COVID-19: National Economic Recovery Plan

As a plan to steer the country through these challenging times, the Malaysian government has taken an approach that is focused on 6 key steps: Resolve, Resilience, Restart, Recovery, Revitalize and Reform.

The first stage of the plan was the implementation of the Movement Control Order (MCO) on 18 March 2020 almost 3 months ago. The second stage was aimed at protecting lives and livelihoods of the people via the PRIHATIN Economic Stimulus packages. The country then moved into the third stage by reopening most economic sectors in an orderly and controlled manner via the Conditional MCO (CMCO) from 4 May 2020.

To kick start the Recovery plan under the fourth stage, the Government has on 5 June 2020 unveiled the PENJANA (PelanJana SemulaEkonomiNegara) or the National Economic Recovery Plan with a total of 40 key initiatives worth RM35 billion (including RM10 billion of direct fiscal injection).

This inclusive and holistic approach by the Government for Malaysia’s economic recovery will focus on the following 3 key thrusts :

What are benefits or changes in term of tax? Below are the key takeaways.

Corporate Tax

Double Deduction for Employers which Implement Flexible Work Arrangements (FWAs)

• It is proposed that a double deduction be given on the following eligible expenses incurred by employers for 3 consecutive years of assessment (YAs) for implementing FWAs or undertake enhancement of their existing FWAs:
  1. Consultancy fees;
  2. Expenditure for developing capacity for FWAs including staff training costs; and
  3. Costs of acquiring virtual working environment software.
• The eligible expenses above must be verified by Talent Corporation Malaysia Berhad (TCMB) and is limited to RM500,000 for each YA.
• The application must be received by TCMB from 1 July 2020 to 31 December 2022.

Deduction / Capital Allowance on Personal Protective Equipment (PPE), Thermal Scanners and Covid-19 Testing

• Under the Economic Stimulus Package 2020, companies are allowed a tax deduction on expenses incurred for the provision of disposable PPE and capital allowance on non-disposable PPE for the period from 1 March 2020 to 31 December 2020.
• It is proposed that the above scope of expenditure be expanded to cover Covid-19 testing and purchase of other related PPEeffective from 1 March 2020.
• The initial period of 1 March 2020 to 31 December 2020 will be extended to beyond 31 December 2020. However, the end date of the extended period has not been made known at this point of time.

Special Tax Deduction for Renovation and Refurbishment Expenses

• It is proposed that the special tax deduction of up to RM300,000 on eligible expenses incurred for renovation and refurbishment of business premises for the period from 1 March 2020 to 31 December 2020 be extended to 31 December 2021.

Special Tax Deduction for Rental Reduction Provided to Small and Medium Enterprises (SMEs)

• It is proposed that the special tax deduction equal to the amount of the reduction in rent of at least 30% on business premises rented to SMEs registered with SME Corporation Berhadfor the period from April 2020 to June 2020 be extended to 30 September 2020.

Accelerated Capital Allowance (ACA) for Machinery and Equipment Including ICT Equipment

• It is proposed that ACA (annual allowance of 40%) for qualifying expenditure incurred on the purchase of machinery and equipment (including ICT equipment) for the period from 1 March 2020 to 31 December 2020 be extended to cover qualifying capital expenditure incurred up to 31 December 2021.

Tax Incentive for SMEs

• It is proposed that an annual income tax rebate of up to RM20,000 per YA for the first 3 YAs will be given to newly established SMEs which commence operation between 1 July 2020 and 31 December 2021 subject to the following conditions:
  1. The SME is registered under the Companies Act 2016;
  2. Paid up share capital of the SME is not exceeding RM2.5 million and annual sales is not exceeding RM50 million;
  3. The amount of rebate that is eligible is based on the capital expenditure or operating expenses incurred in each YA subject to a maximum amount of RM20,000 per YA;
  4. Any unused tax rebates for a YA cannot be carried forward to the following YA for the purpose of tax reduction;
  5. The new entity is required to use separate plant, equipment and facilities which are not transferred from an existing or related company; and
  6. Other conditions to be determined.

Additional Reinvestment Allowance

• It is proposed that an additional reinvestment allowance of 60% be given on qualifying capital expenditure to off set against 70% of Statutory Income for manufacturing and selected agriculture activity from YA 2020 until YA 2022.
• The incentive is given to existing companies whose existing reinvestment allowance or special reinvestment allowance periods have expired.

Deferment of Tax Instalment Payments for Tourism Industry

• It is proposed that the deferment of tax instalment payments for businesses under the tourism industry (i.e. travel agencies, hotel operators and airlines) from 1 April 2020 to 30 September 2020 be extended for another 3 months to 31 December 2020.
• This proposal aims to alleviate financial difficulties faced by the tourism sector.

Personal Tax

Tax Exemption for Handphone, Notebook and Tablet Received from Employer

• It is proposed that individual income tax exemption of up to RM5,000 be given to employees who receive a handphone, notebook and tablet from their employer, effective from 1 July 2020.
• Currently, individual income tax exemption is given to employees for the gift of a fixed line telephone, mobile phone, tablet, pager or PDA which is registered under the name of the employee (limited to one unit for each asset category) by the employer.
• With the above proposal, the tax exemption is extended to notebook but is capped at RM5,000.
• It was subsequently announced in the released appendices that the above exemption would be effective from YA 2020. It is not known at this time whether the above exemption will be extended to gifts received by employees from 1 January 2020 onwards or is restricted to gifts received from 1 July 2020 onwards.

Special Tax Relief on Purchase of Handphone, Computer and Tablet

• It is proposed that a special individual income tax relief of up to RM2,500 will be given on the purchase of handphone, computer and tablet from 1 June 2020 to 31 December 2020.
• It was clarified in the released appendices that the above tax relief will be given in addition to the current lifestyle relief.

Increase in Tax Relief for Fees Paid to Childcare Centre

• It is proposed that individual tax relief for parents who are resident individuals on childcare fees paid to childcare centresor kindergartens be increased from RM2,000 to RM3,000 for YA 2020 and YA 2021.
• Only childcare fees paid to a childcare centreregistered with the Director General of Social Welfare under the Child Care Centre Act 1984 or a kindergardenregistered under the Education Act 1996 qualifies for the above tax relief.

Special Tax Relief for Domestic Travelling Expenses

• Currently the special income tax relief of up to RM1,000 is given to resident individuals for the following qualifying domestic traveling expenses incurred from 1 March 2020 to 31 August 2020:
  1. Accommodation expenses at premises registered with the Ministry of Tourism, Arts and Culture Malaysia; and
  2. Entrance fees to tourist attractions.

It is proposed that the relief for the above qualifying domestic travelling expenses incurred be extended up to 31 December 2021.

Real Property Gains Tax (RPGT)

Real Property Gains Tax (RPGT) Exemption on Disposal of Residential Homes

• The RPGT exemption will be given on gains from the disposal of residential homes between 1 June 2020 and 31 December 2021. This exemption is restricted to the disposal of 3 units of residential homes per individual, and the individual must be a Malaysian citizen.
• The RPGT exemption does not apply to the disposal of residential homes acquired during the exemption period by way of love and affection which were not subject to RPGT under Paragraph 3(1)(b) and Paragraph 12 of Schedule 2 of the RPGT Act 1976.

Tax Incentives

To Attract Foreign Direct Investments

• It is proposed that the following incentives be granted to foreign companies who relocate their business to Malaysia:
  1. 0% tax rate for 10 years for new investment in manufacturing sectors with capital investment between RM300 million and RM500 million
  2. 0% tax rate for 15 years for new investment in manufacturing sectors with capital investment above RM500 million
  provided that the companies relocate and commence their operations within 1 year from the date of approval of the incentive and the committed capital investment must be made within 3 years from the date of approval of the incentive.
• An existing company in Malaysia would be granted a 100% investment tax allowance for 5 years if it relocates its overseas manufacturing facilities to Malaysia with capital investment above RM300 million.
• The incentives above are available to the manufacturing sector except for certain industries.
• Both incentives apply to applications made from 1 July 2020 to 31 December 2021.
• This proposal aims to attract foreign direct investments to Malaysia.

Stamp Duty

Stamp Duty Exemption for SMEs Involved in Merger and Acquisition Activities

• To encourage SMEs to improve their competitiveness through merger and acquisition activities, stamp duty exemption will be given on any instruments executed by SMEs between 1 July 2020 and 30 June 2021 for such activities.
• Instruments eligible for this exemption are:
  1. Contract or agreement for sale or lease of property (land, building, machinery and equipment);
  2. Instrument of transfer and memorandum of understanding;
  3. Loan or financing agreement; and
  4. First tenancy agreement
• The merger or acquisition must be approved by the Ministry of Entrepreneur Development and Cooperatives between 1 July 2020 and 30 June 2021, with the relevant instruments executed not later than 31 December 2021.
• Further details on the exemption are expected to be provided in the statutory exemption order to be issued.

Stamp Duty Exemption on Reintroduction of Home Ownership Campaign (HOC)

• The stamp duty exemption will be given on the instrument of transfer and loan agreement for the purchase of a residential home priced between RM300,000 to RM2,500,000 from a developer, subject to the developer giving a discount of at least 10%.
• For the instrument of transfer, this exemption is limited to the first RM1,000,000 of the home price. Full exemption will be given on the loan agreement.
• This exemption is effective for sales and purchase agreements signed between 1 June 2020 and 31 May 2021.
• The developer must be registered with the Real Estate & Housing Developers’ Association (REHDA), Sabah Housing & Real Estate Developers’ Association (SHAREDA), or Sarawak Housing & Real Estate Developers’ Association (SHEDA).
• The homebuyer must be a Malaysian citizen.

Indirect Tax

Extension of Service Tax Exemption for Operators of Accommodation Premises

• Currently service tax exemption is given to operators of accommodation premises for accommodation services and other related services provided by them from 1 March 2020 to 31 August 2020.
• It is proposed that the period for service tax exemption shall be extended to 30 June 2021.

Remission of Late Payment Penalty for Sales Tax and Service Tax

• To ease financial stress on businesses, the Government will grant a 50% remission of penalty for late payment of sales tax and service tax due and payable for the following taxable periods:
  • 1 April 2020 to 31 May 2020;
  • 1 May 2020 to 30 June 2020;
  • 1 June 2020 to 31 July 2020; and
  • 1 July 2020 to 31 August 2020.
• The remission is only given for payment made not later than 90 days from the due date.

Export Duty Exemption for Commodity Sector

• To support to the commodity sector, the Government will grant a 100% export duty exemption from 1 July 2020 to 31 December 2020 for the following commodities:
  • Crude Palm Oil;
  • Crude Palm Kernel Oil; and
  • Refined Bleached Deodorized Palm Kernel Oil.

Exemption of Sales Tax for Purchase of Passenger Cars

• Sales tax exemption will be given for purchase of passenger cars including Multi-Purpose Vehicle (“MPV”) and Sport-Utility Vehicle (“SUV”) as follows:
  • Full sales tax exemption on locally assembled cars; and
  • 50% sales tax exemption on imported cars.
• The exemption is subject to the following conditions:
  1. The reduced selling price must be fully reflected on the sales tax savings received by the local car assembly companies, local car assembly franchise companies, franchise Approved Permit (“AP”) holders and open AP holders; and
  2. List of models / variants along with the proposed selling price after sales tax exemption must be submitted for verification by the Ministry of Finance.
• This proposal aims to stimulate the automotive sector and provide financial relief to car buyers.
• Effective from 15 June 2020 to 31 December 2020.

Tourism Tax Exemption

• To support the tourism sector during the COVID-19 period, the Government will grant tourism tax exemption from 1 July 2020 to 30 June 2021.

Other Areas

Extension and Enhancement to Wage Subsidy Programme

• The Government previously implemented a three-month wage subsidy programme by giving a subsidy if RM600 per employee.
• It is proposed that the above be extended by another 3 months to end September.
• The current wage subsidy programme will also be enhanced as follows:
  1. Allow employers receiving wage subsidy to implement reduced work week (eg. 4-day work week with a reduced pay of 20%).
  2. Allow employers to receive wage subsidy for employees on unpaid leave, subject to employees receiving the subsidy directly (only applicable to tourism sector and businesses which are prohibited from operating during CMCO).
• Effective: Mid June 2020 to 30 September 2020.

Technical and Digital Adoption for SMEs and Mid-tier Companies (MTCs)

• It is proposed that the Government will continue to provide grants and loans (total amounting to RM700 million) to eligible enterprises for adoption or subscription of digitalisation services under the following programmes:
  • SME Digitalisation Matching Grant of RM100 million, in partnership with telecommunication companies.
  • SME Technology Transformation Fund of RM500 million loan (application opens from July 2020).
  • Smart Automation Grant of RM100 million, capped at up to RM1 million per company.
• This proposal aims to assist and incentivise SMEs and MTCs to digitalise operations and trade channels.

Hiring and Training Assistance for Businesses

• The Government will introduce incentives worth RM1.5 billion to encourage the hiring of the unemployed which is estimated to benefit approximately 300,000 job seekers.
• The following incentives will be given to the employers for a period of six months:
  1. Youth: RM600 per month for apprenticeships for school leavers and graduates.
  2. Unemployed Workers:
     • Below 40 years old: RM800 per month for employment of unemployed.
     • 40 years old and above or persons with disability: RM1,000 per month for employment of unemployed.
     • Training allowance of RM4,000 per individual will also be extended to those retrenched but not covered under the Employment Insurance System (EIS).
• Applicable for applications made from Mid June 2020 to 31 December 2020.