THE 2004 Budget is a timely move designed to halt a faltering economy after the stimulus package announced in May. The budget has certainly added more strength to those initiatives.
Raising the threshold of chargeable income for small and medium-scale enterprises (SMEs) will increase tax savings (see table) and hopefully, these would be reinvested into the business to give Malaysia the desired internal growth. Given their good potential in national development, this is certainly a good move.
The exemption of income remitted from overseas was previously given only to companies and unit trusts, but it is now extended to resident individuals, trust bodies, cooperative and Hindu Joint Family, too.
This is certainly a step in the right direction to bolster domestic-initiated investment growth. The changes are likely to have positive long-term results.
Another long-standing grouse put to rest among businessmen is allowing entertainment expenditure. The budget admitted that disallowing entertainment expenditure had in fact increased the cost of doing business.
The deduction is now given in two parts, i.e. 100% tax deduction on expenses incurred for sales promotions and 50% on “other business entertainment expenses”.
The onus on making an entertainment claim under the self-assessment regime is becoming greater and trickier. There is now a need to prove that the expenditure is incurred and it is related to the promotion of business.
There will also be a catch in how the Inland Revenue Board will distinguish between a potential and an existing customer.
Will the entertainment expenses incurred by potential customers for the purpose of possible sales be given a 100% deduction?
After all, it might end up not being “wholly and exclusively incurred in the production of gross income” – the most fundamental way to judge the deductibility of a revenue expense.
Full-tax exemption on fees and honorariums received by lecturers or experts providing services for validation, moderation or accreditation processes to ensure franchise education programmes are of the same standard and quality as those of their franchise institutions will help achieve Malaysia’s ambition as the centre of education in the region.
This measure is an encouraging one. However, the 50% tax exemption on income from royalty and honorarium received from the commercialisation of a researcher’s findings could be made more attractive with a 100% exemption.
Such a measure would go a long way towards motivating the development of local research and development. This would be in line with the need to increase competitiveness in the wake of regional trade threats.
The incentive given to employers to provide work for unemployed graduates through a double deduction for 2 years on salaries paid by an employer that hires such graduates is a pre-emptive move.
However, to avoid administrative confusion in claiming deduction, the authorities must be clear and specific in setting the fulfilment conditions, e.g. period of registration with the Economic Planning Unit before such a person is employed, etc.
Overall, this is a good budget that balances well, both financially and socially, with a religious message running through as befitting our nation.
Nakha Ratnam is tax adviser and Seah Siew Yun is tax director of Shamsir Jasani Grant Thornton.
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