Property Tax Only For Sales Within 5 Years Of Purchase (24 December 2009)

The Prime Minister of Malaysia said last night that Real Property Gains Tax (RPGT) of 5% announced during the 2010 Budget will only apply to property sold less than 5 years from its purchase. The Prime Minister also announced that hotels undertaking additional investments to renovate, refurbish and expand their property would enjoy 60% re-investment allowance extended to 15 years, adding that the incentive was for a period of 10 years. The following is the full text reported in the Star Newspaper today:-

“The Star Newspaper, Thursday December 24, 2009

Property tax only for sales within five years of purchase

PUTRAJAYA: The real property gains tax (RPGT) announced during the 2010 Budget will now only apply to property sold less than five years from its purchase, Datuk Seri Najib Tun Razak said.

The Prime Minister said the 5% tax would now only be imposed on property sold within five years of the date of purchase.

He said the decision would cause the Government to lose about RM200mil in revenue, adding the move was made following appeals from the Federation of Chinese Associations of Malaysia (Hua Zong) and the business sector.

“This was also decided upon as the Government wants to see a stronger growth in the property sector next year. We are willing to forgo a substantial amount of revenue so that the sector can expand and grow.

“The property sector has shown signs of improvement but we feel that it requires further impetus so that it can continue to grow from strength to strength.

“We have met one of Hua Zong’s request and we hope they will respond accordingly by working even closer with the Government in the future,” he said at the swearing-in ceremony of Hua Zong’s office bearers for the 2009-2011 term at a hotel here last night.

Also present were MCA president Datuk Seri Ong Tee Keat, vice-president Datuk Seri Liow Tiong Lai and Hua Zong president Tan Sri Pheng Yin Huah.

Najib also announced that hotels undertaking additional investments to renovate, refurbish and expand their property would enjoy 60% re-investment allowance extended to 15 years, adding that the incentive was for a period of 10 years.
Najib said he also wanted to see a more active private sector, which he noted had been rather “lethargic” and had been more interested in investing abroad compared to domestically.

He also said that the country needed leaders who were moderate and pragmatic in fighting for the interest of the people.

“The Chinese can fight for the rights of the Chinese while the Malays can fight for the Malays. Likewise with other races. But it does not have to be at the expense of others,” he stressed.”

Article – Raising Revenue Via Real Property Gains Tax (22 December 2009)

An article I read from The Star, Tuesday December 22, 2009:-

“Tax Insights – By Kang Beng Hoe

WHEN the Finance Minister introduced Budget 2010 in October, he surprised many and disappointed some with his tax measures.

Those who were expecting an announcement on a firm date for the implementation of the goods & services tax (GST) were disappointed that the Government has deferred a decision pending further studies on aspects of the tax.

The reintroduction of the real property gains tax (RPGT) came as a surprise to many as it is barely three years since the exemption from the tax was announced.

This is a relatively short time-frame in the context of a structural change in a country’s tax laws. However, we are not in normal times what with the economy still in recovery mode and the Government seeking new ways to reduce its budgetary deficit position.

Both the GST and RPGT are intended to be revenue-generating measures; particularly the GST, which will be broad-based, affecting a significant segment of the community.

It is this feature which makes the tax efficient as it is expected to raise sizeable tax revenue; the very feature which also makes the decision to impose it difficult.

On the other hand, the re-imposed RPGT at a flat rate of 5% is unlikely to result in much tax being collected and there has been speculation that it will not end there and, before long, we will see the scale rates under the previous regime brought back.

These rates applied at 30% to a sale of a property if held for less than two years with a drop in the tax rate for every year longer the property was held.

A property, which was held by an individual for more than five years, was taxed at zero rate. The tax is now 5% regardless of the holding period.

The RPGT is a capital gains tax and it will be useful to understand the characteristics of this form of tax and what other countries are doing in this area.

The RPGT, like all capital gains tax, differs from almost all other forms of taxation in that it is a voluntary tax.

Since the tax is paid only when the property is sold, one can legally avoid paying the tax by holding on to the property.

This phenomenon is known as the “lock-in-effect”. This effect is likely to come into play if the tax is set at a high rate.

This can represent a deliberate policy measure to dampen excessive property speculation.

In fact, the RPGT – which we have today – had its birth in this country as the Land Speculation Tax Act, introduced at a time when real estate speculation was rampant.

It is interesting to note that in September, Vietnam introduced a capital gains tax on property transactions. Every time a property changes hands, the tax is either at 25% of the gain or 2% of the transaction value.

It has been reported that this new tax has “paralysed” the local property market with transactions being reduced by some 80%.

Coincidentally, Malta in its 2010 budget imposed a 12% tax on the transfer value of immovable property with the option of paying tax on the gain at the applicable income tax rate.

So our 5% RPGT rate is somewhat benign in comparison although it has not stopped those who have held their properties for a very long time from being hot under the collar.

This is due to the inherent unfairness of the tax. Unless the capital gains are indexed for inflation, the seller not only pays tax on the real gain in purchasing power but also on the illusory gain attributable to inflation.

The second large inequity of the RPGT, or capital gains tax in general, derive from how economists view it. Land derives its value from the owner’s productive use of it or to sell it to someone who will.

The value of this type of asset is the discounted value of the future stream of income from the use of the asset.

The “gain” that the seller makes would have been reflected in the asset price paid by the buyer and when the buyer derives income from it, he would be taxed on such income when earned.

This is economic double taxation and why many analysts argue that the most equitable rate of tax on capital gains is zero.

Going forward, it would seem that any attempt to use the RPGT to collect more tax by increasing the applicable rate, or rates, would need to consider the inherent paradox that this would bring about.

A higher rate could deter buyers and sellers from entering into property transactions.

This is fine if the intention is to cool down a hot property market. It would then not serve as an effective tax-generating measure.

•Kang Beng Hoe is executive director of Taxand Malaysia Sdn Bhd.”

A Good Article On Main Compliance Requirments Of GST In Malaysia (15 December 2009)

A very useful article I have read from Biznews section, New Straits Times, Saturday, December 12, 2009 on implementation of Goods and Services Tax (GST) in Malaysia:-

GST – main compliance requirements

By Chew Theam Hock and Tan Eng Yew

BASED on recent announcements, the Government has indicated that it plans to implement Goods and Services Tax (GST) effective from the last quarter of 2011. The GST, at an indicative rate of 4 per cent, is set to replace the current sales tax and service tax regime.

The introduction of GST will require businesses to comply with various requirements under the GST laws and regulations. This article sets out some of the main requirements as we move towards the GST implementation date.


GST is a consumption tax which is designed to tax the “private final consumption”. Generally, GST will be chargeable on a broad range of supply of goods and services (i.e. taxable supplies) consumed domestically. The basic principle is that GST is collected throughout the production and supply chain. Each business will charge GST on taxable supplies and where conditions are fulfilled, allowed to claim a credit on GST paid on inputs purchased. It should be noted that the credit is generally claimable on all purchases required to make the taxable supply.

Taxable supplies can either be standard rated or zero-rated. Standard rated supplies are subjected to a specific rate of tax, which has been indicated to be 4 per cent. Zero-rated supplies are supplies subject to GST at a rate of zero per cent. Paddy, rice, vegetables, livestock, exported goods and services are some of the supplies proposed to be zero-rated. All goods and services are taxable except those which are specified as exempt.

Where a supply is classified as exempt, GST is not charged on the supply. However, no input tax credit is claimable by the supplier. Some of the examples of supplies that are proposed to be exempted are financial services, sale or lease of residential properties, private health and education, domestic transportation of passengers, land for agricultural purposes and burial ground.


In order to charge GST and claim input tax credits, businesses have to be registered for GST purposes with the Royal Malaysian Customs (“Customs”). Registration will be compulsory for businesses where the annual sales turnover of its taxable supplies exceed the prescribed threshold. The liability to register is determined based on either taxable turnover of the current month and the preceding 11 months or taxable turnover of the current month and the next 11 months. Businesses whose annual sales turnover is below the prescribed threshold may apply for voluntary registration. The indicative threshold is RM500,000.

One of the reasons to voluntarily register for GST is to enable the business to claim the input tax credits. Businesses which fall below the threshold may also be compelled to be licensed by their business customers who wish to claim the credit on the supplies acquired. Once registered, the business registrant must remain in the system for at least 2 years. We understand from the Customs Public Consultative meeting that pre-registration will be allowed a few months before the GST implementation date.


A GST registered person making a taxable supply to a taxable person must provide a tax invoice within a stipulated period (indicated as 21 days) after supply is made.

The GST “tax invoice” has to contain certain information as required by the law. Some of the information which is normally required is listed below:-

(a)   The word ‘tax invoice’ in a prominent place;

(b)   The invoice serial number;

(c)    The date of issue of the invoice;

(d)   The name, address and GST identification number of the supplier;

(e)   The name and address of the person to whom the goods or services are supplied;

(f)     A description sufficient to identify the goods or services supplied;

(g)   For each description, the quantity of the goods or the extent of the services and the amount payable, excluding GST;

(h)   Any discount offered;

(i)     The total amount payable excluding tax, the rate of tax and the total tax chargeable shown as a separate amount;

(j)     The total amount payable including the total tax chargeable;

(k)    Any amount referred to in subparagraph (i) and (j), expressed in a currency, other than Malaysian currency, must also be expressed in Malaysian currency; and

(l)     If the goods or services supplied are exempt or zero rated, they must be separately identified in the invoice and the gross total amount payable on them must be separately stated.


Businesses will be required to furnish GST returns and pay GST to Customs no later than a month after each taxable period. A taxable period is a regular interval period where a taxable person is liable to account for GST. Taxable periods may be 1 month, 3 months or 6 months depending on the businesses’ annual turnover.

At the end of a taxable period, if taxable supplies are made, GST registered businesses will need to compare output tax it charges to the input tax it incurs. Where the output tax is more than the input tax, businesses will need to remit the difference in the tax return to Customs no later than the last day of the month after the taxable period. If the input tax claimed is more than the output tax, businesses may be entitled to a refund subject to certain conditions.

Where there is late submission, a mandatory penalty at the prevailing rate will be imposed on any unpaid amount.


To claim input tax credits, GST registrant business will need to have a valid tax invoice from the supplier of taxable supplies acquired. In addition, there are other conditions that need to be fulfilled by the GST registered business for the input tax credit claim. These include:

  • The claimant must be a taxable person;
  • Invoice (i.e. tax invoice) is issued under the name of the claimant; and
  • Goods and services acquired are not subject to any input tax restriction. These are acquisitions whereby even though GST is paid, no input tax credit is allowed. These include the purchase of passenger motorcar (including importation), club subscriptions fee, medical and personal accident insurance premiums, medical expenses, family benefits, entertainment expenses and others. It should be noted that no GST is chargeable on the subsequent supplies of these items.


All business and accounting records relating to GST would be required to be kept in Bahasa Malaysia or the English language for a period of 7 years. If proper records are not maintained, the Customs may insist in making an assessment of tax which may not be due if full information in examined.


GST is generally not meant to be a tax on businesses, it imposes certain compliance requirements on businesses to account and remit the tax to Government. In case of non-compliance, businesses may be subject to penalties. As such, businesses are encouraged to exercise due care in preparing themselves to be GST compliant. As the implementation date approaches, the Government is anticipated to provide various avenues to help businesses do just that and businesses should make full use of this assistance.

The writers are executive directors of KPMG Tax Services Sdn Bhd.”

Article On Windfall Tax Imposed On Palm Oil In Malaysia (15 December 2009)

A very useful article I have read from Biznews section, New Straits Times, Saturday, December 12, 2009 on windfall tax imposed on palm oil in Malaysia:-



by Ooi Tee Ching

Members of the Malaysian Estate Owners Association (MEOA), who are losing money, said they will not pay any windfall taxes until legality of Windfall Profit Levy Act 1998 on palm oil is justified.

Established in 1931, MEOA represents small-and medium-sized estates of more than 40ha.

“We’re seeking advice on the legality of this windfall profit levy. The formulation of the windfall profit levy assumes all planters make money when palm oil prices in the physical market surpass RM2,500 per tone,” said MEOA president Boon Weng Siew. He said not every planter makes tones of money as the profitability of oil palm plantations depends on the age and productivity of the trees.

“A newly-replanted estate would still be losing money even if palm oil prices surpass RM3,000 per tonne,” Boon told Business Times in an interview.

“Why should planters, whose estates are losing money, pay windfall tax?” Boon asked.

He said the windfall tax formula is flawed and unfair to new plantations or those undertaking replanting activities.

“On one hand, the Malaysian Palm Oil Board incentivise oil palm planters to carry out replanting and at the same time Customs Department slap us with windfall tax when palm oil prices surpass RM2,500 per tonne. Mixed signals from different agencies within the government are causing investors to lose confidence in the palm oil industry,” he said.

“It would have been more justified if the windfall tax is on actual profits of audited financial accounts, like corporate tax,” he added.

Oil palm planters in the peninsular are expected to start paying windfall tax soon as the average crude palm oil price is nearing RM2,500 per tonne in the cash market. Planters in Sabah and Sarawak only need to pay windfall tax if the price cross RM3,000 per tonne.

So far, palm oil for the third month delivery, in the physical market, has averaged at RM2,503 per tonne.

MEOA said its members consider the Act a double taxation on planters and a deterrent to local and foreign investments in the stock market, Boon said.

Palm oil is already the world’s most heavily-taxed vegetable oil, with oil palm planters having to pay 26 per cent corporate tax, cess amounting to RM13 per tonne of crude palm oil, 7.5 per cent and 5 per cent sales tax in Sabah and Sarawak respectively. Also, there are varying import duties in consuming countries. Currently, it is estimated that for every RM100 a tonne increase in the price of palm oil, Malaysia’s export revenue is boosted by RM1.8 billion, based on annual production of 18 million tonnes.

This is translates into additional corporate tax of RM315 million, based on 70 per cent of taxable production after excluding 30 per cent of non-taxable production from smallholders and newly developed areas.”

Article On How To Cut Entertainment Tax (8 December 2009)

A good article I have read today on how to determine tax deductibility of entertainment expenses in Malaysia on the Star newspaper

”Tuesday December 8, 2009

How to deduct entertainment tax from income tax

RSM EYE – By Lee Voon Siong

To determine deductibility of expenses incurred can be very tedious and bewildering

FOR income tax purposes, any expenses incurred in the course of a business will only be eligible for tax deduction if the expenses are solely incurred in producing the business income.

It is important to establish the deductibility of an expense as in the event of a field audit which results in the Inland Revenue Board (IRB) discovering an understatement of tax due to claims on expenses which are not tax deductible, a taxpayer will not only suffer additional tax but also a 45% penalty.

With effect from year of assessment 2004, entertainment expense will only be eligible for 50% tax deduction except for specific circumstances where it will qualify for full deduction.

This article will explain the three steps to determine the amount of entertainment expenses allowable as a deduction.

Are the expenses incurred entertainment expenses as defined in the income tax law?:

Entertainment is defined to include:

(i) the provision of food, drinks, recreation or hospitality of any kind; or

(ii) the provision of accommodation or travel in connection with or for the purpose of facilitating entertainment of the kind mentioned in (i) by a person or an employee of his in connection with a trade or business carried on by that person.

Are the entertainment expenses solely incurred in producing the business income?:

Expenses allowable for accounting purpose do not necessarily qualify for tax deduction. The entertainment expenses must be wholly and exclusively incurred in producing the business income to be eligible for tax deduction. Domestic and private expenditure charged to the business accounts will not be tax deductible. For example, entertainment expenses incurred by a sole proprietor in taking his family out for a meal will not be deductible as it is private in nature.

Are the entertainment expenses eligible for full tax deduction?

Expenses incurred on the following entertainment will qualify for full tax deduction:

1. the provision of entertainment to employees. Examples of such expenses include free meals and refreshments, annual dinners, outings and family day.

2. the provision of entertainment by a person who carries on a business of entertaining. Where a taxpayer is in the business of providing entertainment to paying customers, the cost of providing such entertainment will be deductible.

Examples of expenses which are tax deductible include provision of cultural shows by restaurants or hotels at their premises to entertain their customers and meals provided by airlines or other transportation business to its passengers.

3. the provision of promotional gifts at trade fairs or trade or industrial exhibitions held outside Malaysia for the promotion of exports from Malaysia.

Expenses incurred on gifts to customers or visitors who attend the above events will qualify for tax deduction. These would include samples of products, small souvenirs, bags, and travel tickets

4. the provision of promotional samples of products of the business of that person. It should be noted that only the products of the taxpayer given out as promotional samples will be allowed full deduction.

Examples of such expenses include:

● A complimentary drink or meal provided by a restaurant.

● Free samples of products manufactured/distributed by the business.

● Free samples of new products.

5. the provision of entertainment for cultural or sporting events open to members of the public, wholly to promote the business of that person.

Examples of cultural or sporting events and the entertainment expense related to such events are shown in Table A.

TableA Example Of Entertainment Expenses Related To Cultural and Soprts Events

Taxpayers can do some tax planning in maximising their entertainment expenses claim by using the above provision. For instance, entertainment expenses incurred by a property developer in organising a carnival for the purpose of launching a new project or new property release will normally qualify for a 50% tax deduction. By including a cultural or sporting event, the property developer will be able to claim full tax deduction.

6. the provision of promotional gifts within Malaysia consisting of articles incorporating a conspicuous advertisement or logo of the business. The gifts need not be products of the business. However, the gifts must have a conspicuous advertisement or logo of the business.

7. the provision of entertainment which is related wholly to sales arising from the business of that person. Examples of such expenses include:

● Food and drinks for the launching of a new product.

● Redemption vouchers given for purchases made.

● Discount vouchers, shopping vouchers, concert or movies tickets, meal or gift vouchers and cash vouchers.

● Free gifts for purchases above a certain amount.

● Redemption of gifts based on a scheme of accumulated points.

● “free” maintenance/service charges or contribution to sinking fund by property developers.

● Lucky draw prizes to customers.

● Expenditure on trips given as an incentive to dealers for achieving the sales target.

● Provision of light refreshments to customers when making sales.

Entertainment expenses which are not eligible for 100% tax deduction under Step 3 above will only qualify for 50% tax deduction.

The tax treatment of some of the entertainment expenses are shown in Table B.

Table B Tax Treatment On Selected Entertainment Expenses

The process of determining the deductibility of entertainment expenses can be very tedious and often bewildering.

To ensure that the expenses are appropriately categorised, it is in the interest of taxpayers to educate their staff to provide details such as who they entertained and the purpose of the entertainment. Proper records such as invoices, receipts, payment vouchers, etc must be kept to support the claim in case of tax audit by the IRB.

● Lee Voon Siong is executive director of RKT Tax Consultants Sdn Bhd.”


Sample Disclosure – Change In Accounting Policy, Measurement Of Stage Of Completion Of Contract Work (8 December 2009)


Prior to 1 July 2008, where the outcome of a construction contract can be reliably estimated, contract revenue and contract costs are recognised as revenue and expenses respectively by using the stage of completion method. The stage of completion is measured by reference to the proportion of contract costs incurred for work performed to date to the estimated total contract costs.

However, the Company has changed the basis of measurement from proportion of contract costs incurred for work performed to date to the estimated total contract costs to survey of work performed. The reason for the change is that the directors are of the opinion that value of work certified or surveyed as a percentage of the total contract value better reflect the contract work performed by the Company. The change in accounting policy is applied retrospectively and there was no effect on the balance sheet items of the Company as at 30 June 2009 and the income statement of the Company for the financial year then ended.