FINANCE ACT 2002

Finance LAWS OF MALAYSIA REPRINT Act 619 FINANCE ACT 2002 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 2002 Date of Royal Assent ... ... ... … … 29 January 2002 Date of publication in the Gazette … … 7 February 2002 PREVIOUS REPRINT First Reprint ... ... ... ... ... 2004 3 LAWS OF MALAYSIA Act 619 FINANCE ACT 2002 ARRANGEMENT OF SECTIONS CHAPTER I PRELIMINARY Section 1. Short title 2. Amendments of Acts CHAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 3. Commencement of amendments to the Income Tax Act 1967 4. Amendment of section 34 5. Amendment of section 39 6. Amendment of section 75 7. Amendment of Schedule 1 8. Amendment of Schedule 3 9. Special provision relating to paragraph 16 of Schedule 3 10. Amendment of Schedule 7A CHAPTER III AMENDMENTS TO THE PETROLEUM (INCOME TAX) ACT 1967 11. Commencement of amendments to the Petroleum (Income Tax) Act 1967 12. Amendment of section 16 4 Laws of Malaysia ACT 619 Section 13. Amendment of section 18 14. Amendment of Second Schedule 15. Special provision relating to paragraph 13 of Second Schedule CHAPTER IV AMENDMENTS TO THE STAMP ACT 1949 16. Commencement of amendments to the Stamp Act 1949 17. Amendment of section 9 18. New section 38A 19. Amendment of section 39 20. Amendment of section 47 A 21. Amendment of First Schedule Finance 5 LAWS OF MALAYSIA Act 619 FINANCE ACT 2002 An Act to amend the Income Tax Act 1967, the Petroleum (Income Tax) Act 1967 and the Stamp Act 1949. [ ] ENACTED by the Parliament of Malaysia as follows: C HAPTER I PRELIMINARY Short title 1. This Act may be cited as the Finance Act 2002. Amendments of Acts 2. The Income Tax Act 1967 [Act 53], the Petroleum (Income Tax) Act 1967 [Act 543] and the Stamp Act 1949 [Act 378] are amended in the manner specified in Chapters II, III and IV respectively. C HAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 Commencement of amendments to the Income Tax Act 1967 3. (1) Sections 4, 5, 7, paragraphs 8(a), 8(b), 8(d), 8(e), 8(f), 8(g), 8(h), 8(i), 8(j), 8(l) and 8(m), section 9 and paragraphs 10(a), 10(b) and 10(c) of this Chapter shall have effect for the year of assessment 2002 and subsequent years of assessment. 6 Laws of Malaysia ACT 619 (2) Paragraph 8(c) of this Chapter shall be deemed to have come into operation on 1 January 2000 and shall have effect for the year of assessment 2000 in respect of the basis period ending in the year 2000 and subsequent years of assessment. (3) Paragraph 37F of Schedule 3 to the Income Tax Act 1967, which in this Chapter is referred to as the “principal Act”, as inserted by paragraph 8(k) of this Chapter shall have effect for the year of assessment 2002 and subsequent years of assessment. (4) Paragraphs 37G and 37H of Schedule 3 to the principal Act as inserted by paragraph 8(k) of this Chapter shall be deemed to have effect for the year of assessment 2001 and subsequent years of assessment. (5) Paragraph 10(d) shall be deemed to have effect for the year of assessment 1998 and subsequent years of assessment. Amendment of section 34 4. The principal Act is amended in subsection 34(6)— (a) in paragraph (l), by deleting the word “and” at the end of proviso (b); (b) by substituting for the full stop at the end of paragraph (m) the words “; and”; and (c) by inserting after paragraph (m) the following paragraph: “(n) an amount equal to the expenditure incurred by a person in the relevant period on the provision of practical training in Malaysia, in relation to his business, to an individual who is— (i) resident in the basis year for a year of assessment; and (ii) not an employee of that person.”. Amendment of section 39 5. Section 39 of the principal Act is amended in subsection (1)— (a) by deleting paragraph (h); and Finance 7 (b) by substituting for paragraph (k) the following paragraph: “(k) any sum paid by way of rentals in respect of a motor vehicle, other than a motor vehicle licensed by the appropriate authority for commercial transportation of goods or passengers, in excess of fifty thousand ringgit: Provided that if the motor vehicle has not been used by any person for any purpose prior to the rental and the total cost of the motor vehicle does not exceed one hundred and fifty thousand ringgit, any sum paid by way of rental in excess of one hundred thousand ringgit: Provided further that the maximum amount of deduction in respect of the rentals of such motor vehicle in the year of assessment and subsequent years of assessment shall not in the aggregate exceed fifty thousand ringgit or one hundred thousand ringgit, as the case may be, in respect of that motor vehicle;”. Amendment of section 75 6. Section 75 of the principal Act is amended in subsection (1)— (a) by substituting for the word “Responsibility” the words “Notwithstanding anything to the contrary to this Act or any other written law, the responsibility”; and (b) by inserting after the words “for the purposes of this Act” the words “including the payment of tax”. Amendment of Schedule 1 7. Schedule 1 to the principal Act is amended— (a) in Part I in paragraph 1, by substituting for the existing rates the following rates: “Chargeable Income RM Rate of Income Tax For every ringgit of the first For every ringgit of the next 2,500 2,500 0 per cent 1 per cent 8 ACT 619 Laws of Malaysia “Chargeable Income RM Rate of Income Tax For every ringgit of the next 15,000 3 per cent For every ringgit of the next 15,000 7 per cent For every ringgit of the next 15,000 13 per cent For every ringgit of the next 20,000 19 per cent For every ringgit of the next 30,000 24 per cent For every ringgit of the next 150,000 27 per cent For every ringgit exceeding 250,000 28 per cent”; (b) in Part I in paragraph 1A, by substituting for the word “29” the word “28”; and (c) in Part IV, by substituting for the existing rates the following rates: “Chargeable Income RM Rate of Income Tax For every ringgit of the first 20,000 0 per cent For every ringgit of the next 10,000 3 per cent For every ringgit of the next 10,000 6 per cent For every ringgit of the next 10,000 9 per cent For every ringgit of the next 25,000 12 per cent For every ringgit of the next 25,000 16 per cent For every ringgit of the next 50,000 20 per cent For every ringgit of the next 100,000 23 per cent For every ringgit of the next 250,000 26 per cent For every ringgit exceeding 500,000 28 per cent”. Amendment of Schedule 3 8. Schedule 3 to the principal Act is amended— (a) in paragraph 3, by substituting for the word “4” the word “3A”; Finance 9 (b) by inserting after paragraph 3 the following paragraph: “3A. (1) Subject to subparagraph (2), where a building is purchased for use as an industrial building from a person who constructed that building and that building has not been used by any person for any purpose prior to the purchase, then, for the purposes of this Schedule— (a) the purchaser shall be deemed to have constructed that building and deemed to have incurred capital expenditure on the construction of that building; (b) the purchase price shall be deemed to be the capital expenditure incurred on the construction of that building; and (c) the date of that purchase shall be deemed to be the date of construction of that building. (2) The capital expenditure incurred by the person who constructed the building and the date of construction of that building by that person to which regard would be had but for this subparagraph shall be disregarded for the purposes of this Schedule.”; (c) in paragraph 5— (i) in subparagraph (1) by substituting for the word “In” the words “Subject to subparagraph (1A), in”; (ii) in subsubparagraph (1)(a)— (A) by substituting for the word “following” the word “from”; and (B) by substituting for the words “including the particular” the words “including the immediately preceding”; and (iii) by inserting after subparagraph (1) the following subparagraph: “(1A) Where the purchased building referred to in subparagraph (1) is constructed prior to 1 10 Laws of Malaysia ACT 619 January 2000 and that building was first used after its purchase as an industrial building— (a) in the year of assessment 2000, all annual allowances referred to in subsubparagraph (1)(a) shall be allowances which could have been claimed or made for the year of assessment following the year of assessment in which the expenditure on the construction of that building was incurred up to and including the year of assessment 2000 (preceding year basis); or (b) in the year of assessment 2001 or any subsequent year of assessment, all annual allowances referred to in subsubparagraph (1)(a) shall be allowances which could have been claimed or made for the year of assessment following the year of assessment in which the expenditure on the construction of that building was incurred up to and including the year of assessment immediately preceding, the year of assessment 2001 or any subsequent year of assessment in which that building was first used after its purchase as an industrial building, and for the avoidance of doubt, the allowance for the year of assessment 2000 shall consist of the allowances for the year of assessment 2000 (preceding year basis) and year of assessment 2000 (current year basis).”; (d) in paragraph 12, by inserting after the word “construction” the words “or purchase”; (e) in paragraph 14, by substituting for the word “17” the word “16A”; (f) by deleting paragraph 15A; (g) in paragraph 16— (i) by inserting after the word “construction” the words “or purchase”; and (ii) by substituting for the word “one-fiftieth” the word “three-hundredth”; Finance 11 (h) by deleting paragraph 17; (i) in paragraph 18, by substituting for the words “15, 16 or 17” the words “15 or 16”; (j) in paragraph 37C, by substituting for the words “12, 16 or 17” the words “12 or 16”; (k) by inserting after paragraph 37E the following paragraphs: “Qualifying expenditure: Building used for hotel 37F. The provisions of this Schedule relating to industrial buildings shall apply, mutatis mutandis, to a building or part thereof used by a person solely for the purpose of an hotel and that hotel is registered with the Ministry of Culture, Arts and Tourism. Qualifying expenditure: Airport 37G. The provisions of this Schedule relating to industrial buildings shall apply, mutatis mutandis, to an airport and the reference to capital expenditure incurred in relation to that airport shall include the capital expenditure on the construction, reconstruction, extension, improvement or purchase of any building, runway or ancillary structures. Qualifying expenditure: Motor racing circuit 37H. The provisions of this Schedule relating to industrial buildings shall apply, mutatis mutandis, to a motor racing circuit approved by the Minister and the reference to capital expenditure incurred in relation to that motor racing circuit shall include the capital expenditure on the construction, reconstruction, extension or improvement of that motor racing circuit or ancillary structures.”; (l) in paragraphs 42A, 42B and 42C, by deleting the words “, 17”; and (m) in subparagraph 65(3), by deleting the words “, hotel”. 12 Laws of Malaysia ACT 619 Special provision relating to paragraph 16 of Schedule 3 9. Notwithstanding the provisions of paragraph 16 of Schedule 3 to the principal Act, where an annual allowance has been made to a person in respect of a purchased building, and that allowance has been calculated based on a permitted fraction under paragraph 17 of Schedule 3 to the principal Act before the coming into operation of the deletion of that paragraph under paragraph 8(h) of this Act, which is higher than three-