Based on Finance Bill 2019, amended Finance Bill 2019 and Finance Act 2019 which was gazetted on 31 December 2019 and generally effective from the year of assessment (YA) 2020 or from 1 January 2020.
1. Personal income tax rate
YA 2019
Resident individual, with chargeable income exceeding RM2,000,000 is taxed at the rate of 28%.
Non-resident individual, is taxed at the rate of 28%.
Effective from YA 2020
Resident individual, with chargeable income exceeding RM2,000,000 is taxed at the rate of 30%.
Non-resident individual, is taxed at the rate of 30%.
2. Requirement to qualify as SME for tax purposes
YA 2019
SME is defined as a Company resident in Malaysia and incorporated in Malaysia with paid-up capital in respect of ordinary shares and a Limited Liability Partnership with capital of not more than RM2.5 million at the beginning of the basis period for a YA.
Effective from YA 2020
To qualify as SME, apart from the above requirement, the gross income from business source should not exceed RM50 million in a basis period for a YA.
3. Chargeable income subject to reduced tax rates
YA 2019
For SME, reduced tax rates (2017:18%, 2018:18%, 2019:17%) is applicable for chargeable income of up to RM500,000 and the balance of the chargeable income (if any) is taxed at the rate of 24%.
Effective from YA 2020
The limit of chargeable income has been increased from RM500,000 to RM600,000 for SME to enjoy the reduced tax rates.
4. Penalty on unpaid tax after payment due date
YA 2019
If the balance of tax payable is not paid by the due date, a penalty of 10% will be imposed on the outstanding amount. If the tax payable and 10% penalty is still outstanding after 60 days from the due date, an additional penalty of 5% will be imposed on the tax and penalty outstanding.
Effective from YA 2020
The imposition of the further penalty of 5% on the balance of unpaid taxes after 60 days from the due date has been removed. The 10% penalty imposed for payment made after the due date is set as final.
5. Penalty on amended return form
YA 2019
Return form that has been amended and resubmitted after 60 days from the due date with additional tax liability (i.e. amount understated) will be imposed a 10% penalty and a further 5% penalty on the additional tax that was remained unpaid after the due date.
Effective from YA 2020
The imposition of the further penalty of 5% on the increased sum (i.e. amount understated plus a 10% penalty) has been removed. The 10% penalty is the final increase.
6. Capital allowances for small-value assets
YA 2019
Qualifying expenditure incurred for assets (for SME & non-SME) with an individual value not exceeding RM1,300 (“small-value assets”) in a basis period of a YA is qualified for 100% capital allowance.
The total qualifying expenditure in respect of such small value assets is limited to RM13,000 in a YA for non-SME and there was no limitation for SME.
Effective from YA 2020
The qualifying expenditure for small-value assets has been increased from RM1,300 to RM2,000 for both SME and non-SME.
For non-SME, the maximum limit of qualifying expenditure in respect of small-value assets has been increased from RM13,000 to RM20,000 for a YA.
7. Tax deduction for secretarial and tax filing fees
YA 2019
Expenses incurred on secretarial and tax filing fees are given a tax deduction of up to RM5,000 and RM10,000 respectively for a YA.
Effective from YA 2020 The tax deduction limit for secretarial and tax filing fees has been combined, that a total deduction of up to RM15,000 per YA be allowed for both expenses.
The expenses must have been incurred and paid in the basis period for that YA.
General rules on claiming the deductions of secretarial and tax filing fees
Example 1, if the secretarial or tax filing fees are incurred in YA 1 and is subsequently paid in YA 2, a claim for tax deduction can be made in YA 2.
Example 2, if the secretarial or tax filing fees are pre-paid prior to the services rendered, where the fees are pre-paid in YA 1 but relates to services rendered in YA 2, the claim for deduction will only be allowed in YA 2.
Tax filing fees for preparation and submission of Form CP 204 in respect of YA 2021 which are paid and incurred in the basis period for YA 2020 will be allowed a deduction in the YA 2020.
Secretarial and tax filing fees - Amended Rules 2021 [P.U. (A) 471] gazetted on 24 December 2021.
Effective YA 2022, the requirement for the secretarial and tax filing fees to have also been paid has been removed. The deduction shall now be given for the secretarial and tax filing fees that have been incurred in the basis period for that YA.
Notwithstanding the above amendment, the requirement of incurred and paid would remain in force for YAs 2020 and 2021.
8. Gift of money or contribution in kind
YA 2019
Tax deductions of up to 7% of the aggregate income of a person, other than a company, and up to 10% of the aggregate income of a company are currently given on:-
- Gifts of money to approved institutions, organisations or funds;
- Gifts of money for any approved sports activity; and / or
- Gifts of money or cost of contribution in kind for any approved projects of national interest.
Effective from YA 2020
The tax deduction for a person, other than a company is increased to 10% of the aggregate income and the percentage remain unchanged for a company.
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All information contained herein is summarised based on Finance Bill 2019, Amended Finance Bill 2019, Finance Act 2019 and Operational Guideline No.:1/2020 issued by LHDN. The above article is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining the liability to tax in specific circumstances. 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 Gunalan & 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@gunalanassociates.com. Thank you.