5 key takeaways from the Malaysian economic stimulus packages

ON Jan 25, COVID-19 pandemic hit the one-year mark in Malaysia with no signs of the curve being flattened. As at current date, the number of cases and fatalities has passed the 220,000 and 800 mark respectively.

The pandemic has caused an adverse effect on the economy in 2020, impacting almost all businesses and people from all walks of life.

During the period from Feb 27 last year until Jan 18 this year, the Government had introduced five economic stimulus package (ESP) with a total value of RM310 bil. These ESPs are the ESP 2020, Prihatin, Additional Prihatin, Penjana and Permai.

Cash flow management

In an effort to provide an immediate cash flow relief, qualifying individual taxpayers and businesses are allowed to defer their tax instalment payments and given an additional revision of tax estimate in the third month of the basis period for a year assessment, employers are given wage subsidies for their employees, and deadlines for various tax payments (eg withholding tax, stamp duty and real property gains tax) are extended.

No penalties are imposed on payments made within the extended timelines.

Given these difficult times, taxpayers should take the opportunity to assess their tax profiles, optimise their cash flows by utilising the various benefits offered and putting the saved money to better use.

Attracting FDIs

To maintain competitiveness, especially among our Asean neighbours and to attract foreign direct investments (FDIs) into the country especially during the pandemic period, several tax incentives under the Approved Incentive Scheme (AIS) have been introduced.

The AIS includes tax incentives for Global Trading Centres, companies relocating their operations to and undertaking new investments in Malaysia, companies manufacturing pharmaceutical products (including COVID-19 vaccines) and establishing of Principal Hubs (with relaxed conditions).

Examples of tax incentives are a concessionary tax rate of 20% for qualifying activities such as manufacturing of vaccines and a flat tax rate of 15% for individuals employed by companies granted the relocation tax incentive.

With the AIS, it is an opportune time for multinationals (MNCs) in the relevant sectors to consider establishing or relocating their operations in Malaysia.

Applications for the aforementioned incentives are to be made to the Malaysian Investment Development Authority (MIDA) by Dec 31, 2022.

Tax benefits for individuals

Various tax-related packages have been initiated, eg personal tax relief of up to RM1,000 to resident individuals on expenses incurred on domestic tourism (ie accommodation at premises registered with the Ministry of Tourism, Arts and Culture and entrance fees to tourist attractions), personal tax relief of RM2,500 for the purchase of mobile phones, computers or tablets (extended to Dec 31), tax relief for complete medical examination expenses expanded to cover COVID-19 screening, and sales tax exemption on purchase of passenger vehicles (extended to June 30).

The above benefits are intended to provide additional tax relief to taxpayers as well as to spur domestic consumption for economic spin-off.

Taxpayers should take note of the validity period, the criteria/ conditions to be fulfilled and the documents to be maintained to substantiate the claims in the event of a tax audit.

COVID-19 contributions

To complement the Government’s efforts in combating COVID-19, donations or contributions in cash or in-kind (eg face masks, gloves, PPE suits) by businesses are encouraged.

While fulfilling their corporate social responsibilities, businesses should be aware that prior approval of the Ministry of Finance (MOF) or the Inland Revenue Board (IRB) is necessary to eligible for a tax deduction for the donations or contributions made.

The MOF and the IRB have issued guidelines setting out the types of donation/contributions eligible for tax deductions, the application procedures and the supporting documents required. Detailed information can be obtained at the MOF and IRB websites.

RPGT and stamp duty exemption

Under the ESPs, the following exemptions are available:

1. Real property gains tax (RPGT) exemption on the sale of up to three residential properties by a Malaysian citizen during the period from June 1, 2020 to Dec 31 this year and the Sale & Purchase Agreement (SPA) for the disposal is duly stamped not later than Jan 31, 2022;
2. Stamp duty exemption on the purchase of residential properties with a value of RM300,00 to RM2.5 mil in respect of the following:

• Loan agreement: Full exemption; and
• Instrument of transfer: Exemption on the first RM1 mil and 3% stamp duty on the value exceeding RM1 mil, provided that the SPA is executed between June 1, 2020 and May 31 this year and is duly stamped.

The above exemptions are essentially to stimulate the real estate sector facing a depressed market condition during the pandemic and to provide financial relief to sellers and buyers of residential properties.

There are conditions attached to the respective exemptions and it is best to review these conditions before embarking on a sale or purchase of such properties.

Numerous tax-related initiatives have been introduced during these unprecedented times. Close monitoring should be in place to ensure that its execution of the approach is properly done to achieve an optimal outcome. – Feb 5, 2021

Source: Focus Malaysia