Budget 2022 was announced on 29 October 2021, Finance Bill 2021 was released on 9 November 2021. The Finance Bill 2021 has been passed by both houses of Parliament and the Finance Act 2021 has been gazetted and published on 31 December 2021 with no material difference from the Finance Bill 2021. The effective date of the Finance Act 2021 is on 1 January 2022.
Corporate tax
1. Foreign-sourced income
Prior to 1 January 2022
Foreign-sourced income of Malaysian resident entities, remitted into Malaysia is exempted from tax.
Effective 1 January 2022
The existing tax exemption on foreign-sourced income has been removed effective 1 January 2022 and Malaysian resident entities will be subject to tax on foreign-sourced income remitted into Malaysia.
Subject to conditions, which will be detailed out in the guidelines by LHDN, the following foreign-sourced income received in Malaysia from 1 January 2022 to 31 December 2026 will remain exempt from Malaysian income tax:
Company and LLP who received Dividend Income as FSI in Malaysia, will be exempted from tax - for the period from 1 January 2022 to 31 December 2026.
Individual who received all types of FSI in Malaysia will be exempted from tax - for the period from 1 January 2022 to 31 December 2026, except for those individuals who carrying out partnership business in Malaysia will be subject to tax for the FSI received in Malaysia effective from 1 January 2022.
2. Prosperity tax (Cukai Makmur)
Effective for year of assessment (YA) 2022
In order to support the Government's initiative to assist those affected by the Covid-19 pandemic, a special one-off tax which is called "cukai makmur" be imposed on non-MSMEs companies which generate high profits during the period of the pandemic as follows:
Chargeable income for the first RM100 million - 24%
Chargeable income in excess of RM100 million - 33%
MSMEs are companies with paid-up capital of not more than RM2.5 million and business income not exceeding RM50 million.
3. Time limit for carrying forward unutilised business losses extended from 7 years to 10 years
Effective from YA 2019, unutilised business losses in a YA can only be carried forward for a maximum period of 7 consecutive YAs to be utilised against income from any business source. Any balance thereof will be disregarded.
For dormant companies, the unutilised business losses carried forward will not be allowed for deduction in subsequent years of assessment if the company does not meet the shareholders’ continuity test.
Changes through Finance Act 2021
The unutilised business losses in a YA can be carried forward for a maximum period of 10 consecutive YAs effective from YA 2019. This means that the unabsorbed business losses previously carried forward up to YA 2018 can now be carried forward up to YA 2028.
4. Special revision of corporate tax estimates (CP 204) on the 11th month of basis period
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5. Deferment of corporate income tax instalment payments for MSMEs (CP204) and instalment scheme CP500
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6. Withholding tax (WHT) of 2% on payments made by a company to an agent, dealer or distributor who is a resident individual - New Section 107D of the ITA, 1967
Prior to 1 January 2022
There is no requirement for companies to deduct WHT portion from the payments made to agents, dealers or distributors.
Effective 1 January 2022 (deferred until 31 March 2022, please see the comment below)
Under the new Section, a company is required to deduct 2% of WHT from payments made to agents, dealers or distributors under the following conditions:
Payments in monetary form arising from sales, transactions or schemes carried out by the agents, dealers or distributors.
Applicable when the total sum of payments (monetary or otherwise) received by an individual in the immediate preceding YA exceeds RM100,000.
The WHT should be remitted to LHDN within 30 days after paying or crediting such payments. If the company fails to deduct and remit the withholding tax to LHDN, a penalty of 10% will be imposed on the unpaid tax. In addition to the 10% penalty, the company will not be allowed to claim a tax deduction on the amount paid to that individual unless the payment of withholding tax and the late payment penalty have been paid. The 2% withholding tax deducted and remitted to the DGIR can be used to set off against the tax payable of that individual in the relevant YA.
Comments:
The LHDN has issued a media release on 12 January 2022 to announce that the implementation of the above WHT deduction under Section 107D of ITA to be deferred until 31 March 2022.
Accordingly, a company is allowed to remit the 2% WHT from 1 April 2022 onwards for applicable payments made to agents, dealers or distributors for the months of January 2022 to March 2022 and no late payment penalty to be imposed.
6. Introduction of Tax Identification Number (TIN) - New Section 66A of ITA, 1967
Effective from the year 2022
TIN will be implemented for all companies and individuals (age 18 years and above) from the year 2022.
Any person who has been assigned with a tax reference number on or before 1 January 2022 is deemed to have been assigned a TIN and such reference number would be the TIN of that person.
7. Power to call for bank account information - New Section 106A of the ITA, 1967
Effective 1 January 2022, the LHDN has been empowered to call for bank account information of tax payers and it must be for the purpose of making a garnishee order application.
Garnishee proceeding is a process of enforcing a losing party who simply refuses to pay even though they have monies in their bank accounts.
This would mean that a civil proceeding must have been instituted against a person and a judgement has been obtained against that person for the LHDN to be able to obtain the bank account information of that person from the financial institutions.
The purpose of obtaining such bank account information is for the IRB to make the application to the court for a garnishee order (to recover tax due and payable by the person to the government).
8. Extension of tax rebates for establishments of new MSMEs entities
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9. Extension on special tax deduction for Renovation and Refurbishment expenses
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Real property gains tax (RPGT)
Currently, disposal of real property (including shares in real property companies) by citizens, permanent residents, and persons other than companies in the 6th year onwards after acquisition is subject to RPGT at 5%.
Effective 1 January 2022
RPGT will no longer be imposed on property disposals by individual owners who is citizens, permanent residents and persons other than companies in the 6th year onwards after acquisition, with effect from 1 January 2022.
Personal tax
Reliefs
1. Medical expenses for self, spouse or child
Currently, tax relief for medical expenses for self, spouse or child undergoing treatment for a serious disease or expenses incurred on fertility treatment, or vacation up to RM1,000 (including expenses up to RM1,000 incurred by self, spouse or child for complete medical examination) is RM8,000.
Effective YA 2022
The scope of relief, in respect of medical examination is expanded to include cost incurred for examination or consultation relating to mental health by a registered psychiatrist, psychologist and counsellors.
2. Fees paid to child care centres
Effective YA 2020, tax relief of up to RM2,000 is given for fees paid to child care centres and kindergarten for child aged 6 years and below. The relief was increased to RM3,000 for YA 2021 and YA 2020.
For YA 2022 and 2023
The relief of RM3,000 is extended for has been extended for another 2 years to cover YA 2022 and YA 2023.
3. Purchase of personal computer, smartphone and tablet
In the YA 2020, special income tax relief for the purchase of personal computer, smartphone and tablet was given for up to RM2,500.
Effective YA 2022
The special tax relief of up to RM2,500 has been extended for another 1 year to cover YA 2022.
4. Fees expended on self for course of study for upskilling or self-enhancement - The existing tax relief is limited to RM1,000 per YA, for YA 2021 and YA 2022. The relief amount of RM1,000 be increased to RM2,000 and the period of relief be extended to YA 2023.
5. Domestic tourism expenses
Currently, tax relief of RM1,000 is given for domestic tourism expenses (payment for accommodation at premises registered with Ministry of Tourism, Arts and Culture Malaysia) and for entrance fee to tourist attractions, provided the payment made on or after 1 March 2020 but not later than 31 December 2021.
Effective YA 2022
The period of relief has been extended for another 1 year for payments made from 1 January 2022 to 31 December 2022.
6. Expansion of scope for tax relief on Contributions to Employees Provident Fund (EPF)
Currently, a resident individual tax payer is eligible to claim income tax relief on the following;
a. Payment of life insurance premium or takaful contributions, up to RM3,000.
b. Contributions to approved pensions schemes (excluding private retirement schemes) up to RM4,000.
Effective YA 2022
The scope of tax relief for EPF is expanded to include voluntary contributors to EPF including pensionable civil servants.
7. Employee's contribution to SOCSO and Employment Insurance Scheme (EIS)
With effect from YA 2016, relief of RM250 is given for an employee's contribution to SOCSO scheme. Effective from YA 2022, employee's contribution to SOCSO together with employee's contribution to EIS is given a combined relief of RM350.
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All information contained herein is summarised based on the Budget 2022 speech by the Finance Minister, YB Senator Tengku Datuk Seri Utama Zafrul Aziz on 29 October 2021 and the Finance Act 2021 which was gazetted on 31 December 2021. The above highlights are intended to provide a general overview of the key tax changes and should not be regarded as a basis for ascertaining the tax liability in specific circumstances or as a a basis for formulating business decisions. No responsibility for loss to any person acting or refraining from acting as a result of any material in this publication can be accepted by GSK & Associates. Readers should not act on the basis of this publication without seeking professional advice.
Should you require further clarification, please do not hesitate to contact us at gunalan@gskassociates.net or Manager whom you are accustomed to dealing with or who are responsible for the tax affairs of your organisation.