THE government announced the sixth economic stimulus package (Pemerkasa) worth RM20bil on March 17,2021, one year after Malaysia first imposed a lockdown due to Covid-19. Pemerkasa brought the total value of the packages to RM340bil.
Numerous tax measures have been introduced by the government to soften the impact of the Covid-19 pandemic on taxpayers.
Among others, income tax exemption of up to RM5,000 is given to employees who receive a handphone, notebook or tablet from their employer and a special tax relief of up to RM2,500 is given on the purchase of a handphone, notebook or tablet. Taxpayers can also claim up to RM1,000 in tax relief for full medical check-ups and Covid-19 tests when filing their income tax forms.
For businesses, some of the measures include:
> Donations/contributions in cash/in-kind to fight against the Covid-19 outbreak allowed as tax deductions.
> Annual income tax rebate of up to RM20,000 for the first three years of assessment given to an SME established and in operation between July 1,2020 and Dec 31,2021.
> Foreign companies that relocate their business operations to Malaysia and have made new investments will be taxed at a rate of 0% for a period of 10-15 years depending on the amount of investment with a minimum capital investment of RM300mil.
In addition, the stamp duty, real property gains tax and indirect tax exemptions were introduced. Certain industries like the automotive industry have been reaping benefits from the packages, whereby locally assembled passenger vehicles are eligible for 100% and imported passenger vehicles 50% sales tax exemption respectively until June 30,2021. This measure has seen the auto industry including the local parts suppliers to the industry survive the current pandemic.
While many of the above incentives have been beneficial to various parties, some do not seem practical. For example, it has not been easy to attract huge investments of more than RM300mil in the current pandemic to enjoy the 0% tax rate.
However, the Malaysian Investment Development Authority (Mida) has been intensifying its efforts to attract high-quality investments to Malaysia in spite of the Covid-19 crisis.
The focus is on transfer of technology and to enable local companies to emerge as industry leaders as experienced in the rubber and rubber products sector. Malaysia has produced world leaders in glove production – with Malaysian glove companies supplying 80% of the world requirement. It is hoped that the E&E and semiconductors providers could achieve similar success
This year, Mida expects investments in high-tech manufacturing, global service centres, principal hub, healthcare, education, logistics, green technology and R&D. With regard to Industry 4.0, the Covid-19 situation has changed the industry’s perception on the importance of automation. This has helped expedite the technology adoption process.
To date, about 382 companies in the manufacturing sector have been granted automation capital allowance – another major incentive programme to encourage domestic companies to undertake automation and machine upgrading.
For the record, Malaysia reported a total of RM164bil worth of approved investments in the manufacturing, services and primary sectors in 2020. These investments involved 4,599 projects and are expected to create 114,673 job opportunities in Malaysia.
Currently, there are RM65.9bil worth of potential investments in the pipeline in the manufacturing and services sectors under Mida’s purview involving 1,043 projects. So thankfully, it is not exactly gloom and doom as has been reported by certain quarters.
In the current hazy economic and restrictive business environment, clarity on issues that are caused by the Covid-19 pandemic is important.
One such issue is on the Malaysian tax implications for companies and individuals who have been impacted by Covid-19 travel restrictions. The displacement of employees around the world could lead to unwanted or unforeseen tax implications. The Inland Revenue Board (IRB) is lauded for giving clarity with regard to tax concessions in the areas of tax residency, permanent establishment and cross border employment income.
For employment income, Malaysian taxation is applicable if the employment is exercised in Malaysia. However, for foreigners working in Malaysia, exemption is provided in the Income Tax Act, 1967 if they do not exercise the employment in Malaysia for more than 60 days. If employment is exercised in Malaysia for more than 60 days, the individual could be subject to Malaysian taxation.
In this respect, Double Taxation Agreements (DTA) that Malaysia has with various countries would typically provide relief. For example, in the case of Japan, if the Japanese employee has worked for more than 60 but less than 183 days in Malaysia, he would be eligible to obtain a tax relief under the DTA, ie, not pay taxes in Malaysia.
Foreign-based employees stranded in Malaysia and forced to work here remotely due to Covid-19 will not be regarded as exercising employment in Malaysia. The employment income earned during this period will not be taxable in Malaysia.
Conversely, Malaysian-based employees who are stranded overseas and are forced to work overseas due to Covid-19 travel restrictions are deemed to be exercising their employment in Malaysia and subject to Malaysian tax.
There are still many challenges being faced with the pandemic but with the rollout of the ongoing vaccination programme, it is fervently hoped that the “taxing” times with Covid-19 will be over soon.
Harvindar Singh is Tax Partner at SCS Global Consulting (M) Sdn Bhd. Views expressed here are the writer’s own.