(From left) Tang, Goh, Lau, Oon and Tai at the KPMG Sarawak Tax Budget Seminar 2017 at a hotel here yesterday.
KUCHING: A majority of Budget 2018’s incentives are mostly extensions of current incentives, and with lesser new incentives being introduced, Malaysians are now feeling the tightening measures.
In his commentary, following KPMG Tax Services Sdn Bhd’s (KPMG) director Tang Yeth Fong’s presentation on the 2018 Budget tax proposals at the KPMG Sarawak Tax Budget Seminar 2017, executive director of Corporate Tax Tai Lai Kok observed that there are very little new tax incentives being proposed these days.
“I recall many years ago, we will find new incentives in every single Budget. Nowadays, if anything, we are seeing extensions being added on from 2018 to 2020.
“You will notice that the incentives proposed by the government are extremely targeted and with a limited lifespan,” Tai said, adding that after maybe four years or five years, they will revisit again to see whether those incentives remain relevant.
“This clearly is very intentional by the government to start cutting down on the free flow of tax incentives that Malaysians have been enjoying in the past.
“Notwithstanding what we have, in so far as the cut downs are concerned, obviously we still have the normal incentives like the Pioneer Status and Investment Tax Allowance, but (for) selected sectors.”
While this is clearly an intentional reduction, in so far as the tax incentive regime routine in Malaysia, Tai believed that “we are still extremely competitive” compared to other countries such as Thailand or Indonesia.
“But, the tightening is actually being felt,” he added. One of the extension of incentives Tai highlighted on was the extension period for application for incentives for new four and five star hotels.
The proposal was that the deadline to submit applicaton for Pioneer Status and Investment Tax Allowance for new four and five star hotels was extended for a further two years. This is effective for applications submitted to MIDA until December 31, 2020.
Tai explained that this proposal was introduced due to Visit Malaysia Year 2020 as the government wants to encourage new hotels to rebuild. However, this begged the question of existing hotels which may also need to rebuild.
“Existing hotels also need to be refurbished. In order for those hotels to stay relevant, they have to continue to reinvent themselves, they need to invest.
“But without benefits and encouragment from the government, it will be very difficult for these existing hotels to continue investing.
“I’ve heard that the authorities are no longer approving incentives for refurbishment of hotels, or at least they have cut down the incentives for refurbishment of hotels, quite signicantly,” he said.
As for the capital allowance for Information and Communication Technology (ICT) Equipment and Software, particularly on the capital allownace at initial and annual allowance rate of 20 per cent to be given to cost of development of customised software, Tai commented that this is an area of concern.
“…because for a lot of the groups, their signicant investments in so far as ICT goes, in the Inland Revenue Board’s (IRB) public rulings, the IRB did say that cost of development of software, customised software, is not a qualifying capital expenditure,” he said.
He noted that a lot of groups may have taken certain positions, in so far as software development costs are concerened. Certain groups may have not agreed with IRB’s public ruling, still thinking it qualifies as capital expenditure, and thus still claiming capital allowances for software development costs.
With a change in the law that suggests that costs of development of customised software is claimable from 2018, Tai said that, “We have a situation whereby, for groups that have been claiming capital allowances on the cost of developmentt of software, this now becomes an issue. There is this change of law now which suggests IRB’s position in the past is correct.”
Other speakers at the seminar were executive director of Transfer Pricing, Ivan Goh who shared about Base Erosion and Profit Shifting (BEPS) and Transfer Pricing Updates and executive director of Indirect Tax Dany Oon who spoke on goods and services tax (GST) updates.
KPMG’s executive director Regina Lau was also present at the seminar, sharing her thoughts on the various tax related Budget 2018 proposals during the question and answer session.