2011 Budget Highlights

Chan Su-Li provides a summary of the salient points of the 2011 Budget

 

 

The 2011 Malaysian Budget was tabled in Parliament by the Y.A.B. Dato’ Seri Mohd. Najib Tun Abdul Razak (the Prime Minister and Finance Minister of Malaysia) on 15 October 2010.

 

The theme of the 2011 Budget is "Transformation Towards a Developed and High-Income Nation". The four key strategies set out in the Budget are:

 

1. Reinvigorating private investment;

2. Intensifying human capital development;

3. Enhancing quality of life of the Rakyat; and

4. Strengthening public service delivery.

 

Underlying the Budget is the Government's Economic Transformation Programme (ETP) and the Government Transformation Programme (GTP), both of which are intended to transform the nation into a developed and high-income economy. Some of the initiatives proposed to achieve the four key strategies set out in the 2011 Budget include the following:

 

(a) the implementation of high-impact projects such as the development of the Kuala Lumpur International Financial District and the Mass Rapid Transit System in Greater Kuala Lumpur;

(b) the establishment of a Talent Corporation to attract talent to Malaysia;

(c) the implementation of the MyCoID Gateway initiative to expedite business start-ups; and

(d) the acceleration of the development of the 5 regional corridors through the implementation of specific projects in each corridor.

 

From a tax perspective, some of the highlights of the 2011 Budget are as follows:

 

 

CORPORATE TAX & INVESTMENT INCENTIVES

(1) The Government has launched the world's first Syariah-compliant commodity trading platform known as Bursa Suq-al-Sila in an effort to strengthen Malaysia's position in the sukuk market. To further encourage innovation and to promote transactions on Bursa Suq-al-Sila, it is proposed that the expenses incurred in the issuance of Islamic securities under the principles of murabahah and bai' bithaman ajil based on tawarruq be allowed as deductions for the purposes of income tax computation. The issuance of such sukuk must be approved by the Securities Commission or the Labuan Financial Services Authority. This proposal is effective from the year of assessment 2011 until the year of assessment 2015.

 

(2) To further encourage companies to invest in Clean Development Mechanism (CDM) projects, it is proposed that the existing exemption from payment of income tax in respect of income received from the sale of Certified Emission Reductions (CERs) from CDM projects approved by the Ministry of Natural Resources and Environment which is due to expire at the end of 2010 be extended until the year of assessment 2012. This proposal is effective for the years of assessment 2011 to 2012.

 

 

PERSONAL TAX

(1) It is proposed that the present relief of RM6,000 for contributions made to the Employees Provident Fund or an approved scheme be extended to contributions made to the Private Pension Fund which will be launched by the Government in 2011. The Private Pension Fund is intended to benefit private sector employees and self-employed individuals by providing an option to invest for their old age. This proposal is effective from the year of assessment 2011.

 

(2) To reduce the financial burden of caring for aged parents, it is proposed that the medical expenses relief for one's own parents of RM5,000 (which is restricted to medical treatment in clinics, hospitals and nursing homes and dental treatment) be extended to include expenses to care for parents suffering from diseases or with physical or mental disabilities who require regular treatment as evidenced by certification of a qualified medical practitioner. The treatment and care provided include those provided at home, day care centres, or home care centres. This proposal is effective from the year of assessment 2011.

 

 

INDIRECT TAX

(1) Presently, the franchise holders of hybrid cars enjoy 100% exemption of import duty and 50% exemption of excise duty on new completely built-up (CBU) hybrid cars, subject to certain conditions. This exemption is given for applications received by the Ministry of Finance from 30 August 2008 until 31 December 2010. Full exemption of import duty and excise duty will be given on new CBU hybrid cars as well as hybrid and electric motorcycles. This proposal is effective for applications received by the Ministry of Finance from 1 January 2011 to 31 December 2011.

 

(2) To promote the tourism industry, it is proposed that import duty on the certain tourism related products and daily use products be abolished. The products include suitcases, school satchels, handbags, wallets, briefcases, certain types of apparel and underclothing, jewellery and costume jewellery, personal care items such as talcum powder and shampoo, bedspreads, blankets and curtains as well as footwear, hats and headgear. This proposal is effective from 4.00 pm, 15 October 2010.

 

(3) To generate additional revenue for the Government, it is proposed that the existing service tax rate of 5% on all taxable services under the Service Tax Act 1975 be increased to 6%. This proposal is effective from 1 January 2011.

 

 

STAMP DUTY

(1) To reduce the cost of ownership of residential property for first time buyers, it is proposed that a stamp duty exemption of 50% be given on instruments of transfer of a residential property priced not exceeding RM350,000. The exemption is granted on the first residential property purchased by a Malaysian citizen and is eligible to be claimed only once within the exemption period. This proposal is effective for sales and purchase agreements executed from 1 January 2011 to 31 December 2012.

 

(2) In addition to the stamp duty exemption highlighted above, it is proposed that a stamp duty exemption of 50% be given on loan agreements for residential property priced not exceeding RM350,000. Such loan agreements can be made between the purchaser and a bank, financial institution, insurance company, cooperative or employer under an employee housing loan scheme. The exemption is granted on the first residential property purchased by a Malaysian citizen and is eligible to be claimed only once within the exemption period. This proposal is effective for sales and purchase agreements executed from 1 January 2011 to 31 December 2012.

 

The proposals in sub-paragraphs (1) and (2) above are modifications and extensions of initiatives under Budgets 2008 and 2009, whereby 50% stamp duty exemptions have been given on instruments of transfer and loan agreements of residential properties priced not exceeding RM250,000 for sale and purchase agreements executed up to 31 December 2010.

 

 

 

PREVENTION FROM LEAVING MALAYSIA

The power of the Director General to restrain a person from leaving Malaysia where he is of the opinion that the person is about or is likely to leave Malaysia without paying any outstanding tax liability will be extended to restrain a person from leaving Malaysia if the person fails to pay late payment penalty imposed on any tax instalments under Sections 107B(3) and 107C(9) of the Income Tax Act 1967. This proposal is effective upon the coming into operation of the Finance Act 2010.

 

 

CONCLUSION

Overall, the 2011 Budget places a large emphasis on projects that will be implemented as part of the Government's ETP Programme. From a tax perspective, the Government did not introduce any significant ground-breaking measures.

 

 

CHAN SU-LI ( This e-mail address is being protected from spambots. You need JavaScript enabled to view it )

 

 

Su-Li is a Senior Associate with the Corporate Division of SKRINE. She is a graduate of the University of Melbourne, Australia.

 

 
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