THE STAR 24-10-2001

BUDGET 2002 tabled on 19-October -2001

Small but powerful finance bill

By RONNIE LIM

IN stark contrast to the budget proposals of recent years that introduced many more income tax amendments through the respective bills tabled, the Finance Bill 2001 (Finance Bill) which introduces some of the Budget 2002 tax changes merely contains eight sections to amend the Income Tax Act.

It is apparent from a perusal of those sections that the Finance Minister did not introduce mere minor changes to income tax law. Instead, at least two of those eight sections initiate changes of substance.

Individuals

For the first time in the history of Malaysia, a single tax band of RM150,000 has been introduced. This broad band applies to chargeable income exceeding RM100,000 up to RM250,000 and is conspicuous when contrasted with the historically normal and far narrower brackets ranging from RM2,500 to RM30,000 applicable to chargeable income up to RM100,000.

The substantial widening of the range of chargeable income under one tax bracket will be well received by those who, over many years looked forward to, not so much lower tax rates per se, but a widening of the various tax bands.

Their patience has at long last been rewarded. These individuals will no doubt hope that this proposal in Budget 2002 is a prelude to the broadening of other tax brackets in the future. Such a move combined with reasonable personal tax rates would contribute to enhancing the nation’s competitive ranking.

In view of self-assessment for sole proprietors and partnerships followed by employees to be introduced in 2003 and 2004 respectively, there is a need to simplify the taxation of individuals.

The abundance and variety of personal deductions and array of personal income tax rates for residents complicate compliance. Wider tax bands coupled with a reduction of the number of tax brackets would help simplify the tax system in relation to individuals.

Since simplification measures were absent from Budget 2002, it is hoped that they would be introduced next year so that employees have an opportunity to familiarise themselves with a simplified tax system if they are to compute their own taxes and assess themselves to tax in assessment year 2004.

The reduction of personal tax rates, widening of a tax band and removal of bonus restriction, would increase the disposable income of employees, thus providing the capacity for greater consumption. However, there is a need to translate disposable income into consumption.

Corporations

An amendment of substance for companies introduced in the Finance Bill relates to reinvestment allowance. There was a dramatic 10-year elongation of the period when qualifying capital expenditure may be incurred for reinvestment allowance purposes.

The period had been stretched from 5 years to 15 years effective year of assessment 1998. As an amendment of substance, this significant 15-year period in the sphere of corporate tax is the equivalent of the major RM150,000 tax band in the realm of personal tax.

Reinvestment allowance is an incentive to encourage companies to diversify, modernise, automate or expand. This incentive is therefore of interest in the current environment. Briefly, reinvestment allowance is a deduction granted to companies when computing their taxable income.

The amount of the deduction is 60% of the value of qualifying capital expenditure incurred annually during the 15-year period. Such expenditure as that on factory, plant and machinery incurred in expanding, modernising or automating a company’s manufacturing business qualifies for reinvestment allowance. Deductible amounts not utilised in a year may be carried forward for utilisation.

Since such capital expenditure qualifies for both capital allowance as well as reinvestment allowance, the tax relief available in respect of every ringgit thus spent is 160% of the expense, 100% from capital allowance and 60% attributable to reinvestment allowance.

When the corporate tax rate of 28% is applied, the result is a reduction in tax of almost 45% of the expenditure; leaving a net cost to the company of approximately 55% assuming the machinery concerned has negligible value when it is eventually disposed.

In the year of assessment 2002, eligible companies may reduce their corporate tax by some RM260,000 for every million ringgit incurred on assets qualifying for reinvestment allowance as well as capital allowance.

Controlled transfer provisions, reflecting those applicable to capital allowances, have also been introduced in the Finance Bill in relation to reinvestment allowance.

Thus, in respect of qualifying capital expenditure incurred on assets acquired from a related company, generally in an intra-group transaction, the deemed capital expenditure for reinvestment allowance purposes is the tax written down value of the assets concerned, irrespective of the actual expenditure incurred. This provision may have anti-avoidance effects.

Industrial buildings, such as factories, warehouses (where the business consists of hire of storage space to the public) and jetties, qualify for a tax relief commonly called industrial building allowance.

The Finance Bill provides that from the year of assessment 2001, airports, including runways and motor racing circuits approved by the Finance Minister rank as industrial buildings. Further, the Bill treats all buildings used solely as hotels with the requisite registration with the Culture, Arts and Tourism Ministry as industrial buildings from assessment year 2002.

Currently, expenditure incurred on the purchase, as opposed to construction, of an industrial building does not qualify for the 10% initial allowance. The Finance Bill provides that this initial allowance will be available on purchased industrial buildings from assessment year 2002. Where RM1mil is incurred on the purchase of a building, the tax saving arising in the first year through the initial allowance introduced by the Finance Bill is RM28,000.

Another tax amendment in the Finance Bill that will have the effect of reducing income tax is the raising of the annual allowance for industrial buildings from 2% to 3%. This change has the effect of accelerating the tax relief available for such building expenditure.

The annual allowance rate based on the permitted fraction as defined in the Income Tax Act no longer applies unless it is higher than 3% and has previously been adopted in annual allowance claims granted.

The Finance Bill provides for tax savings from year of assessment 2002 in the case of a building purchased for use as an industrial building from a person who constructed that building and that building had not been used for any purpose prior to the purchase. For capital allowance purposes: –

l The purchaser shall be deemed to have constructed that building; and

l The purchase price shall be deemed to be the expenditure incurred on the construction of the building.

This provision would generally increase the expenditure qualifying for capital allowance from the construction cost of the building to its purchase price.

Another tax saving provision included in the Finance Bill is one that was omitted from the Budget 2001 proposals. In Budget 2001, provision was made for increasing the qualifying capital expenditure for capital allowance purposes on motor vehicles (other than those licensed or permitted for the commercial transportation of goods or passengers) from RM50,000 to RM100,000 if:

l the motor vehicles were purchased on or after Oct 28, 2000;

l the motor vehicles had not been used prior to purchase; and

l the total cost of the motor vehicles does not exceed RM150,000.

Budget 2001, however, did not increase the RM50,000 rental deduction restriction applicable to such vehicles. The Finance Bill addresses the situation by providing that from assessment year 2002, deductible rentals incurred on the said unlicensed motor vehicles be likewise increased from RM50,000 to RM100,000 if they are brand new and with a total cost of RM150,000 or less. The potential tax saving from this amendment is RM14,000.

Thus, despite the fact that there was no reduction in the corporate tax rate, the Finance Bill does provide significant opportunities for companies, particularly those that qualify for reinvestment allowance, to reduce their tax liabilities. The Finance Bill, with only eight sections pertaining to income tax, was small but powerful.

l Ronnie Lim is executive director at Deloitte KassimChan Tax Services Sdn Bhd.

The STAR 22-10-2001

Highlights of Budget 2002

By Esther Ng and Moses Loo of The Star

Highlights of Budget 2002 delivered by Prime Minister Datuk Seri Dr Mahathir Mohamad at the Dewan Rakyat.

Maximum personal tax rate cut to 28% from 29%

Reinvestment allowance period extended to 15 years from five years

Half-month bonus or at least RM1,000 for all government servants

Government servants’ salary to increase by 10%

Income tax for co-operatives cut by 1%

Import duty for 55 products to be reduced to between 10% and 50% from between 20% to 105%

Car rental operators to be granted excise duty exemption on the purchase of national cars to reduce cost of car rentals

Tourism fund to be increased to RM400mil from RM200mil

Royalty payment received by non-residents from private institutions of higher learning for franchised educational schemes to be tax-exempted

Import duty on cigarettes and tobacco products to be raised from RM180 per kg to RM216 per kg while excise to be increased from RM40 per kg to RM48 per kg

Bank Negara Malaysia to issue third series of Bon Simpanan Malaysia, especially for citizens above 55 years and welfare organisations registered with the Registrar of Societies; RM1bil to be issued with a rate of return of 5%, of which half would be issued based on Islamic principles

RM10mil to be provided for training of workers in modern agricultural skills

Income tax exemption to be given to organisers of international trade exhibitions which attract at least 500 foreign investors a year

Price of petrol and diesel to go up 10 sen per litre from Oct 20

Widows who now lose their deceased husbands’ pensions if they remarry will now continue to receive pension

Annual gratuity rate for volunteer officers and personnel in the security forces to be raised from RM400 to RM520 effective Oct 1

Import duty on luxury motorcycles to be cut from 120% to 60%

Import duty on other motorcycles to be reduced to 60% from between 80% to 100%

Tax on income derived from offshore trading through websites in Malaysia to be reduced to 10% from 28% for a five-year period

Threshold for imposition of service tax for restaurants, bars, snack bars and coffee houses, private clubs and advertising companies to be reduced from an annual sales turnover of RM500,000 to RM300,000 and above

RM13.11bil or 39.1% of the total development expenditure to be allocated to the economic sector including rural development, agriculture, infrastructure, industrial, rural electricity and water supply projects

To expedite payment, all ministries and agencies are required to pay 50% upon submission of claims. Payment of claims must be settled within 30 days from the date of submission.

To expedite implementation of projects, ministries and agencies will be empowered with greater delegated authority

A task force has been set up at the Finance Ministry to monitor the progress and address implementation problems to ensure that measures under the fiscal stimulus package are implemented immediately

Advertising costs for Malaysian brandnames registered overseas and professional fees paid to Malaysian brand management companies to be given double income tax deduction

Single income tax deduction to be allowed on expenses incurred in registering patent overseas and on hotel accommodation provided for potential importers of Malaysian goods

Rate of overtime allowances for medical officers to be raised to 50% from 25%, from Oct 1

Facts to know when buying a vehicle

The Star/PricewaterhouseCoopers Budget 2002 Q&A

QUESTION 1: I understand that the qualifying expenditure of a motor vehicle for capital allowance purpose is RM50,000. Are there any circumstances under which we can claim the full cost? What if the vehicle was registered as a commercial vehicle in the registration card?

Upon disposal of this vehicle, can we apportion the disposal value be-|cause we don’t claim the full amount of the vehicle?

Answer 1: The maximum qualifying expenditure of a new non-commercial motor vehicle purchased on or after Oct 28, 2000, where the on-the-road price is RM150,000 or less, is RM100,000.

The maximum qualifying expenditure for other non-commercial ve-|hicles is RM50,000. For example, where the on-the-road price of a non-commercial vehicle is RM175,000, the maximum qualifying expenditure is RM50,000.

The full amount of the capital expenditure can be claimed if the cost of the motor vehicle is RM-|100,000 or less, and if the motor vehicle is a commercial vehicle.

A commercial motor vehicle is one licensed or permitted, by the appropriate authority, for commercial transportation of goods or passengers, such as lorry, truck bus, mini bus, van, station wagon, taxi cab or hire car.

In the case where the qualifying expenditure is less than the cost of the vehicle, the sale proceed shall be apportioned.

Example:

Cost of motor vehicle – RM175,000

Qualifying expenditure – RM50,000

Sale proceed (actual) – RM100,000

In computing the balancing ad-|justment, the sale proceed is res-|tricted to RM28,571 i.e. (RM50,000 / RM175,000) x RM100,000.

Question 2: I am in the business of providing cars for rental and intend to purchase a fleet of national cars. I understand that exemption of excise duty will be given on purchase of national cars. How do I apply for the exemption?

Answer 2: Car rental companies can apply to the Finance Minister for exemption of excise duty on national car.

Question 3: I am a director of a private company. If the Inland Revenue Board issues an assessment on the company and the company is unable to pay the tax due to financial difficulty, what is the implication to me with the amendment to Section 75 of the Income Tax Act 1967?

Answer 3: In the past, if a company is unable to pay its tax, the Inland Revenue Board could only institute action against the company without recourse to the directors or any other principal officers of the company.

With this proposed amendment, since the responsibility of a director (or any other principal officer) is extended to payment of tax, the Inland Revenue Board can now take action against a director and any principal officer of the company for non-payment of tax by the company.

Question 4: I have purchased an industrial building for which I have been claiming an annual allowance based on the permitted fraction of 1/20. Since it has been proposed that the annual allowance rate be at 3% regardless of purchased or constructed industrial building, what is the implication on my claim for annual allowance?

Answer 4: As you are effectively claiming an annual allowance of 5%, which is higher than the proposed rate of three-hundredth, you are entitled to continue claiming the annual allowance based on the higher permitted fraction. This is provided for under the special provision relating to paragraph 16, schedule 3 of the Income Tax Act 1967.

Question 5: With the excise duty exemption on the national car for car rental operators, would there be any impact on the sales tax payable?

Answer 5: Yes, the effective sales tax payable will be less.

Question 6: I am developing an Internet website for personal recreation but which I would like to share with the public at large for free. Can I then take a deduction for the cost of developing the website, as opposed in the Budget 2002, against my personal taxable income?

Answer 6: In principle, unless specifically provided under the In-|come Tax Act, deductions for in-|come tax purposes are allowed only if the expenses are wholly incurred in the production of income.

However, in your case, as the expenditure incurred does not produce any income, you would not be able to take the deduction. If you were to say charge fees for subscription, advertising fee, or transactions conducted on your website or receive other revenue stream from the site, then the deduction would be available against these incomes.

Question 7: The Finance Minister in his budget speech mentioned that Bank Negara will issue the third series of Bon Simpanan Nasional, with a 5% rate of return, for citizens above 55 years and welfare organisations registered with the Registrar of Society. Will the return be subject to or exempted from tax and how much will I be entitled to subscribe?

Answer 7: Under the Income Tax Act, interest paid to any individual in respect of Bon Simpanan Nasional issued by Bank Negara is exempt from tax. No limit is placed on the amount of exemption of the interest received. As regards to the amount you are entitled to subscribe, Bank Negara will be issuing a clarification on this soon.

TheSTAR 22-10-2001

Budget analysis from Shamsir Jasni Grant Thornton

By SEAH SIEW YUN

THE present income tax rates for a resident individual and co-operative range between 0% and 29%. The maximum rate is charged for an individual whose income exceeds RM150,000, while for a co-operative the amount is RM500,000. In the case of a non-resident, the tax is at a flat rate of 29%.

The Budget 2002 has proposed to harmonise the maximum individual tax rate with the corporate tax rate of 28%. It also proposed the individual income tax rates be reduced by between 1 and 2 percentage points, and the chargeable income, which is subject to the maximum tax rate, be increased from the current RM150,000 to RM250,000.

It is certainly good news for tax-payers because there is a definite tax savings.

For example, an individual who is in the RM50,000 tax bracket would pay only RM3,475 (compared with RM4,275 before the amendment), thus saving RM800. On the other hand, an individual with a chargeable income of RM100,000 would now save RM1,300 and if you are in the RM250,000 bracket, the saving in tax now is RM3,800.

What is the impact of this reduction in tax to the economy? For one, it is hoped the additional savings would increase consumption and encourage work, not to mention the possibility of increased savings.

For the man on the street, it is certainly good news.

l Review of the period for reinvestment allowance: Companies and producers of promoted food products (approved by the Finance Minister) that reinvest in expansion, modernisation, diversification and automation projects are given reinvestment allowance.

This allowance is for 5 years from the date the expenditure was incurred. After 5 years, the company may become eligible for an accelerated depreciation allowance for a further 3 years.

This incentive has been given a further boost by an extension of time from the present 5 years to 15 years. It is a very kind gesture by the government to the business community to encourage it to continually reinvest in the production facility – meaning update the technology and secure that added competitive advantage in preparation for globalisation.

· Industrial building allowance for hotels: Industrial buildings are buildings recognised for tax purposes as buildings used for, broadly speaking, manufacturing and processing, for the purpose of the production of gross income from a particular business.

These buildings are given an allowance known as an industrial building allowance, or IBA, at the rate of 10% on the cost incurred in its construction for the first year (initial allowance) and thereafter, at an annual rate of 2% (annual allowance) on the cost until the cost of the building is written off completely.

For buildings that are purchased, the initial allowance is not given, and the annual allowance is given as a percentage of the cost price using a complicated formula, the effect of which is that the recovery period of the cost of the industrial building is longer (from 45 years in the case of a constructed building to 50 years in the case of a purchased building).

The Income Tax Act 1967 is now amended to give cognisance to the significance of an industrial building to business, irrespective of whether the building is constructed or purchased.

The allowances to be given to a purchased building are an initial allowance of 10% and an annual allowance of 3%.

The treatment of a building as an industrial building was also an anomaly in the case of a hotel building. In the case of hotels, only hotels that enjoy pioneer status, or an investment tax allowance, are treated as industrial buildings.

The Budget 2002 tries to introduce some uniformity in the computation of the IBA by treating all hotels as industrial buildings, with the condition that they are registered with the Culture, Arts and Tourism Ministry.

Now all such hotels will qualify as industrial buildings and will enjoy the privileges of an initial allowance and the same annual allowance.

This is certainly a boost for the hotel industry because it is now possible to recover the cost of the construction or purchase price in a much shorter time without any “discrimination” between a constructed and a purchased building.

· Exemption of income tax on rental of ISO containers: As a normal business practice, shipping companies will not purchase all the containers it needs to meet its requirements partly because it is expensive and its usage fluctuates with the commercial demand. It is more prudent to rent.

Currently, income received from the rental of ISO containers by non-residents from any lessee in Malaysia is classified under income of movable property, which is subject to income tax under section 4A of the Income Tax Act 1967 (as amended). The income thus received by the non-resident is taxable at 10% of the gross income.

The Budget 2001 sought to exempt the non-resident from any tax on the income it receives from shipping companies in Malaysia. With the new proposed exemption, hopefully the savings will be passed on to local shipping companies that will now benefit from a lower rental rate.

· Removal of bonus restriction: This has been an issue with employers for many years. The present tax deduction of bonus is restricted to an amount not exceeding two months of the employees’ salary in a year.

This proposal will provide an opportunity for the employer to formulate a more attractive remuneration package that commensurates with the productivity of their workers. The bonus will now be a truly rewarding experience.

· Tax incentive for developing websites: The Budget 2002 proposes that income received by companies undertaking offshore trading – buying and selling of foreign goods to non-residents via websites in Ma-|laysia – be taxed at a concessionary rate of 10% for 5 years, on condition the company obtains approval from the Finance Minister.

This move will encourage companies to take the opportunity to trade in a borderless world market.

Also announced in the budget is the deduction on the cost of developing websites. This is closely tied to the tax incentive for trading via websites in Malaysia.

l Extension of the scope of tax incentives for approved food production: Presently, companies engaged in the approved food production enjoy certain relief, including the cost of investing in a subsidiary (that is engaged in the approved food production), and tax exemption on statutory income for 10 years.

Alternatively, the companies are given the option to opt for group relief.

To further accelerate food production activity, it is proposed that the tax incentive announced in the Budget 2001 for the company which invests, and the company that undertakes production of approved products, be extended to any company which reinvests in the production of the same food products. The incentive will be given for 5 years.

In line with the concept of “back to basics,” the government is encouraging agriculture and moving away from the traditional crops and food production.

The approved food production now includes vegetables, fruits, herbs, spices, aquaculture and the rearing of cattle, goat and sheep.

· Extension of tax incentives for tour operators: The government is very keen on developing the tourism industry. Towards this end, it had provided incentives to tour operators who bring in at least 500 foreign tourists per year by giving a tax exemption on their income, a similar incentive was offered for promoting domestic tourism on tour packages with at least 1,200 local tourists per year.

The Finance Minister also said that following the Sept 11 incident in America, the number of foreign tourists coming into Malaysia, especially from the US and Europe, has fallen drastically.

According to Dr Mahathir, it may be time to promote intra-regional tourism, especially in countries like India and China. Tour operators can now enjoy an additional 5 years of exemption while helping to promote Malaysia.

l Conclusion: Overall, this budget provides a lot of incentives to the business sectors to boost production, output or services in the manufacturing and service sectors, and the government has been quite generous in this sense.

Some of the incentives are designed as long-term solutions and some to anchor the economy on more solid ground, with a view to paying long-term dividends.

We think this is a good budget.

l Seah Siew Yun is tax director of Shamsir Jasani Grant Thornton.

TheSTAR 22-10-2001

PricewaterhouseCoopers clarifies reinvestment allowance claims

QUESTION 1 : Company A (the holding company of a group of companies) has been claiming reinvestment allowance (RIA) since year of assessment 1998 on plant and machinery. In year of assessment 2000 (current year basis), some of the plant and machinery were transferred to one of its subsidiaries. The subsidiary, also a manufacturing company, claimed reinvestment allowance on these assets based on the net book value, which is the consideration paid on the assets transferred.

In year of assessment 2002, the subsidiary company will be acquiring more assets from its holding company. Can the subsidiary company claim the RIA based on the net book value or consideration paid? Is it true that the period of the incentive has been extended to 15 years of claim?

Answer 1: Schedule 7A of the Income Tax Act 1967 has been amended to allow the RIA claim on the amount equal to the amount of the residual expenditure where there is “controlled transfer.” The residual expenditure is the capital expenditure incurred by the transferor less the amount of capital allowance claimed or would have been claimed. The 2002 Budget also proposed that the period of incentive be extended to 15 years. Hopefully, this will encourage more foreign investments in the future.

Question 2: With the increase in the excise duty on cigarettes, would there be any impact on the sales tax?

Answer 2: The sales tax will be increased as well.

Question 3 : I just graduated from an overseas university. Due to the current economic downturn I find it difficult to secure employment. With the proposed amendment to allow a deduction on expenses incurred by companies in providing practical training to non-employees, will it encourage companies to provide practical training to individuals like me?

Answer 3: This is an effort by the government to encourage companies to contribute towards enhancing manpower skills to unemployed graduates like you. Perhaps companies are more likely to come forward to provide such practical training if the government were to consider giving a double deduction claim on expenses incurred for such a purpose instead of a single deduction as proposed.

Question 4 : If my sales turnover of consultancy services for 12 months in 2001 is RM200,000, do I have to be licensed for service tax?

Answer 4: The service tax threshold for consultants is RM150,000 with effect from 1 January 2002. Therefore, you will have to be licensed on 1 January 2002.

Question 5 : I wish to seek clarification on the following points:

(i) If a local company which manufactures goods (office furniture), registers the manufactured goods under the Industrial Design, would the advertisement cost qualify for double deduction?

(ii) If the advertisement cost is incurred by the marketing company (the ownership is the same as the manufacturing company), can the marketing company claim the double deduction?

(iii) If the advertisement consists of some other products, which are not registered under the Industrial Design, do we need to apportion the advertisement cost?

Answer 5 : The conditions to claim for double deduction for advertising expenditure on Malaysian brand name goods are provided under the Income Tax (Deduction for advertising expenditure on Malaysian brand name goods) Rules 1999. The 2002 Budget proposal seeks to extend the double deduction claim to include expenses on advertising of Malay-|sian brand names registered overseas and not necessarily registered in Malaysia. Other conditions re-|main the same. In respect of the questions raised above, the following are the answers:

(i) Yes

(ii) No

(iii) Yes

Question 6: I am a manager in a group of companies which intend to purchase a factory constructed by a developer in an industrial estate. The cost of construction of the factory building by the developer is RM1.5mil. What is the amount of industrial building allowance the company is entitled to claim under the proposed amendment?

Answer 6: Under the existing legislation, initial allowance of 10% is granted only to companies which construct their own factory and not for purchased factory. With the proposed amendment, the initial al-|lowance is now granted to purchased factory as well. In addition, the annual allowance rate has been increased from 2% to 3% and hence, shortening the period for claiming industrial allowance from 45 years to 30 years.

Macpa panel: Budget an anomaly

THE Budget 2002 was an anomaly in that it gave civil servants a 10% pay rise but at the same time expressed concerns about the competitiveness of Malaysian workers, a Malaysian Association of Certified Public Accountants (Macpa) panel said yesterday.

“The government is talking about trying to remain competitive, but sending the wrong message to the private sector,” KPMG Tax Services Sdn Bhd tax director Chew Theam Hock said.

Sime Darby Bhd group finance director Martin G. Manen noted that in Malaysia, union agreements tended to reflect increases in government salaries. Should such pay rises also be approved for the unions, it would result in a higher cost of doing business here, he added.

Manen pointed out a main concern for the corporate sector was the competitiveness of Malaysian workers vis-à-vis those of other Asean countries, and China in particular.

However, the eight-member Macpa panel at a press conference in Kuala Lumpur yesterday, lauded the government’s lifting of a two-month bonus tax deduction restriction on companies.

Such a move would encourage productivity and allow employers to better compensate efficient and productive workers, it said.

According to Macpa president Dr Abdul Samad Alias, the move is asking management to reward efficient and productive staff.

“More companies are moving towards variable pay schemes which pay less basic salaries but with a more substantial bonus element depending on the company’s and employee’s performance,’’ Shell Malaysia Trading Sdn Bhd general manager of finance and business services Eddie Chan Yean Hoe said.

Manen said that while the Budget 2002 was generally broad-based in the issues and industries it attempted to address, it was lacking in its omission of the property and construction, and automotive industries.

“Property developers holding large stocks were hoping for some form of relief, in real property gains tax, for example,’’ he said. “The motor industry was also hoping for an announcement of a programme to bring down duties and restrictions ahead of the Asean free trade area (Afta) in 2005, rather than a last minute rush that impacts badly on the industry.’’

Meanwhile, the Malaysian Association of the Institute of Chartered Secretaries and Administrators (Maicsa) said that it was grateful to the government for considering its proposal of tax exemption for trade associations since these associations played an important role in ensuring the progress of the industries they represented.

It said that it also welcomed the proposed increase in tax exemption for export of business consultancy services as many of its members would benefit from this proposal.

Also, the tax incentive on practical training for non-employees would enable its practising members to assist the government in enhancing manpower skills.

But Maicsa expressed its concerns on the imposition of service tax for the provision of corporate secretarial and consultancy services with an annual sales turnover of RM150,000 – previously RM300,000 - as this would give rise to an increase in the cost of doing business.

Sales tax extended to smaller outlets

OPERATORS of restaurants, bars, snack bars, coffee-houses, and food courts have expressed mixed reactions to Budget 2002’s proposal to impose service tax on businesses with annual sales above RM300,000 from RM500,000 previously.

Roadhouse Grill Sdn Bhd executive director Tony Yeong said for larger establishments, the proposal on service tax would not make a difference to their bottom lines as the company was already paying service tax based.

“However, for smaller food outlets, this may be an obstacle as they could be struggling for sales and the service tax would be a new problem they have to overcome,” he said, adding that service tax would make these businesses less competitive.

An eatery owner, Jenny Toh, said although business was brisk, she would have to charge her customers slightly more to cover the service tax that would be imposed on smaller businesses.

“We operate a small outfit and this service tax would certainly affect our business,” she said, adding that it would also discourage people from starting small businesses.

Forever Three Sdn Bhd restaurant owner Ken Aw, who just launched his eatery on budget day said the new service tax would affect the company as he expect sales to be over RM500,000 and therefore liable for service tax

Consultant lauds move on capital reinvestment allowance

THE proposed extension of the 60% capital reinvestment allowance (CRI) to 15 years from five now to manufacturing and certain food companies is a good incentive, Ernst & Young tax consultant Lee Hock Khoon said.

With the extension, manufacturing companies currently enjoying the incentive for the last year would enjoy it for 10 more years, he said.

“It’s certainly a big boost for existing manufacturing companies to stay on,” he said.

He added that by extending the CRI, the government had sent a powerful message to manufacturers that it was pro-business and was willing to listen.

He said several manufacturing associations such as the American Chamber of Commerce had mooted the idea of extending the CRI and the government had been receptive.

“It’s also a defensive strategy to try to ensure that manufacturing companies stay on in the country as long as possible,” he said.