2008 Budget Proposal Affecting Individuals and Companies
1. Special Deduction for Business
(a) In addition to allow the expenditure incurred on the provision of equipment to assist any disabled person employed the budget also propose to include expenditure incurred for alteration or renovation of premises to cater for any disabled employee in the working environment of the business.
Effective date = YA 2008
(b) Introducing a new provision to allow the expenditure incurred by a company on the provision of infrastructure in relation to its business and for the free usage of the general public. A prior approval from the minister is required and no further deduction of the same amount shall be allowed under section 44(6).
Effective date = YA 2008
2. Deduction for individual
(a) Currently a deduction of up to maximum of RM5000 for fees expended in a basis year by an individual for any course of study up to tertiary level (Diploma to Degree) in any institution in Malaysia recognized by the Government undertaken for the purpose of acquiring Law, Accounting, Islamic Financing, technical, vocational, industrial, scientific or technological skills or qualifications. The budget extended the course of study up to master and doctorate level.
Effective date = YA 2008
(b) Relief will be given to parent saving for their children in the Skim Simpanan Pendidikan National (SSPN) account established under the Perbadanan Tabung Pendidikan Tinggi National (PTPTN) Act 1997. Maximum relief allowed will be restricted to RM3000 of the net saving in the basis year.
Effective date = YA 2007
(c) A relief of up to maximum of RM300 for individual in purchasing the sport equipment for any sport activity as defined under Sports Development Act 1997. The claimant is required to produce receipts as evidence for the purchase.
Effective date = YA 2008
(d) Donation made by an individual to an approved institution/ organization will be restricted to 7% of the aggregate income of that individual for a year of assessment.
Effective date = YA 2008
3. Small and Medium Companies
New small and medium company (paid up capital does not exceed RM2.5 million) commences business in a year of assessment will not be required to submit the tax estimate for the first 2 years of assessments. However the tax payable will have to be settled on the due date when tax return is due to be submitted.
Effective date = YA 2008
4. Corporate income tax rate
Tax rate for companies will be reduced to 26% on chargeable income for year of assessment (YA) 2008 and 25% for year of assessment 2009.
For small and medium companies with paid up capital in respect of ordinary shares of not more than RM2.5 million at the beginning of the basis period for a year of assessment, the tax rate will be as follows :-
Year of assessment 2008 - First RM 500,000 of the chargeable income at 20%
- Balance at 26%
Year of assessment 2009 - First RM 500,000 of the chargeable income at 20%
- Balance at 25%
5. Exemption on Gratuity
Exemption is given to any sum received by way of gratuity on reaching the compulsory age of retirement at the age of 50 but before 55 and that person has served not less than 10 years with the same employer. The exemption is also on condition that the compulsory retirement age is provided for in the employment contract or collective agreement between the employer and the employee.
Effective date = YA 2007
6. Single tier corporate tax system
The Government is introducing the single tier tax system to replace the imputation tax system with effect from Year of assessment 2008. Any tax paid by the companies under the single tier tax system will be final tax and dividend declared by the companies will be exempted from tax in the hands of the shareholders.
The companies are allowed to pay cash dividend only and based on the ordinary shares held by the shareholders. Dividend income received from franked dividend in the transitional period (1/1/2008-31/12/2013) will be deemed total income for the company. If the shareholder of a private limited company held the shares for less than 90 days from the date of the acquisition of the shares, he is not entitled to claim the Section 110 tax credit.
Under the single tier tax system, companies are not entitled to deduct tax from dividend paid or credited if there is a 0 balance in the Section 108 account as at 31.12.2007 or have fully utilized section 108 account at any time during the transitional period or the company elect to disregard section 108 account balance during the transitional period i.e. from 1/1/2008 to 31/12/2013. Any election by the companies to disregard the section 108 account balance will have to file an option form which is irrevocable and there after the remaining balance in the section 108 account will not be available for franking dividend with tax credit. Any company issues to any of its shareholders certificates which purport to show that an amount of tax has been deducted from dividend paid or credited to the shareholders. That amount equal to what would have been the total amount of tax deducted together with an increased equal amount of penalty will have to be paid to the Director General of Inland Revenue within 30 days of the requisition.
All the companies will have to determine the Section 108 account balance at as 31/12/2007. Subsequently, only tax reduced or refunded will be adjusted in the Section 108 account. Any additional tax payable for prior Year of assessment (before YA 2008) will not increase the Section 108 account. Those companies which have no Section 108 balance in the account will automatically allow to frank tax exempt dividend under the single tier tax system beginning in the year of assessment 2008. Companies with Section 108 balance will be allowed to frank dividend during transitional period by first utilized the balance in the Section 108 account before declaring the single tier tax exempt dividend.
If during the transitional period, the tax charged on the chargeable income of a company for the year of assessment 2000 on a current year basis and prior year of assessment is discharged or remitted or any amount of tax paid by a company which has been taken into account for the purpose of computing the section 108 balance is refunded. The balance of the section 108 account will be deducted the tax discharged remitted or refunded and if the balance of the section 108 account is insufficient for the deduction due to the franking of dividend earlier, the company has to pay the shortfall to the Director General of Inland Revenue on the due date. An additional penalty of 10% will be imposed if the amount is not received on the due date.
When a company paid or credited dividend to any of its shareholders at anytime during the period from 1/1/2008 to 31/12/2013 and the company has a section 108 balance or revised section 108 balance on the day before the dividend is paid or credited, the company must with 30 days from the date the dividend is paid or credited furnish a prescribed form to the Director General of Inland Revenue.
Where the basis period of a company for the year of assessment 2007 ends on a day other than 31 December 2007 and the company paid or credited dividend to its shareholders during the period from the first day of the subsequent basis period to 31 December 2007, the company shall within 30 days from 31 December 2007 furnished a prescribed form to the Director General of Inland Revenue.
Notwithstanding to the above, the company still have to furnish the Form R regarding dividend declared to the Director General of Inland Revenue on the due date of submitting the tax return
Any section 108 account balance not fully utilized will be forfeited after 31 December 2013 and companies do not have to maintain section 108 account anymore.
Example for the determination of Sect. 108 Balance at 31/12/2007 & Revised Sect. 108 Balance when single tier tax system is implemented
Calculation of section 108 balance for Syarikat Dua Lapis Sdn Bhd for the period ended
31/3/2008 (YA 2008).
Credit balance as at 1 April 2007:
Old account (Part ll, Form R) 200,000
New account (Part l, Form R) 160,000
360,000
Add:
Installment payment (sec. 107c)
Installment for April 2007 (last installment for YA 2007) 8,000
Installment for May 2007 until Dec 2007 (YA 2008) 96,000
104,000
Tax paid under sec. 103(1) in Oct 2007 12,000 116,000
476,000
Deduct:
Reduced assessment for YA1999 (JR dated 2/5/2007) 20,000
Tax discharged for YA 2005 (JR dated 10/7/2007) 15,000
Tax charged for YA 1998 remitted by Minister (21/7/2007) 60,000
Tax paid for YA 2007 refunded (31/10/2007) 10,000 (105,000)
371,000
Compared total:
Dividend paid on 1/9/2007 (78,000)
Balance as at 31/12/2007 (108 Balance – Sec. 37 Proposed Finance Bill) 293,000
Changes form 1 January 2008 to 31 March 2008
Installment for Jan. 2008 to March 2008 (YA 2008) 36,000 -
Additional assessment for YA 2004 dated 22/12/2007-
Paid on 20/1/2008 14,000 -
Compared total:
Dividend paid on 31/3/2008 (50,000)
Balance as at 31/3/2008 (Revised 108 Balance – Sec.44 Proposed Finance
Bill) 243,000
7. Income tax rules
7.1 Security Control and Surveillance Equipment
Any purchase of the above equipment will be entitled to a 100% claim of accelerated capital allowance. The minister will issue an order with the list of equipments classified as security control and surveillance equipment.
Effective date = YA 2008 to YA 2012
7.2 Personal computer
Gift of one new computer and payment of broadband subscription fee by employer for an employee will not be taxed as benefits in kind in the hand of the employee. As for the employer, the expenses incurred will be fully deductable
Effective date = YA 2008 to YA 2010
7.3 Public Ruling No. 5/2006
Amendment will be made to allow expenses incurred in purchasing Professional Indemnity Insurance.
Effective date = YA 2008
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