Interest profit payable to banks fis during the moratorium period

Guidelines on the tax treatment of accrued interest / profit payable to banks / financial institutions (FIs) during the moratorium period   

Under the Prihatin Rakyat Economic Stimulus Package (PRIHATIN) unveiled on 27 March 2020, Bank Negara Malaysia announced various measures to ease the cash flow difficulties of those impacted by the COVID-19 pandemic, including the following:

• Banking institutions granted an automatic six month moratorium (deferment) on loan repayments by individuals and Small and Medium Enterprises (SMEs), effective 1 April 2020.
• Banking institutions also considered requests from non-SME corporations to defer or restructure their loan repayments.

The eligibility was subject to conditions. 

Thereafter, the Income Tax (Special Treatment for Interest on Loan) Regulations 2020 were gazetted to provide that where a moratorium is approved by a bank or FI in respect of any amount of interest due and payable from 1 April 2020 until 30 September 2020 (moratorium period) by an individual, SME or any company other than SMEs, such interest shall not constitute the gross income of that bank or FI in the basis period for that YA (see Tax Alert No. 15/2020).

Following the above, the IRB has recently published on its website technical guidelines on the tax treatment of accrued interest / profit payable to banks / FIs during the moratorium period, dated 28 December 2022. The Guidelines are in Bahasa Malaysia and are titled “Garis Panduan Layanan Cukai Atas Perbelanjaan Faedah / Keuntungan Kena Dibayar Kepada Bank Atau Institusi Kewangan Dalam Tempoh Moratorium”.

The Guidelines stipulate that pursuant to Section 33(4) of the ITA, a taxpayer is eligible to claim a deduction in respect of interest on borrowings when such interest is “due to be paid”. This applies even if the interest has not actually been paid on the date the interest is due to be paid. The date the interest is “due to be paid” will be determined based on the loan agreement between the borrower and bank / FI.

Given the above, the Guidelines stipulate that the interest expense accrued during the moratorium period will be deductible in ascertaining the adjusted income of the person in the YA that the said interest is due to be paid (as set out in the loan agreement). However, the Guidelines go on to state that if the loan agreement is amended to vary the due dates, the tax implications will need to be ascertained accordingly.

The Guidelines provide four examples to demonstrate the above tax treatment under various scenarios. The Guidelines also reiterate the importance of retaining the necessary supporting documents, to be produced in the event of an audit by the IRB.

The Guidelines are available at the following link:

Garis Panduan Layanan Cukai Atas Perbelanjaan Faedah / Keuntungan Kena Dibayar Kepada Bank Atau Institusi Kewangan Dalam Tempoh Moratorium