Reading through the full 55 pages of the Budget 2017 speech over my Sunday morning coffee, I’ve decided to narrow down this blog post and pick out some key highlights which are of my personal / professional interest – ie, Startups, Property, Company tax and of course, our own Personal Income Tax.
As with all Budgets, the devil is in the details of implementation and actual wording of the legislative gazettes effecting the Budget proposals. But for now, keep your eyes and antennae tuned to these developments:
1. Individual Reliefs
There will be consolidation into 1 category called “Lifestyle Tax Relief” of the existing tax reliefs on the purchase of reading materials, computers, sports equipment. The tax relief is also extended to include the purchases of printed newspapers (wait, who still buys print?), smartphones and tablets, internet subscriptions and gym membership fees. The total tax relief claimable is up to RM2,500 per year.
So, my personal resolution now is to use EverNote to store these adhoc receipts. Also, the inclusion of these ‘subscription’ type fees (as opposed to one-off purchases) will certainly make it easier for me to dig up and submit the necessary receipts to my tax agent next year.
2. Increase in Stamp Duty on Property
This is to me probably the WORST item of the entire Budget 2017. Brace yourselves. The rate of stamp duty on instruments of transfer of real estate worth more than RM1 million, will be increased from 3% to 4%, effective on 1 January 2018:
First RM100,000 @ 1% = RM1,000
Next RM400,000 @ 2% = RM8,000
Next RM500,000 @ 3% = RM15,000
RM1 million and above @ 4%
Example: when buying a property of RM1.8M, the difference in stamp duty payable will be as follows
Before the 4% implementation: RM1k + RM8k + (RM1.3M x 3%) = Total Stamp Duty payable = RM48k
After the 4% implementation: RM1k + RM8k + RM15k + (RM800k x 4%) = Total Stamp Duty payable = RM56k
3. Startups, Funding & Ecosystem
GLCs will allocate a special fund up to RM3 billion to fund managers licensed under the Securities Commission (ie, good news for registered VCs, VCMCs, PECs etc) to invest in potential small and mid-cap companies.
Through MDEC, a sum of RM162 million is allocated to implement programmes such as “e-commerce ecosystem” and Digital Maker Movement as well as the introduction of a new location category as Malaysia Digital Hub. Keep a look out for this space on MDEC’s website. Yes, and I predict many startup clients now asking me the question of ‘So, what’s the difference between Multimedia Super Corridor and Malaysia Digital Hub?‘
To invigorate startups, a total of RM200 million from the Working Capital Guarantee Scheme (WCGSS) Fund will be specifically allocated to startups. This fund essentially helps startups by access to loans/financing to ease their cashflow for their operations, purchasing inventory / equipment, receivables etc. For startups & SMEs, this is a good example of ‘debt financing’ to consider (as opposed to ‘equity/share financing’ by angels, VCs etc). For related info on the risks of debt and procedures to recover debt, revisit our article here.
To encourage investment in high technology startups, a new (immigration) pass category called the “Foreign Knowledge Tech Entrepreneurs” will be introduced. This is a very positive step to facilitate the entry and relocation of highly skilled / experience tech entrepreneurs, which is crucial for sustainability of our startup ecosystem. Let’s wait and see what the actual criteria / conditions are for this new pass category.
4. Companies / Corporate Tax
Following through what was previously promised, corporate tax rates for the first RM500,000 chargeable income will now be 18%. This definitely gives rises to more incentive to do some simple Parent / Subsidiary corporate entity structuring for separate/new businesses. (Plan well folks: have a look at our article on “Choice of Business Vehicle“)
To “appreciate the achievements of companies which had been successful in increasing their revenues“(hey, sweet talker!), the Government has decided to introduce a new scheme specifically for YA 2017 and 2018. In a nutshell, a company (Sdn Bhd) will be able to enjoy a ‘discount’ on its upper tax rate to the extent of any increase of chargeable income it has made compared to the previous year. The discounts are staged/scaled depending on the degree of increase in chargeable income. This is a very interesting scheme which again would certainly provide for some beneficial AND perfectly legal tax planning opportunities – ie, something as simple as planning the timing of your taxable income recognition could yield tremendous tax savings.
About the Author: Shawn Ho is a partner of Donovan & Ho. He is experienced in corporate matters such as acquisitions, cross-border transactions, restructuring exercises, sale of businesses, joint venture arrangements, shareholder agreements, and franchise businesses. His background in tax advisory has enabled him to assist several multi-national companies achieve considerable tax-savings through cross-border tax planning, implementing tax-efficient structures using Labuan companies, and incorporate tax advice into commercial transactions.