialise the results of R&D of public research institutions.

Income tax exemption of 100% on 10 years of income.

This tax incentive is for applications received by the Malaysian Investment Development Board from 11 September 2004.

2. Non-Resource Based
3. For investor companies

Tax deductions equivalent to the amount of investment made in subsidiaries commercialising R&D revenue of public research institutions.

1. For subsidiaries that commercialise R&D revenue public research institutions 

Income tax exemption of 100% on 10 years of income.

Non-source based activities or products are subject to a list of activities or products under the Promotion of Investment Act 1986. This tax incentive is for applications received by the Malaysian Investment Development Board from 29 September 2012 to 31 December 2017.

Proposal

To create a more competitive R&D ecosystem and promote new R&D activities by public research institutions including public institutions of higher learning as well as increasing the role of private institutions of higher learning to produce higher quality researchers and R&D, proposed as follows:

1. Tax incentives for R&D revenue commercialisation activities based on non-resources reintroduced; and
2. Tax incentives for commercialisation of R&D revenue by public research institutions including public institutions of higher learning are extended to private institutions of higher learning.

The tax incentives for (1) and (2) above are as follows:

1. For investor companies 

The tax deduction is equivalent to the amount of investment made in subsidiary companies that commercialise the results of R&D public research institutions including public institutions of higher learning and private higher learning institutions.

2. For subsidiaries that commercialise the results of R&D public research institutions including public institutions of higher learning and private higher learning institutions

Income tax exemption of 100% on 10-year potential income.

Resource-based and non-source activities or products are subject to a list of activities or products under the Promotion of Investment Act 1986.

Effective Date

For applications received by the Malaysian Investment Development Board from 7 November 2020 to 31 December 2025.

D. TAX INCENTIVES FOR GLOBAL TRADING CENTRE

Current Position

The Principal Hub which carries out service and trading activities is eligible for special tax at the rate of 0% or 5% on the statutory income for qualifying activities for a period of up to 10 years. This tax incentive will expire on 31 December 2020.

Proposal

As a measure to improve and facilitate tax incentives for trading activities previously granted tax incentives under the Principal Hub which are subject to high eligibility criteria, the proposed new tax incentive scheme was introduced as Global Trading Centre and charged income tax at 10% for a period of 5 years and is renewable for a period of 5 years.

Effective Date

For applications received by the Malaysian Investment Development Authority from 1 January 2021 to 31 December 2022.

E. INCREASE IN SALES VALUE LIMIT FOR ADDITIONAL VALUE-ADDED ACTIVITIES AND ADDITIONAL ACTIVITIES CARRIED OUT IN FREE INDUSTRIAL ZONES AND LICENSED MANUFACTURING WAREHOUSES

Current Position

Beginning 1 April 2020, all application processes and approval of value-added activities and additional activities in the Free Industrial Zone and Licensed Manufacturing Warehouse are processed at the Customs Office level zone or state only for the following activities:

1. Research and Development;
2. Design (Product Design);
3. Marketing, only for International Procurement Centre based manufacturers;
4. Distribution, only for Regional Distribution Centre based manufacturers;
5. Quality Control;
6. Testing and Commissioning including Calibration and Configuration;
7. Labelling, Packaging and Re-Packaging;
8. Remanufacturing, Repairing and Servicing; And
9. Supply Chain Management, Strategic Procurement Operation and Total Support Solutions.

Approval of value-added activities and additional activities are subject to the condition that the value of sales from value-added activities and additional activities shall not exceed 10% of the company’s annual sales value.

Proposal

To further enhance the company’s competitiveness and meet global trade dynamics, it is recommended that the 10% value-added activities and additional activities be increased to not more than 40% of the company’s annual sales value.

Effective Date

For new applications and applications to increase the sales value limit received by the Royal Malaysian Customs Department from 7 November 2020.

F. TREATMENT OF SPECIAL INCOME TAX RATES TO NON-CITIZEN INDIVIDUALS WHO HOLD KEY POSITIONS IN COMPANIES MAKING NEW STRATEGIC INVESTMENTS

Current Position

The income tax structure for resident individuals adopts a progressive rate of between 0% to 30% on taxable income. Meanwhile, non-resident individuals are subject to income tax at a flat rate of 30%.

Income tax treatment at a flat rate of 15% is given to individuals as follows:

1. Malaysian citizens who are categorized as experts and approved under the Specialist Return Programme and return to work in Malaysia;
2. individuals of knowledge workers in Iskandar Malaysian; And
3. Individual knowledge workers in Malaysia-China Kuantan Industrial Park.

The Government also went through the National Economic Re-Generating Plan (PENJANA) to announce tax incentives to manufacturing companies transferring its operations to Malaysia i.e. the imposition of a 0% income tax rate for a period of up to 15 years.

Proposal

As an additional initiative to tax incentives offered to companies transferring its operations to Malaysia, individual income tax is proposed at a flat tax rate of 15% given to non-citizens holding key positions (C-Suite) for a period of 5 consecutive years. This tax incentive is limited to 5 non-citizen individuals working in each company that has been approved tax incentives for operating transfers under the initiative PENJANA.

Individuals approved income tax at a flat rate of 15% should be:

1. receiving a monthly salary of not less than RM25,000; And
2. a tax resident in Malaysia for each year of assessment during the period of flat rate income tax treatment.

Effective Date

Applications received by the Malaysian Investment Development Board from 7 November 2020 to 31 December 2021.

16. REVIEW OF TAX INCENTIVES FOR PRINCIPAL HUB

Current Position

Companies incorporated in Malaysia that use Malaysia as a center for conducting regional or global business and operations for the purpose of managing, controlling and supporting its core functions including risk, management, decision, strategic business activities, trade, finance, management and human resource management are eligible for consideration of principal Hub tax incentives with the following concession income tax rates:

1. New company
   1. Tier 1: Income tax rate of 0% for a period of 5 years and is renewable for another 5 years subject to the following criteria:
      1. employ at least 50 high value employees;
      2. employ at least 5 persons in key positions;
      3. Do annual operating expenses of at least RM10 million.
2. Tier 2: Income tax rate of 5% for a period of 5 years and is renewable for another 5 years subject to the following criteria:
   1. employ at least 30 high employees;
   2. employ at least 4 persons in key positions;
   3. to incur annual operating expenses of at least RM5 million.
3. Existing company
   1. The income tax rate is 10% for a period of 5 years subject to the following criteria:
      1. employ at least 30 high value employees;
      2. employ at least 5 persons in key positions; and
      3. annual operating expenses of at least RM10 million.

This tax incentive is effective for applications received from Malaysian Investment Development Authority from 1 January 2019 to 31 December 2020.

Proposal

To further encourage more Principal Hubs in Malaysia, it is proposed:

1. The duration of the Principal Hub tax incentive application for companies carrying out   eligible service activities for a period of 2 years; and
2. minimum requirements of high value employee number of key positions and annual    operating expenses for tax incentive renewal for the second 5 years are relaxed.

Effective Date

For applications received by the Malaysian Investment Development Authority from 1 January 2021 to 31 December 2022.

17. TAX INCENTIVES FOR INVESTMENT IN EQUITY CROWDFUNDING

Current Position

Tax incentives for companies or individuals who make investments are as follows:

1. Investing in Venture Capital ( VC)

Companies or individuals with business income making investments in VCs are given tax deductions equivalent to the amount of lash in the VC.

2. Investing in Venture Capital Company (VCC)

Companies or individuals with business income investing in VCC funds are given tax deductions equivalent to the amount of investments made in the VCC, limited to a             maximum of RM20 million per year.

3. Potential Investor

individual who is a potential investor and makes investments in investment recipient companies is granted income tax exemption equivalent to the amount of investment made.

 Proposal

As a complement to bank financing as well as giving access to financing resources to startups to accommodate their needs at various levels of development, which may be considered non-viable or high-risk for financing by banks, alternative financing such as venture capital, investment by catalytic investors and investments in equity crowdfunding is becoming increasingly important to companies just starting out of business.

To encourage more individual investors to invest in equity crowdfunding, it is suggested that individual investors be granted tax exemption on aggregate income equivalent to 50% of the investment amount made in equity crowdfunding subject to the following conditions:

1. the amount eligible for tax exemption is limited to RM50,000 per year of assessment;
2. the deductible amount is limited to 10% of the aggregate income for the year of assessment. An excess irrevocable amount will be ignored;
3. investors, investment recipient companies and investment amounts must be certified by the Securities Commission Malaysian;
4. investors have no fraternity bond with investment receiving companies;
5. investments made should be through the equity crowdfunding platform approved by the Securities Commission Malaysia; and
6. investment cannot be disposed of in full or in part within 2 years from the date the investment is made.

Effective Date 

For investments made start on 1 January 2021 to 31 December 2023.

18. TAX INCENTIVE EXTENSION FOR SPECIALIST RETURNS PROGRAM

Current Position

The tax incentives for the Returning Expert Programme are as follows:

Years	Tax Incentive
2001 – 2010	Duty/tax exemption for the purchase of 2 locally assembled vehicle (Completely Knocked Down – CKD) or import vehicle (Completely Built Up – CBU) .
2011 – 2014	i. Kadar rata15%% on term bearing for a period of 5 consecutive year assessments; andii. Duty/tax exemption for purchase of 2 CKD vehicles .
2014 – 2020	i. Flat rate of 15% on payroll income for a period of 5 consecutive year assessmentii. The exemption of duties import and excise duty  for purchase a CBU vehicle or excise duty for the purchase of vehicle CKD is consider to the amount of taxable duty limited up to RM150,000

Proposal

To be continued to encourage Malaysian citizens to be expert who worked overseas to back home in Malaysia, proposed period of tax incentive application for the Specialist Return Programme extended for 3 years and to be review again as follow:

1. income tax at a flat rate of 15% for a period of 5 consecutive assessment years; and
2. import duty and excise duty exemption for the purchase of a CBU vehicle or excise duty exemption for the purchase of a CKD vehicle subject to a limited amount of duty exemption of up to RM100,000.

Effective Date

For applications set by Talent Corporation Malaysia Berhad from 1 January 2021 to 31 December 2023.

19. EXTENSION OF TAX INCENTIVE PERIOD FOR EXPORT OF PRIVATE HEALTHCARE SERVICES

Current Position

Companies providing private healthcare services are eligible to claim income tax exemption equivalent to 100% of the value of increased exports of services and deductible up to 70% of statutory income on income derived from exports of healthcare services to foreign patients located in Malaysia or from Malaysia for healthcare services subject to conditions:

1. at least 10% of the total number of patients seeking private healthcare services for each year of assessment consists of eligible health tourists; and
2. at least 10% of the company’s gross income for each year the assessment is derived from eligible health tourists.

This tax incentive is effective until the year of assessment 2020.

Proposal

To encourage exports of private healthcare services in Malaysia while attracting high-value health tourists, it is proposed that income tax exemption of 100% of the value of increased service exports and can be deducted by up to 70% of statutory income extended for a period of 2 years.

Effective Date

For the year of assessment 2021 and 2022.

20. TAX INCENTIVE REVIEW TO COMPONENT MANUFACTURERS INDUSTRIALISED BUILDING SYSTEM

Current Position 

Tax incentives are given to component manufacturing company industrialized building system (IBS) component manufacturers that manufacture IBS basic components namely columns, beams, slabs, walls and roof, trusses as well as removing IBS systems using basic IBS components such as precast concrete system, formwork system, steel framing system, block work, timber framing system

1. Category 1: Companies that issue at least 3 basic IBS components or IBS systems that use at least 3 basic IBS components
   1. Income tax exemption of 70% on balanced income for a period of 5 years; or
   2. Investment tax allowance of 60% on qualifying capital expenditure is incurred for a period of 5 years. This allowance can be off sized by up to 70% of the national income.
2. Category 2: Companies that issue at least 4 and on basic IBS components or IBS systems that use at least 4 basic IBS components
   1. Income tax exemption of 100% on balanced income for a period of 5 years; or
   2. Investment tax allowance of 60% on qualifying capital expenditure is incurred for a period of 5 years. This allowance can be off sized by up to 100% of the national income.

This tax incentive is effective for applications received by the Malaysian Investment Development Authority from 10 September 2015 to 31 December 2020.

Proposal

To be continued to increase the adaptation of technology in the construction sector through the use of IBS, proposed extended IBS tax incentives for a period of 5 years and Category 1 and 2 combined where the company is only required to issue at least 3 basic IBS components or IBS system using at least 3 basic I8S components and given an investment tax allowance of 60% on qualifying capital expenditure for a period of 5 years. This allowance can be off sized by up to 70% of the national income for each year of assessment.

Effective Date

For applications received by the Malaysian Investment Development Board from 1 January 2021 to 31 December 2025.

21. EXTENSION OF THE PERIOD OF TAX DEDUCTION FOR THE EMPLOYMENT OF SENIOR CITIZENS, EX-INMATES, PAROLE PEOPLE, SUPERVISED PERSONS AND FORMER DRUG ADDICTS

Current Position

Additional tax deductions on remuneration are given to employers employing senior citizens, former prisoners, parole people, supervised people and former drug addicts from year of assessment 2019 to year of assessment 2020.

The allowable tax deductions are subject to the following conditions:

1. full-time employed employees;
2. monthly remuneration not exceeding RM4,000;
3. employers and employees are not the same persons; and
4. employers and employees do not have a fraternity bond.

Proposal

To continue encouraging employers to provide employment opportunities for senior citizens, former prisoners, parole people, supervised people and former drug addicts, proposed encouragement of additional tax deductions on extended remuneration for a period of 5 years.

Effective Date

From year of assessment 2021 to year of assessment 2025.

22. IMPOSITION OF EXCISE DUTY ON ELECTRONIC CIGARETTES

Current Position

Cigarettes and tobacco products are charged with excise duty as follows:

Tariff Code	Descriptions	Excise Duty Rate
2402.10.0000	Cigars, cheroots and cigarillos, containing tobacco	RM400. 00/kg
2402.20.1000	Beedies	5% and RM7. 50/kg
2402.20.2000	Clove Cigarettes	RM0.40/stick
2402.20.9000	Others	RM0.40/stick
2402.90.1000	Cigars, cheroots and cigarillos of tobacco substitutes	RM400. 00/kg
2402.90.2000	Cigarettes of tobacco substitutes	RM400.00/kg
2403.11.0010	Water pipe tobacco	5% and RM27.50/kg
2403.99.9000	Others	RM778. 00/kg

Electronic cigarettes including vapes are not charged excise duties such as cigarettes and tobacco products lain regulatedbyia cell underthe Hasil Tobacco Control Regulations 2004.

Proposal

To create equality in terms of tax treatment on all types of cigarette products and tobacco, it is proposed:

1. Excise duty at valorem rate of 10% is imposed on all types of electronic and non-electronic cigarette devices including vape; and
2. excise duty at the rate of RM0.40 per milliliter is imposed on liquids or gel used in general electronic cigarettes including vape.

Effective Date

Effective 1 January 2021.

23. EXTENDING THE SCOPE OF TOURISM TAX CHARGES ON ACCOMMODATION PREMISES BOOKED THROUGH ONLINE PLATFORMS

Current Position

Tourism tax is imposed on travelers staying at accommodation premises registered under the Tourism Tax Act 2017 at a flat rate of RM10/room/night. Malaysian and Malaysian permanent residents are exempted from tourism tax charges.

Operators operating and providing accommodation premises to tourists are required to register under the Tourism Tax Act 2017 forthe purpose of collecting taxes from, tourists, accounting, pledging and paying tourism taxes collected to the Royal Malaysian Customs Department. However, the following property premises operators are exempted from registering under the Tourism Tax Act 2017:

1. Homestay operator registered with the Ministry of Tourism, Arts and Culture, Malaysia;
2. operators of Kampungstay registered with the Ministry of Tourism, Arts and Culture Malaysia;
3. accommodation premises operated by the Federal Government, State Governments or statutory bodies, authorities or private higher education institutions;
4. private educational institutions that provide accommodation facilities to foreign students registered with the relevant institution;
5. the employer who operates the accommodation premises as a facility for its employees;
6. religious bodies or charitable bodies operating the premises accommodation for religious purposes and not for commercial purposes;
7. operator of accommodation premises with 4 rooms or less.

In support of the economic recovery measures for the tourism sector affected by the COVID-19 pandemic, the imposition of tourism tax has been excluded start of 1 July 2020 to 30 June 2021.

Proposal

To ensure fair treatment between travelers booking directly with registered accommodation premises operators and through online platform providers, it is proposed that the imposition of tourism taxes be extended to booked accommodation premises through an online platform provider.

Effective Date

Effective 1 July 2021.