Budget 2010 – Setting the Tone for Change

 

Kuala Lumpur, 23 October 2009

It may be a subdued budget at first glance, but it plants the seeds of change in its policy making.

After the announcement of the recent heavy stimulus package, the annual Budget 2010 is no doubt a challenging one to the policymakers as structural changes are needed to cater for the largest budget deficit since 1987.

With borrowing standing at more than 40% of gross domestic product, the Government is seen to target at the crucial question of whether it could afford another year of large deficit. It is known to all that the government is facing tremendous pressure to manage its expenditure carefully this time.

Besides being just a prudent and budget that stresses an efficient government, there was somehow some good news to cheer about.

Patents and trademarks

Under the Income Tax Act 1967 (as amended), expenses incurred on the registration of patents and trademarks in the country are deemed to be capital expenditure and not allowed as a deduction for tax purposes.

However, as the government’s objective is to promote innovation and intellectual property developments among the small and medium industries (SMEs), it is now proposed that expenses incurred in the registration of patents and trademarks in Malaysia be allowed a tax deduction for the purposes of computing the chargeable income of the SME.

The registration expenses would include fees or payment made to the patent and trademark agents registered under the Patents Act of 1983 and the Trade Marks Act of 1976.

SMEs are defined as companies resident in Malaysia which has a paid up capital in respect of ordinary shares of RM2.5 million and less at the beginning of the basis period for a year of assessment (provided that fifty percent of the paid capital in respect of ordinary shares of the company is not directly or indirectly held by a holding or a subsidiary company or a related company that has a paid up capital of more than RM2.5 million).

SME in the manufacturing and manufacturing related service industries and agro based industries would include enterprise with full time employees not exceeding 150 persons or annual sales turnover not exceeding RM 25 million; and in the service industries, primary agriculture and information and communication technology industries, enterprises with full time employees not exceeding 50 persons, or with annual sales turnover not exceeding RM 5 million.

However, the time frame for this deduction is limited to only 5 years i.e. from the year of assessment 2010 to the year of assessment 2014.

Tax incentive for buildings obtaining green building index certificate

With the cost of oil price and the ensuing energy crunch, the world is moving towards green sources of energy with less reliance on oil and less pollution as well as less global warming. At the moment the government has taken several initiatives to promote the usage of green technology. Now initiatives are taken for the Green Building Index (on 21 May 2009) – a green rating index on environment friendly building based on criteria such as energy and water efficiency, sustainable management and planning of building sites in respect of pollution control and facilities for workers, usage of recyclable and environment friendly materials etc.

The government now wants to encourage the construction of building using green technology by providing the following incentives:

Owners of buildings awarded the GBI certificate be given tax exemption equivalent to 100% of the additional capital expenditure incurred to obtain the GBI certificate. The exemption is allowed to be set off against 100% of the statutory income for each year of assessment in respect of new buildings and upgrading of existing buildings. The exemption is only effective from 24 October 2009 to 31 December 2014.

On the other hand, buyers of buildings and residential properties awarded GBI bought from real property developers are eligible for stamp duty exemption on instrument of transfer of ownership of such buildings, being stamp duty exemption on the additional costs incurred to obtain the GBI certificate, and is given only once to the first owner. Again the proposal is effective from the date of the budget i.e. 24 October 2009 until 31 December 2014.

This is the right move in the right direction but it would have been more encouraging had the deduction been given as an ongoing feature of the tax incentive.

As a whole, the broader corporate may feel disappointed as there is not much of sparkling goodies. But one should not forget that various incentives had been introduced in the recent stimulus package and some would have claimed them.

To recap, incentives such as carry back of current year losses, promoting investment in plant and machinery, incentive for employing local retrenched workers and incentive for renovation and refurbishment of business premises are some effective measures that could have been benefited.

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(kindly find picture attached with email)

For further information please contact:

Ms. Seah Siew Yun
Director, Tax Advisory & Compliance
T +03 2692 4022
D +03 2732 2155
E seah@gt.com.my

Notes to editors:

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