By Khoo Chin Guan, Executive Director – Head of Tax, KPMG Tax Services Sdn Bhd

YAB Dato’ Sri Mohd. Najib Tun Abdul Razak unveiled the National Budget for 2014 on 25 October 2013.

Themed “Strengthening Economic Resilience, Accelerating Transformation And Fulfilling Promises”, the 2014 Budget reflects the Government’s commitment to ensure that the economy continues to expand at a strong pace and to reduce the fiscal deficit with the overall objective of prospering the nation and promoting the well-being of the rakyat.

The five main thrusts of the Budget are:

·        Invigorating Economic Activity;

·        Strengthening Fiscal Management;

·        Inculcating Excellence in Human Capital;

·        Intensifying Urban and Rural Development; and

·        Ensuring Well-Being of the Rakyat.

In line with the above, some of the significant measures proposed in the 2014 Budget are:

 

Implementation of Goods and Services Tax (“GST”)

After much speculation and anticipation, GST has finally been announced.  GST will be effective from 1 April 2015 with a standard rate of 6% and will replace the existing sales tax and service tax.

Broadly, GST is a consumption tax based on the value-added concept.  It is a form of indirect taxation and is imposed on taxable goods and services at each stage in the supply chain.  This means that ultimately consumers will bear the tax.  Being a broad based tax, GST can be charged on practically all supplies of goods and services.  However, some supplies will be designated zero-rated or exempt where GST will not be charged, namely, basic food items, transportation, education, residential housing and health sectors so as not to burden the lower income groups.

To allay the burden of GST on the rakyat and businesses, various assistance and initiatives have also been introduced in tandem with the implementation of GST.  This includes assistance to targeted groups, through the zero rating or exemption of certain supplies as well as reductions in tax rates for both individuals and businesses.

Moving forward, it is timely for businesses to educate themselves on GST to ensure a smooth implementation and transition to the GST system.  The key message for businesses is to be prepared and ready when the time comes.

 

Corporate Taxes

In order to enhance the competitiveness of the nation, it has been proposed for the corporate income tax rate to be reduced from 25% to 24%.  The income tax rate for SMEs will be reduced from 20% to 19% for the first RM0.5 million of chargeable income and the balance will be subject to tax at 24%.  Both proposals are effective from Year of Assessment (YA) 2016.  This puts Malaysia in a better place to compete with other countries in the region.

In order to support the smooth implementation of GST for businesses, expenses incurred for training in accounting and ICT relating to GST are to be given further deductions for YAs 2014 and 2015.  Other forms of assistance include allocation for training grants and financial assistance to SMEs for the purchase of accounting software.

As an additional move to reduce the costs of doing business, secretarial fees and tax filing fees up to a certain limit are allowed as tax deductions from YA 2015.  These moves will be welcomed by businesses.

 

Individual Taxes

To cushion the effects of GST on individuals and in line with previous expectations, the income tax rates and bands have also been adjusted.

In this respect, the highest marginal tax rate will only be applicable for chargeable income exceeding RM400,000 as opposed to RM100,000 currently.  Even then, the highest marginal tax rate will be reduced to 25% as opposed to 26% currently.  This will take effect from 2015.

In addition, taxpayers with employment income and who are subject to monthly tax deduction (MTD) are no longer required to submit tax returns if their MTD is the final tax.  This is in line with the tax systems in other countries and should reduce the administrative burden on taxpayers.  This is effective from 2014.

 

Real Property Gains Tax (“RPGT”)

Amidst the increasing calls of the public for affordable homes, it is no surprise that the Government has taken measures to curb speculative activities by revising the RPGT rates.

In this connection, the RPGT rates have been revised such that chargeable assets disposed of within a period of 3 years from acquisition will be subject to RPGT at the rate of 30% whilst disposals in the 4th and 5th year will be subject to RPGT at the rate of 20% and 15% respectively for companies and individuals.  Disposals of assets held after 5 years are only exempt from RPGT in respect of individuals whilst companies are taxed at 5%.  Notably, non-citizens will be subject to RPGT at the rate of 30% for disposals within 5 years and 5% thereafter.  This is effective for disposals of property commencing from 1 January 2014.

The above should not affect genuine homebuyers while curbing speculative driven activities.

In summary, the 2014 Budget reflects the Government’s bold measures to tackle the rising Budget deficit and push through fiscal reforms while addressing the welfare of the rakyat.