Malaysian Budget Offers Tax Breaks To Businesses

by Mary Swire, Tax-News.com, Hong Kong

04 October 2005

Although the Malaysian government budget, announced last week, stopped short of cutting rates of corporate tax, the Prime Minister and Minister of Finance, Datuk Seri Abdullah Ahmad Badawi, detailed a number of tax-related measures designed to boost economic activity.

One of the more significant proposals outlined by the Prime Minister was the introduction of group relief for losses, a measure which is likely to be welcomed by the business community. This will allow firms within a group with a minimum of 70% ownership between them to offset the current year losses of a company against the profits of another. By doing so, it is hoped that more companies will be encouraged to take part in high-risk projects requiring a large initial capital outlay.

The Prime Minister also proposed to tempt more technology firms to establish in Malaysia through a widening of the Multimedia Super Corridor Incentives (MSC), which will extend the Investment Tax Allowance Incentive to qualifying firms currently operating outside of the MSC.

Small-and medium-sized firms will also receive a tax break in the form of 50% stamp duty remission on instruments for loans not exceeding RM1million (US$265,250).

Commenting on the proposals, Khoo Chin Guan, senior tax partner with KPMG Tax Services, noted that the 2006 Budget is "realistic" given the country’s current economic situation and external factors such as escalating oil prices, higher interest rates and increasing global competition.

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