IRBM's Responses to CTIM on Issues from Joint Memorandum on Post-2022 Budget Issues & Gazette Orders
Updated: Feb 22
On December 23, 2022, the Inland Revenue Board of Malaysia's responses regarding issues raised by CTIM members on June 13, 2022, were released. These issues were related to IRBM's Responses to Joint Memorandum on Post-2022 Budget Issues and Gazette Orders.
The following is a summary of IRBM’s Responses to CTIM Members’ Issues arising from IRBM’s Responses to the Joint Memorandum on Post-2022 Budget Issues & Gazette Orders:-
Red Colour: Issues
Blue Colour: IRB's Responses
1. IRBM’s responses to Joint Memorandum on Post-2022 Budget Issues
1.1 Part B, Item 1.9 - Income Tax Relief on Medical Treatment Expenditure – Amendment of S.46(1)(h):
IRBM: A report on the COVID-19 Detection Test that has been verified/endorsed by a registered medical practitioner with the Malaysian Medical Council can be accepted as evidence for tax relief purposes under subparagraph 46(1)(h)(ii) of the Income Tax Act 1967 (ITA).
1.2 Part B, Item 5.2 - Appendix 34 – Extension of Tax Incentive for Renovation and Refurbishment of Business Premises:
IRBM: Since this is a special deduction that consists of expenses not allowed under the provisions of subsection 33(1) of the ITA and also does not qualify for capital allowance under Schedule 2 or Schedule 3, it is reasonable that this special deduction must be certified by an external auditor as stated in Rule 2, P.U.(A) 381/2020.
The fees for certification by an external auditor to verify the expenses incurred by taxpayers on renovation and refurbishment claims are not eligible for deduction under section 33(1) of the ITA, as the said expense is not incurred in the production of gross income, as stated in Paragraph 6, Frequently Asked Questions dated October 31, 2022, on Deduction for Renovation and Refurbishment Costs for Business Premises under P.U.(A) 381/2020 and 481/2021.
1.3 Part B, Item 5.5 - Appendix 29 – Extension of Tax Incentive for the Purchase of Tourism Vehicles
IRBM: Income Tax (Accelerated Capital Allowance) (Excursion Bus) (Amendment) Rules 2022 [P.U.(A) 9/2022] would only apply to excursion buses acquired, through hire purchase agreement, within the year of assessment (YA) 2020 to YA 2024. If the excursion bus is acquired before YA 2020, no accelerated capital allowance (ACA) is allowed on the capital repayment portion made between YA 2020 to YA 2024.
P.U.(A) 9/2022 has included sub-subparagraph 2(2)(d), which specifies the terms and conditions.
1.4 Part C, Item 2.6 - Issues arising from Transitional Provisions [New S.6(1)(p) and Part XX of Schedule 1 (w.e.f. 1 January 2022 to 30 June 2022)]
IRBM: Malaysian resident companies engaged in banking, insurance, shipping, or air transport businesses are subject to taxation under the worldwide scope.
Therefore, the Foreign Source Income (FSI) related to the banking, insurance, shipping, or air transport business activities received by Malaysian resident companies engaged in these businesses is subject to tax in Malaysia, regardless of whether the FSI is remitted to Malaysia or not. As such, this FSI income will also be subject to the provisions under paragraph 6(1)(p) and Part XX of Schedule 1 of the Income Tax Act (ITA).
For FSI income received by Malaysian resident companies engaged in other than banking, insurance, shipping, or air transport businesses, the FSI income is subject to Malaysian tax when remitted to Malaysia. This FSI income is not subject to the cukai makmur provided under P.U.(A) 96/2022.
1.5 Part F, Item 2 - Tax Measures proposed under Economic Stimulus Packages 2021, which has not been gazetted
IRBM: Expenses incurred on equipment and services for providing its’ premises as vaccination centres, the deduction can be claimed under P.U.(A) 269/2021, Income Tax (Deduction For Expenses In Relation To The Cost Of Personal Protective Equipment) Rules 2021.
2. Gazette Orders
2.1 Income Tax (Restriction on Deductibility of Interest) (Amendment) Rules 2022 [P.U. (A) 27/2022]
The Income Tax (Restriction on Deductibility of Interest) Rules 2019 [P.U. (A) 175/2019] [“principal Rules”) come into operation on 1 July 2019. The amendment Rules come into operation on 1 February 2022.
CTIM would like to ask for confirmation that the amendment Rules will apply to a person in respect of the basis period for a YA beginning on or after 1 February 2022 and subsequent basis periods. If the answer is no, how should the tax EBITDA for non-January year-end tax computation for YA 2022 be calculated, where 1 February 2022 falls within the basis period?
IRBM: P.U. (A) 27/2022 will take effect based on the basis period starting on or after 1 February 2022. The revised guideline will provide a further example to explain these changes.
CTIM requests IRBM to further explain Rule 5(2)(b) and provide a few examples. It would be good to update the Guidelines on IRBM’s website to incorporate this latest amendment.
IRBM: An example of rule 5(2)(b) has been included in the revised guidelines. It will be made available on the IRBM’s website once approved.
2.2 Income Tax (Conditions for the Grant of Rebate under Subsection 6D(4)) Order 2021 [P.U. (A) 504/2021]
Rule 2(1)(b) of the Order provides that the operations of the qualifying company or qualifying limited liability partnership (LLP) shall be carried out in a different premise from its related company or its related LLP.
Rule 2(1)(d) of the Order provides that the employee of the qualifying company or qualifying LLP, except for its chief executive officer and director, shall be different from its related company or its related LLP.
a) CTIM would like to seek confirmation that the requirements of “different premises” under Rule 2(1)(b) of the Order would be satisfied in the following situation: Where the operations of a qualifying company / LLP are located on different levels or different units within the same building.
b) CTIM would like to seek confirmation that the requirement under Rule 2(1)(d) of the Order would be satisfied in the following situation: Where a qualifying company / LLP which has no employees of its own but utilises its related company’s / LLP’s resources under a staff pooling arrangement where the related company or related LLP will charge a management fee to the qualifying company / LLP.
IRBM:
a) In the given situation, the condition of sub-subparagraph 2(1)(b) P.U.(A) 504/2021 can be fulfilled. The intention of providing the 6D rebate under ACP is for new companies/LLPs, and the conditions in subparagraph 2(1) P.U.(A) 504/2021 have been included to ensure that the intention can be achieved. If a tax audit review and audit evidence reveal that there has been manipulation where the company/LLP is not a new and separate entity from its related company/LLP regarding business activity and operations, the rebate may be revoked.
b) The company shares the same employees with its related company. Therefore, the condition under sub-subparagraph 2(1)(d) P.U.(A) 504/2021 is not fulfilled.
2.3 Income Tax (Exemption) Order 2022 [P.U. (A) 96/2022] and Paragraph 2(2), Part 1 of Schedule 1 of the Income Tax Act 1967
The Income Tax (Exemption) Order 2022 [P.U.(A) 96/2022] was gazetted on 1 April 2022 to legislate the exclusion of foreign-source income from the calculation of the special one-off tax known as the “Cukai Makmur” that applies to certain companies with chargeable income exceeding RM100 million in the basis period for YA 2022. The Order has effect for Y/A 2022 and applies to a company with income received in Malaysia from outside Malaysia from 1 July 2022.
Pursuant to the Finance Act 2021, amendments were made to paragraph 2 of Part I of Schedule 1 to the Income Tax Act 1967 so that a company (other than a small and medium enterprise) that has chargeable income in excess of RM100,000,000 in the basis period for YA 2022 will be subject a two-tiered tax rate under subparagraph 2(2) of Part I of Schedule 1 to the ITA (‘subparagraph 2(2)’):
the first RM100,000,000 of chargeable income will be subject to tax at the rate of 24%; and
the chargeable income exceeding RM100,000,000 will be subject to tax at 33%.
CTIM would like to seek clarification from IRBM on whether the above P.U. Order applies to a Malaysian resident company carrying on the business of banking, insurance, shipping or air transport in respect of its:-
Business income that is taxed from wherever accruing or derived, i.e. worldwide basis, regardless of whether its foreign source income is remitted into Malaysia (for example, income from a foreign branch); and
Non-business income that is taxed upon remittance into Malaysia.
If Item (1) is affirmative, CTIM seeks confirmation that the foreign business income accrued from 1 July 2022 for YA 2022 will be deemed remitted into Malaysia in YA 2022, and will be excluded from Cukai Makmur computation purposes.
IRBM:
P.U. (A) 96/2022 is not applicable.
P.U. (A) 96/2022 is applicable.
Please refer to IRBM's response to item 1.4 above.
Please refer to IRBM's Responses to CTIM on Issues from Joint Memorandum on Post-2022 Budget Issues & Gazette Orders for full details:-
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. IRBM's Responses to CTIM on Issues from Joint Memorandum on Post-2022 Budget Issues &
Download IRBM'S RESPONSES TO CTIM ON ISSUES FROM JOINT MEMORANDUM ON POST-2022 BUDGET ISSUES & • 1.02MB
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