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Corporate Tax Law: Part II

BUSINESS PROFITS AND DEDUCTIONS


Business profits are computed on the basis of normal accounting principles as modified by certain tax adjustments.

Generally, deduction is allowed for all outgoing and expenses wholly and exclusively incurred in the production of income.

Deductions which are specifically disallowed include:
    Domestic or private expenses
    Income tax or similar taxes
    Preliminary or pre-operating expenses
    Capital expenditure
    Depreciation and amortization
    General provisions
    Interest expenses attributable to non-business investments
    Lease rentals for passenger cars exceeding RM50,000 per car
    Employer's contributions to unapproved pension, provident or saving schemes
    Employer's contributions to approved schemes in excess of 19% of employee's remuneration
    Non-approved donations
    Entertainment expenses with certain exceptions
    Employee's leave passages

Bonus paid in excess of two-twelfths of employee's salary or wages.

LOSSES


Business losses can be utilized against income from all sources in the current year or carried forward indefinitely to be utilized against future income from all business sources. There are no provisions for group relief in Malaysia.

PROFIT DISTRIBUTION


Malaysia adopts an imputation system of taxation. The income tax chargeable on a resident company is credited into a tax account which can be utilized to frank its dividend payments to shareholders. Any unutilized tax credits can be carried forward for franking future dividend payments. Where the tax franking for a dividend payment exceeds the available tax credits, the shortfall becomes a debt due to the tax authorities which is payable upon requisition. This payment cannot be utilized against future tax liabilities of the company.

EXCISE DUTY


Excise duties are levied on selected products manufactured locally, namely, cigarettes, liquors, playing cards, mahjong tiles, petrol, diesel and motor vehicles. To encourage linkages between companies in LMW/FIZ with companies in the Principal Customs Area (PCA) effective from 17 October 1997, LMW companies manufacturing goods subject to excise duties are exempted from being licensed under the Excise Duty Act 1976.

IMPORT DUTY


Import duties are levied on a large number of imports and are imposed either at an ad valorem or specific rates. The ad valorem rates of import duties vary from 5% to 300% (CBU motorcars). Over the last few years, import duties on a wide range of raw materials, components and machinery have been abolished.

Under the Common Effective Preferential Tariff (CEPT) import duties imposed on most goods from Asean countries will be reduced to 0 - 5% by the year 2003.

TAX EXEMPTION ON THE VALUE OF INCREASED EXPORTS


To further promote exports, effective from 1 January 1998, companies in the manufacturing, agricultural and services sectors are eligible for tax exemption as follows:-
    Manufacturing Sector
    • exemption of statutory income equivalent to 10% of the value of increased exports provided that the goods exported attain at least 30% value-added
    • exemption of statutory income equivalent to 15% of the value of increased exports provided that the goods exported attain at least 50% of value-added
Agricultural Sector
    • exemption of statutory income equivalent to 10% of the value of increased exports are given to companies which export fruits and cut flowers.
Service Sector
    • exemption of statutory income equivalent to 10% of the value of increased exports are given to companies in selected services sectors comprising the legal, accounting, engineering consultancy, architecture, marketing, business consultancy, office services, construction management, building management, plantation management, health and education.


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Notes
Knowledge Base ID :   1336
Last Reviewed :   May 31, 2001

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