Board Matters Quarterly - Issue 14: December 2012
Malaysia Budget 2013
We highlight some of the key proposals
On 28 September 2012, the Malaysian Prime Minister and Finance Minister, Dato Seri Najib Tun Razak delivered the 2013 Budget. The theme of the speech was “Prospering the Nation, Enhancing Well-Being of the Rakyat: A Promise Fulfilled.”
Not unexpectedly, the Goods and Services Tax (GST) that had its first parliamentary reading in December 2009 was not mentioned and no time-lines were provided for its introduction. The GST is however imminent as the Prime Minister stated in his speech that “implementation of the new tax structure is a national imperative to ensure the Malaysian Government’s finances remain strong for future generations”. Although the actual date for the GST introduction remains uncertain, it is likely to be very soon.
There was no reduction in the corporate tax rate although various tax incentives were introduced for selected sectors. To curb speculation in real properties and to increase tax revenue, the real property gains tax (RPGT) rates were increased. The Malaysian Government also introduced proposals that essentially provide for two new business structures, namely, the business trust and the limited liability partnership (LLP) to be given the same tax treatment as a company. These and other notable tax proposals arising from the 2013 Budget are discussed below.
RPGT rate increased
RPGT is a capital gains tax imposed on gains from the disposal of real property, as well as shares in a real property company at rates ranging from 0% to 30% depending on the holding period. The RPGT was waived from 1 April 2007 to 31 December 2009 in order to stimulate the then sluggish property market. However, it was reinstated from 1 January 2010 at the rate of 5% on gains arising from disposals made within a period of five years from the date the asset was acquired. Budget 2012 proposed an increase in the rate from 5% to 10% with effect from 1 January 2012 for properties disposed within a period of two years in order to curb speculation.
The 2013 Budget has proposed a further rate increase from 1 January 2013 for not only disposals within a holding period of two years, but also on disposals between the third and fifth year as follows:
|New rates with effect from 1 January 2013||Existing tax rates|
|Disposal within 2 years after the date of acquisition||15||10|
|Disposal between the 3rd to the 5th year after the date of acquisition||10||5|
|Disposal in the 6th year after the date of acquisition||Nil||Nil|
New business structures: Business trust and the LLP
The 2013 Budget has introduced the framework for the taxation of a business trust and the LLP. The business trust will be established pursuant to the Capital Markets and Services (Amendment) Act 2012 (CMSAA), and the LLP will be established under the Limited Liability Partnership Act 2012 (LLPA).
Although the LLPA was gazetted on 9 February 2012, it is not yet in effect pending the announcement of an effective date by the Minister in charge of domestic trade.
A business trust adopts the unit trust structure as a basis for its business. A business trust’s business operations are conducted by the trustee-manager who also acts as a trustee for the unit holders. A business trust is suitable for businesses which are capital intensive with a stable and positive cash flow as a business trust is able to distribute quicker returns to investors. The Malaysian Government hopes that the introduction of the business trust will broaden the range of investment products and asset classes in the capital market.
The 2013 Budget proposes that the tax treatment of a business trust be similar to that of a company, and has inter alia amended the definition of a company in the Income Tax Act 1967 to include a business trust. To promote the initial development of the business trust, the 2013 Budget proposes that the following incentives be provided on a one-off basis at the initial stage to promote the establishment of a business trust:
- Business trust be given stamp duty exemption on instruments of transfer of businesses, assets or real properties acquired.
- The disposer of real properties or shares in a RPC to a business trust be given RPGT exemption.
The above proposals will come into effect simultaneously with the coming into operation of the CMSAA.
The LLP business structure essentially offers a combination of limited liability and the flexibility of the partnership arrangement.
The 2013 Budget proposes that the LLP be treated as an entity chargeable to tax, and has extended the definition of “person” in the Income Tax Act 1967 to include a LLP. The tax treatment of the LLP is, however, similar to a company although it is not defined as a company in the Income Tax Act 1967. The LLP will be similarly treated as a company in areas such as the determination of its tax residence status, basis period, ability to carry forward unabsorbed business losses and unabsorbed capital allowances, and the obligation to file a tax return within seven months from the date following the close of its accounting period. Similar to a dividend paid by a company, profits paid, credited or distributed to partners of a LLP are taxexempt. A LLP is also chargeable to tax under the Real Property Gains tax Act 1976.
The above proposals will come into effect simultaneously with the coming into operation of the LLPA.
The full text of Dato Seri Najib Tun Razak’s budget speech is available at the Ministry of Finance Malaysia’s website. (http://www.treasury.gov.my/index.php?option=com_content&view=article&id=2008%3Abajet-2012&catid=87%3Acatbajet-tahunan&Itemid=195&lang=en)