1.Introduction
The Honourable, The Prime Minister and Minister of Finance, YAB Dato' Sri Mohd. Najib Tun Abdul Razak, presented the 2010 Budget proposals on 23 October 2009.
Details of how the proposed tax changes affect the individuals and businesses are summarised in the following sections.
It is intended to provide a general guide and hence should not be acted upon without seeking professional advice on any specific areas and matters.
2.The 2010 Budget Strategy
The 2010 Budget Strategies cover three specific areas:-
A) Driving the Nation towards a High-Income Economy.
B) Ensuring Holistic and Sustainable Development; and
C) Focusing on Well-being of the Rakyat.
3.Income Tax Changes Affecting Individuals
A) Reduction in Individual Income Tax Rates for Resident
Present Position-
Resident individual income tax rates are progressive and range between 0% to 27%
Proposed Change-
It is proposed that the resident individual income tax rate for chargeable income group exceeding RM100,000 be reduced by 1 percentage point from 27% to 26%.
Effective: Year of Assessment 2010
B)Reduction in Individual Income Tax Rates for Non-Resident
Present Position-
Non-resident individuals are taxed at a fixed rate of 27%
Proposed change-
It is proposed that the tax rate for non-resident individuals be reduced by 1 percentage point from 27% to 26%
Effective: Year of Assessment 2010
C) Increase in Personal Relief
Present Position-
Resident individual are allowed personal relief of RM8,000 per year.
Proposed Change-
It is proposed the personal relief be increased from RM8,000 to RM9,000.
Effective: Year of Assessment 2010
D) Increase in Relief for Employees Provident Fund and Life Insurance premiums
Present Position-
Resident individuals are allowed tax relief of RM6,000 on contribution to Employees Provident Fund and on life insurance premium.
Proposed Change-
It is proposed the tax relief of RM6,000 be increased to RM7,000 on contribution to Employees Provident Fund and on life insurance premium.
Effective: Year of Assessment 2010
E) Tax Incentive for Knowledge Workers in Iskandar Malaysia
Present Position-
Presently, there is no incentive for Malaysian of foreign knowledge workers residing in Iskandar Malaysia.
Proposed change-
It is proposed that employment income of Malaysian and foreign knowledge workers residing in Iskandar Malaysia and working in qualifying activities be taxed at 15% indefinitely.
Effective: For those who apply and commence employment in Iskandar Malaysia between 14 October 2009 and 31 December 2015.
F) Individual Tax Relief on Broadband Subscription Fee
Present Position-
No tax relief is given on broadband subscription fees.
Proposed change-
It is proposed that individual tax payers be given tax relief on broadband subscription fees up to RM500 per year.
Effective:From Year of Assessment 2010 to Year of Assessment 2012.
4) Income Tax changes Affecting Companies and Unincorporated Business
A) Tax Incentive for Small and Medium Enterprises to Register Patents and Trademarks
Present Position-
Expenses incurred on the registration of patents and trademarks in the country are capital in nature and not allowed as deduction for purposes of income tax computation.
Proposed Change-
It is proposed that expenses incurred in the registration of patents and trademarks in the country be allowed as a deduction for the purpose of income tax computation.
Effective:From the Year of Assessment to the Year of Assessment 2014.
B) Extension and Expansion of Tax Incentives for Export of Financial Services
Present Position-
Taxation on banking, insurance and takaful sectors is based on worldwide income scope. This means that income from operations overseas is subject to tax even if such income is not remitted back to Malaysia.
In the 2007 Budget, banking institutions are given tax exemption on:
i) profits of newly established branches overseas;or
ii) income remitted by new overseas subsidiaries.
The incentives are subject to the following conditions:
i) applications to establish new branches or subsidiaries overseas must be submitted to Bank Negara Malaysia from 2 September 2006 until 31 December 2009; and
ii) the branches or subsidiaries have to commence operations within a period of 2 years from the date of approval by Bank Negara Malaysia.
The tax exemption is given for a period of 5 years from the commencement of operations of the branches or subsidiaries.
Proposed change-
It is proposed that:
i) the tax incentives given to banks be extended to insurance companies and takeful companies;
ii) the effective period for the 5-year tax exemption be given flexibility to be deferred from the date of commencement of operations to begin not later than the third year of operations; and
iii) the incentive is extended on condition that applications to establish new branches or subsidiaries overseas be received by Bank Negara Malaysia not later than 31 December 2015.
Effective: For applications received by Bank Negara Malaysia not later than 31 December 2015.
