FINANCE ACT 1986

Finance LAWS OF MALAYSIA REPRINT Act 328 FINANCE ACT 1986 Incorporating all amendments up to 1 January 2006 PUBLISHED BY THE COMMISSIONER OF LAW REVISION, MALAYSIA UNDER THE AUTHORITY OF THE REVISION OF LAWS ACT 1968 IN COLLABORATION WITH PERCETAKAN NASIONAL MALAYSIA BHD 2006 1 2 FINANCE ACT 1986 Date of Royal Assent ... ... ... … … 29 December 1986 Date of publication in the Gazette … ... 31 December 1986 PREVIOUS REPRINT First Reprint ... ... ... ... ... 2001 3 LAWS OF MALAYSIA Act 328 FINANCE ACT 1986 ARRANGEMENT OF SECTIONS CHAPTER I PRELIMINARY Section 1. Short title and commencement 2. Amendments of Acts and Ordinances CHAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 3. Commencement of amendments to the Income Tax Act 1967 4. Amendment of section 2 5. Amendment of section 4A 6. Amendment of section 15 7. Amendment of section 15A 8. Amendment of section 44 9. Amendment of section 60 10. Amendment of section 107A 11. Amendment of section 109 12. Amendment of section 109B 13. Amendment of section 120 14. Amendment of section 128 4 Laws of Malaysia ACT 328 Section 15. Amendment of section 153 16. Amendment of Schedule 1 17. Amendment of Schedule 3 18. Amendment of Schedule 5 19. Amendment of Schedule 6 20. Amendment of Schedule 7A CHAPTER III AMENDMENTS TO THE REAL PROPERTY GAINS TAX ACT 1976 21. Commencement of amendments to the Real Property Gains Tax Act 1976 22. Amendment of section 45 23. Amendment of Schedule 2 24. Amendment of Schedule 4 25. Amendment of Schedule 5 CHAPTER IV AMENDMENTS TO THE SHARE (LAND BASED COMPANY) TRANSFER TAX ACT 1984 26. Commencement of amendments to the Share (Land Based Company) Transfer Tax Act 1984 27. Amendment of section 2 28. Amendment of section 4A 29. Amendment of section 5 30. Amendment of Schedule 1 Finance 5 CHAPTER V AMENDMENTS TO THE CINEMATOGRAPH FILM HIRE DUTY ACT 1965 Section 31. Commencement of amendments to the Cinematograph Film Hire Duty Act 1965 32. Amendment of section 2 33. Amendment of section 13 34. Amendment of section 20 35. Amendment of the Schedule CHAPTER VI AMENDMENTS TO THE STAMP ORDINANCE 1949 36. Commencement of amendments to the Stamp Ordinance 1949 37. Amendment of section 15 CHAPTER VII AMENDMENTS TO THE STAMP ORDINANCE (SABAH) 38. Commencement of amendments to the Stamp Ordinance (Sabah) 39. Amendment of section 15 CHAPTER VIII AMENDMENTS TO THE SALES TAX ACT 1972 40. Commencement of amendments to the Sales Tax Act 1972 41. Amendment of section 7 42. Amendment of section 11 43. Amendment of section 13 44. Amendment of section 24 45. Amendment of section 30 CHAPTER IX AMENDMENT TO THE SERVICE TAX ACT 1975 46. Commencement of amendment to the Service Tax Act 1975 47. Amendment of section 16(b) 6 Laws of Malaysia ACT 328 Finance 7 LAWS OF MALAYSIA Act 328 FINANCE ACT 1986 An Act to amend the Income Tax Act 1967, the Real Property Gains Tax Act 1976, the Share (Land Based Company) Transfer Tax Act 1984, the Cinematograph Film Hire Duty Act 1965, the Stamp Ordinance 1949, the Stamp Ordinance (Sabah), the Sales Tax Act 1972 and the Service Tax Act 1975 and to provide for matters connected therewith. [ ] BE IT ENACTED by the Seri Paduka Baginda Yang di-Pertuan Agong with the advice and consent of the Dewan Negara and Dewan Rakyat in Parliament assembled, and by the authority of the same, as follows: C HAPTER I PRELIMINARY Short title and commencement 1. This Act may be cited as the Finance Act 1986 and shall have effect or be deemed to have effect as provided in this Act. Amendments of Acts and Ordinances 2. The Income Tax Act 1967 [Act 53], the Real Property Gains Tax Act 1976 [Act 169], the *Share (Land Based Company) Transfer Tax Act 1984 [Act 310], the **Cinematograph Film Hire Duty Act 1965 [Act 45 of 1965], † the Stamp Ordinance 1949 *NOTE—The Share (Land Based Company) Transfer Tax Act 1984 [Act 310] has since been repealed by the Finance Act 1988 [Act 364]–see section 26 of Act 364. **NOTE—The Cinematograph Film Hire Duty Act 1965 [Act 45 of 1965] has since been repealed by the Finance Act 1997 [Act 557]—–see section 61 of Act 557. †NOTE—The Stamp Ordinance 1949 [Ord. 59 of 1949] has since been revised as the Stamp Act 1949 [Act 378]. 8 Laws of Malaysia ACT 328 [Ord. 59 of 1949], the ††Stamp Ordinance (Sabah) [Sabah Cap. 137], the Sales Tax Act 1972 [Act 64] and the Service Tax Act 1975 [Act 151] are amended respectively in the manner specified in Chapters II, III, IV, V, VI, VII, VIII and IX respectively. CHAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 Commencement of amendments to the Income Tax Act 1967 3. (1) Except for sections 4, 5, 6, 7, 8, 10, 11, 12, 13, 15, 16, 18 and paragraph 19(h) the provisions of this Chapter shall have effect for the year of assessment 1987 and subsequent years of assessment: Provided that paragraphs 9(c) and (e) shall cease to have effect from— (i) year of assessment 1988 where the gross premiums receivable by the insurer during the basis period for year of assessment 1986 on account of all Malaysian life policies in force at the end of that period, amount to fifty million ringgit or more; (ii) year of assessment 1990 where the gross premiums receivable by the insurer during the basis period for year of assessment 1986 on account of all Malaysian life policies in force at the end of that period, amount to ten million ringgit or more but less than fifty million ringgit; and (iii) year of assessment 1992 where the gross premiums receivable by the insurer during the basis period for year of assessment 1986 on account of all Malaysian life policies in force at the end of that period, is less than ten million ringgit. (2) Sections 5, 7 and 12 shall be deemed to have come into force on 21 October 1983. (3) Sections 4, 6, 10, 11, 13, 15 and 18 shall be deemed to have come into force on 24 October 1986. ††NOTE—The Stamp Ordinance (Sabah) [Sabah Cap. 137] has since been wholly repealed except for section 83 by the Stamp (Amendment and Extension) Act 1989 [Act A723]–see the Schedule of Act A723. Finance 9 (4) Section 8 shall be deemed to have come into force on 1 January 1986. (5) Section 16 shall be deemed to have effect from the year of assessment 1984. (6) Paragraph 19(h) shall have effect for the year of assessment 1988 and subsequent years of assessment. Amendment of section 2 4. Section 2 of the Income Tax Act 1967, which in this Chapter is referred to as “the principal Act”, is amended by substituting for the interpretation of “approved loan” in subsection (1) the following: ‘ “approved loan” means— (a) any loan or credit made to the Government, State Government (including any loan or credit made to a person other than the Government or State Government where the loan or credit is guaranteed by the Government or State Government), local authority or statutory body; or (b) any loan or credit other than a loan or credit of the kind specified in paragraph (a), made to a person where the amount of such loan or credit exceeds two hundred and fifty million ringgit, by a person not resident in Malaysia: Provided that— (i) the loan or credit has been approved by the Minister of Finance; and (ii) the loan or credit agreement was executed in Malaysia or where the loan or credit agreement with the prior approval of the Minister was executed outside Malaysia;’. Amendment of section 4A 5. Section 4 A of the principal Act is amended by inserting immediately after the words “film rentals” the words “where the 10 Laws of Malaysia ACT 328 duty is leviable under the Cinematograph Film Hire Duty Act 1965” in paragraph (iii). Amendment of section 15 6. Section 15 of the principal Act is amended by substituting for paragraph (c) the following: “(c) if the interest or royalty is charged as an out-going or expense against any income accruing in or derived from Malaysia.”. Amendment of section 15A 7. Section 15A of the principal Act is amended by inserting immediately after the words “film rentals” the words “where the duty is leviable under the Cinematograph Film Hire Duty Act 1965” in paragraph (c). Amendment of section 44 8. The interpretation of “institution” in subsection 44(7) of the principal Act is amended— (a) by deleting the word “or” at the end of paragraph (c); (b) by inserting the word “or” at the end of paragraph (d); and (c) by inserting after paragraph (d) the following new paragraph (e): “(e) a Government-assisted institution engaged in socio-economic research;”. Amendment of section 60 9. Section 60 of the principal Act is amended— (a) by deleting the word “and” at the end of subparagraph (3)(b)(i); (b) by substituting for subparagraph (3)(b)(ii) the following new subparagraph (ii): Finance 11 “(ii) an amount bearing the same proportion to the management expenses incurred during that period in connection with his life business as the aggregate mentioned in paragraph (a) bears to the total of that aggregate and the amount of gross premiums received by him during that period on account of all life policies in force at the end of that period; and”; (c) by inserting after subparagraph (3)(b)(ii) the following new subparagraph (iii): “(iii) commissions paid in that period in connection with that business.”; (d) by substituting for subparagraphs (4)(b)(i) and (ii) the following new subparagraphs (i) and (ii): “(i) an amount bearing the same proportion to the management expenses incurred during that period in connection with the insurer’s Malaysian life fund or in connection with that part of his life business which is carried on in Malaysia as the aggregate mentioned in paragraph (a) bears to the total of that aggregate and the amount of gross premiums received by him during that period on account of Malaysian life policies in force at the end of that period; (ii) an amount bearing the same proportion to the head office expenses of the insurer incurred during that period in connection with his life business as the aggregate mentioned in paragraph (a) bears to the aggregate of the amount of gross income for that period from the investments out of the insurer’s life fund, the amount of gross proceeds receivable in that period in connection with the realization of those investments or any rights arising from them and the amount of gross premiums received by him during that period on account of all life policies in force at the end of that period; and”; and (e) by inserting after subparagraph (4)(b)(ii) the following new subparagraph (iii): “(iii) commissions paid in that period in connection with the insurer’s life business which is carried on in Malaysia.”. 12 Laws of Malaysia ACT 328 Amendment of section 107A 10. Section 107A of the principal Act is amended by deleting the words “, not being a payment that is a royalty within the meaning of subsection 2(1)” in the interpretation of “contract payment” in subsection (5). Amendment of section 109 11. Section 109 of the principal Act is amended by substituting for the words “or to have a place of business in Malaysia” the words “in Malaysia, other than interest or royalty attributable to a business carried on by such other person in Malaysia” in subsection (1). Amendment of section 109B 12. Section 109B of the principal Act is amended by inserting immediately after the words “film rentals” the words “where the duty is leviable under the Cinematograph Film Hire Duty Act 1965” in paragraph (1)(c). Amendment of section 120 13. Section 120 of the principal Act is amended— (a) by deleting the word “or” at the end of paragraph (c); (b) by substituting for the comma the sign and word “; or” at the end of paragraph (d); and (c) by inserting after paragraph (d) the following new paragraph (e): “(e) fails to comply with a direction given under section 107,”. Amendment of section 128 14. Section 128 of the principal Act is amended by substituting for subsection (1) the following new su