Better broadband benefit

Better broadband benefit

This is the final of a three-part question-and-answer series provided by PricewaterhouseCoopers on various aspects of Budget 2008.

Q: Budget 2008 announced that payment of broadband subscription fees by employers for employees would not result in the employee having to pay income tax. How would this be consistent with the ruling on perquisites?

A: Prior to the above proposal, the payment of broadband subscription fees by the employer, whereby such fees are the pecuniary liabilities of the employee, are perquisites to the employee regardless of whether the employer makes the payment direct to the broadband provider, to the employee to settle the subscription fees, or to the employee as a reimbursement.

However, with the proposed change, employers would be able to provide computers (for personal use) and broadband subscriptions (personal use) without any tax burden to the employees. In a flexi benefit scheme, this could be considered as additional offerings without any negative tax impact on the employer and employee.

This incentive is in line with the Government’s aspiration to increase broadband penetration in nurturing a knowledge-based society. Please note that the exemption is effective from the year of assessment (YA) 2008 until year of assessment 2010 only.

Q: The Government has announced that an incentive will be given to the private sector to purchase security and surveillance equipment. What incentive is this and how does it work?

A: Budget 2008 proposed that an Accelerated Capital Allowance be given on expenses incurred on the following:

•Security control equipment installed in the factory premises; and

•Vehicle surveillance equipment installed in container lorries bearing Carrier Licence A and general cargo lorries bearing Carrier Licence A and C.

The allowance is to be fully written off (in the form of capital allowance) within one year. The eligible security and surveillance equipment needs to be approved by the Finance Minister. Please note that this proposal is effective from YA 2008 to YA 2012 only.

PwC Tax Team: (seated from left) managing consultant Chee Ying Cheng, executive director Fung Mei Lin and senior consultant Chandran Ramasamy; (standing from left) managing consultants Wong Yoke Lin, Farah Rosley and senior consultant Lee Kooi Thing.

Q: The Government announced that it would implement a single-tier tax system whereby the profits are only taxed at the company level and dividends received will be exempted from tax. I am a pensioner whose sole income is the receipt of dividend income, and some interest income from fixed deposits with banks. How will this affect me?

A: Under the current tax system, the taxpayer has to declare the gross dividend as opposed to the net dividend received in their tax returns and claim a tax credit under Section 110.

With the proposed new single-tier tax system, the tax on the company’s profit is a final tax. Hence, the dividend that you receive from companies that elect to be under this proposed system will be exempted from tax.

It is the Government’s intention that with the introduction of this single-tier tax system, dividends can be more easily distributed. However, there will be a transitional period of six years (starting Jan 1, 2008) to ensure smooth implementation of the tax system.

Hence, during the transition, you may receive some dividend income that has attracted income tax and not exempt from tax from companies that still have Section 108 credits. For this, you may claim a Section 110 tax credit in your tax return.

Q: To promote a culture of life-long learning among Malaysians, Budget 2008 proposed a tax relief of RM5,000 on education fees for all post-graduate studies. If my wife and I are both pursuing our master’s degrees, spending about RM8,000 each a year, can we each claim RM5,000 in our individual tax returns?

A: Yes, both of you are eligible to claim a RM5,000 relief each in your respective tax returns provided that your post-graduate studies are at institutions or professional bodies in Malaysia that are recognised by the Government or approved by the Minister undertaken for the purpose of acquiring law, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications. Please note that this deduction is effective only from YA 2008 onwards.

Q: The Prime Minister in the Budget speech proposed fund management companies be given income tax exemption on all fees received in respect of Islamic fund management activities until years of assessment 2016. What further details can you provide on this?

A: To further promote Islamic fund management activities, it is proposed that local and foreign companies managing Islamic funds approved by the Securities Commission (SC) for both local and foreign investors be given income tax exemption.

The lslamic funds must be approved by the SC. This will make it easier for local fund managers to enjoy this tax incentive since existing syariah-based funds in Malaysia are being invested in by both local and foreign investors.

This proposal is effective from YA2008 to YA2016.

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