No GST on basic essentials

This is the second part of a two-part Q&A provided by PwC on various aspects of Budget 2013

WILL the introduction of Goods & Services Tax (GST) impact the cost of living for the rakyat?

In drafting the legislation, the Government has considered the lower income groups and has proposed that the tax will not apply to basic essentials. Similarly education, healthcare, life insurance, loans and public transportation will not be taxed.

At present, some goods and services are subject to 10% sales tax and 6% service tax. With the removal of these, to be replaced with a proposed 4% GST, the cost of living is not expected to increase. What it would do, is change the way we pay tax to a more comprehensive and fair system. The Government has implemented the Price Control and Anti Profiteering Act in 2011. This is seen as an important step to keep inflation in check.

I am an operator of a private childcare centre. Do I qualify for any tax incentives?

Yes. New and existing operators of private childcare centres are give a tax exemption on income for a period of 5 years and Industrial Building Allowance at an annual rate of 10% for buildings used as childcare centres. The centres must be registered with the Social Welfare Department.

I have registered for Bantuan Rakyat 1Malaysia (BR1M) the last round. I heard that the Government has announced BR1M 2.0. Do I need to register again?

No. You do not need to register again. For new applicants, you may register commencing November 2012 online or at the State Development office, District Offices and Inland Revenue Board offices nationwide.

What is the difference between the new BR1M 2.0 and the previous BR1M?

Both initiatives are available to households where the head of the household earns less than RM3,000. BR1M 2.0 has also been extended to unmarried individuals aged 21 and above, who are earning not more than RM2,000. The assistance provided under BR1M 2.0 is RM250.

I purchased a new condominium last year and recently I have received requests from property agents to buy my condominium. Should I sell my property now?

If you were to sell the condominium before Dec 31, 2012, you would be imposed Real Property Gains Tax (RPGT) at the rate of 10%. This rate is increased to 15% effective from Jan 1, 2013 for disposals within two years. However, if you chose to sell the property after five years, you will not suffer any RPGT.

In addition to that, RPGT exemption would also be applicable in the following scenarios for owners who are not profit motivated and not involved in speculation:

● Disposal of one residential property once in a lifetime;

● Up to RM10,000 or 10% of the net gains from the disposal of property, whichever is higher; and

● Disposal of property between husband and wife, parents and children, grandparents and grandchildren.

I am a venture capitalist who holds investments in various companies. I understand that a new incentive had been announced in the recent Budget. How would this new incentive benefit me?

Prior to this, you would only be granted deduction on the total value of your investments against your business income. Should you qualify for this new incentive, the deduction would now be granted against all your income. This incentive is effective for applications received by the Finance Ministry from Jan 1, 2013 to Dec 31, 2017.

I will be leaving my current company and they will be paying me gratuity of RM50,000 as a token of appreciation for the number of years that I have worked with the company. Will I be taxed on the gratuity payment and if yes, how will I be taxed? I am afraid that I would have to pay higher tax as my tax bracket will increase due to the huge sum.

Gratuity is part of employment income which is taxable on the individual. In this case, firstly you need to determine whether there is any income tax exemption applicable on the gratuity, i.e. the gratuity is received due to retirement and upon reaching the retirement age of 55 years and 10 years of service within the same company/group of companies.

If the above exemption is not applicable, the taxability of the gratuity payment will be spread back five years, i.e. it will be proportionately taxable as income for the year of receipt and the four preceding years, i.e. taxed equally at RM10,000 for each year of assessment in 2012, 2011, 2010, 2009 and 2008.

For the past eight years, I received about RM18,000 (net of allowable expenses) from renting out my condominium but I have never reported this income in my annual tax return form. Is it safe to say that the Inland Revenue Board could not go after me after six years of not reporting the income?

Under the open year system, the director general (DG) could make an assessment or additional assessments in that year, or within five years after expiration of that year, if they determine that an individual has been under-reporting his income for that year. In your case, however, this five-year limitation would not apply as this failure would fall under false declaration, willful evasion and negligence.

Therefore, there is no limitation to the number of years. And the DG could raise an assessment or additional assessments for the under-reported rental income for the past eight years.

Currently I am earning more than RM150,000 per year and my chargeable income after taking into account the applicable relief and rebates is RM122,000. Do I benefit from the 1% decrease in the individual tax rate?

If your chargeable income is more than RM100,000, your income will be subject to the maximum tax rate of 26% but you will still benefit from the 1% decrease in the individual tax rate. Based on the proposed reduction in the tax rate, for the first RM100,000 income chargeable to tax, the tax payable has decreased from RM14,325 to RM13,850, which is a reduction in tax payable amounting to RM475.00.

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