Tax refund procedure made easier

This is the second in a three-part question-and-answer series provided by PricewaterhouseCoopers for The Star readers on various aspects of Budget 2005. The final part will appear in StarBiz tomorrow. 

Q: The Finance Minister in presenting his 2005 Budget speech spoke on establishing a fund for tax refund. Can you explain what is the effect?  

A: When the Government introduced assessment on the current-year basis as well as the self assessment system (SAS), there are companies which have made excess payments on their tax. These companies are entitled to claim refund from the Government. 

Up to now, there has been no change in the procedure of paying refund as tax collected under the Income Tax Act goes into the consolidated fund and cannot be used to make refund.  

The Inland Revenue Board (IRB) has to obtain the necessary fund from the Treasury. If the Treasury does not provide the fund, the IRB would not be in a position to make the refund.  

With the establishment of a fund for tax refund, tax collected can be allocated into the fund as determined by the Finance Minister directly and the IRB would be allowed to utilise the monies from the fund to make refund. 

This will certainly improve the Government's delivery system as refunds will be made in a shorter period. 

Q: The Finance Minister has announced that there will be changes in claiming the Industrial Building Allowance for purchase of a used industrial building. My company intends to buy a used building to expand its activities. Can you advise me how the proposed change will impact my claim on the industrial building? 

A: The proposed change is to overcome the difficulty faced by the taxpayer, i.e. the acquirer of the used industrial building, in computing the annual allowance, i.e. Industrial Building Allowance (IBA).  

Based on the current law, the acquirer of a used building can claim IBA based on the tax residual value of the construction cost (i.e. construction cost less allowances claimed to date). The acquirer would have to obtain the information on the construction cost from the vendor. The acquirer may have difficulty in obtaining the information.  

The proposed change in law is to simplify the claim for IBA as the basis of the computation of IBA will be calculated on the current purchase price notwithstanding that the disposer will be subject to the balancing allowance or balancing charge. In your case, say if the purchase price of the building is RM1mil, the company will be entitled to claim initial allowance of 10% and annual allowance of 3% in the year of acquisition.  

Q: The recent budget proposed that interest-in-suspense be deemed as specific provision for bad debts and allowed a full deduction in the computation of income tax. Does this apply to stockbroking companies? 

A: Section 34 of the Income Tax Act 1967 (ITA) governs the tax treatment of provision for doubtful debts. The new Section 34 subsection 3B of the Income Tax Act 1967 defines a “bank” as a bank or finance company or a banking and finance company licensed or deemed to be licensed under the Banking and Financial Institutions Act 1989 or Islamic Banking Act 1983, or an institution prescribed under the Development Financial Institutions Act 2002. Stockbroking companies appear not to be covered by the above provision. 

Q: The Government has increased the duty for cigarettes again this year. As a smoker, can I know how much will the price of cigarettes be increased? 

A: The 2005 Budget has announced a change in the duty structure for cigarettes. The changes in the rate of import duty and excise duty are as follows: 

Old import duty: RM200/kg. New import duty: RM0.20/stick. 

Old excise duty: RM58/kg. New excise duty: RM81/1,000 sticks.  

The Minister of Finance in his budget speech mentioned an increase in excise duty rates to promote a healthy lifestyle. The increase in excise duty to be around 40%, for imported as well as locally manufactured cigarettes. The increase in the excise duty would also increase the amount of sales tax paid.  

The impact of the increase on the consumer would ultimately depend on how much of the increase will be passed down by the tobacco manufacturers and importers. The higher costs will increase the incidence of cigarette smuggling and would have to be addressed by the authorities.  

Q: The abolishment of the import duty on semi-finished components for the wood-based industry would benefit the construction industry. Would this benefit be passed on to the property buyers? 

A: Although construction costs are expected to be reduced in the case where imported components are used, the benefit may be minimal. It would be up to the developers to determine how much of the reduction, if any to be passed to the property buyers.  

Q: It was anticipated that Budget 2005 will be a “caring” budget. How will Budget 2005 benefit the man in the street? 

A: The proposals that will benefit individual taxpayers at large include the following, which will come into effect beginning in Year of Assessment 2005: 

·The relief for the purchase of books to increase from RM500 to RM700 to promote the reading habit; 

·The limit on relief for EPF contributions and/for insurance premium to be increased from RM5,000 to RM6,000; and 

·The rebate for the purchase of a personal computer to increase from RM400 to RM500 to promote the penetration of ICT into the Malaysian society.  

Part One:GST to replace sales and services tax 

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