FINANCE (NO. 2) ACT 1985

LAWS OF MALAYSIA REPRINT Act 323 FINANCE (NO. 2) ACT 1985 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 2 Laws of Malaysia ACT 323 FINANCE (NO. 2) ACT 1985 Date of Royal Assent … … … … ... 31 December 1985 Date of publication in the Gazette … …… 9 January 1986 PREVIOUS REPRINT First Reprint … … … … … 2001 Finance (No. 2) LAWS OF MALAYSIA Act 323 FINANCE (NO. 2) ACT 1985 ARRANGEMENT OF SECTIONS CHAPTER I PRELIMINARY Section 1. Short title and commencement 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 2 5. Amendment of section 3A 6. Amendment of section 5 7. Amendment of section 6 8. Amendment of section 13 9. Amendment of section 18 10. Amendment of section 44 11. Amendment of section 45 12. Amendment of section 47 13. Amendment of section 48 14. Amendment of section 49 15. Amendment of section 50 16. New section 60AA 17. Amendment of section 109 3 4 Laws of Malaysia ACT 323 Section 18. New section 109C 19. Amendment of section 136 20. Amendment of Part II of Schedule 1 21. Amendment of Part III of Schedule 1 22. New Part VI of Schedule 1 23. Amendment of Schedule 3 24. Amendment of Schedule 6 25. Amendment of Schedule 7A CHAPTER III AMENDMENT TO THE SUPPLEMENTARY INCOME TAX ACT 1967 26. Commencement of amendment to the Supplementary Income Tax Act 1967 27. Deletion of Parts II and IV CHAPTER IV AMENDMENTS TO THE REAL PROPERTY GAINS TAX ACT 1976 28. Commencement of amendments to the Real Property Gains Tax Act 1976 29. Amendment of section 2 30. Deletion of section 12 31. Amendment of section 13 32. Amendment of section 14 33. Amendment of section 16 34. Amendment of section 17 35. New sections 21A and 21B 36. Amendment of section 24 37. Amendment of section 27 38. Amendment of section 29 39. Amendment of Schedule 2 40. Amendment of Schedule 3 41. Amendment of Schedule 4 Finance (No. 2) 5 CHAPTER V AMENDMENTS TO THE SHARE (LAND BASED COMPANY) TRANSFER TAX ACT 1984 Section 42. Commencement of amendments to the Share (Land Based Company) Transfer Tax Act 1984 43. Amendment of section 2 44. Amendment of section 4 45. New section 4 A 46. Amendment of section 5 47. Amendment of section 9 48. Amendment of section 44 49. Amendment of section 45 50. Amendment of Schedule 2 CHAPTER VI AMENDMENTS TO THE PETROLEUM (INCOME TAX) ACT 1967 51. Commencement of amendments to the Petroleum (Income Tax) Act 1967 52. Amendment of section 2 53. Amendment of section 22 6 Laws of Malaysia ACT 323 Finance (No. 2) 7 LAWS OF MALAYSIA Act 323 FINANCE (NO. 2) ACT 1985 An Act to amend the Income Tax Act 1967, the Supplementary Income Tax Act 1967, the Real Property Gains Tax Act 1976, the Share (Land Based Company) Transfer Tax Act 1984 and the Petroleum (Income Tax) Act 1967 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 (No. 2) Act 1985 and shall have effect or be deemed to have effect as provided in this Act. Amendments of Acts 2. The Income Tax Act 1967 [Act 53], the *Supplementary Income Tax Act 1967 [Act 54], the Real Property Gains Tax Act 1976 [Act 169], the **Share (Land Based Company) Transfer Tax Act 1984 [Act 310] and the ***Petroleum (Income Tax) Act 1967 [Act 45 of 1967] are amended respectively in the manner specified in Chapters II, III, IV, V and VI respectively. *NOTE—The Supplementary Income Tax Act 1967 [Act 54] has since been repealed by the Finance Act 1993 [Act 497]–see section 16 of Act 497. **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 497. ***NOTE—The Petroleum (Income Tax) Act 1967 [Act 45 of 1967] has since been revised in December 1995 as the Petroleum (Income Tax) Act 1967 [Act 543]. 8 Laws of Malaysia ACT 323 CHAPTER II AMENDMENTS TO THE INCOME TAX ACT 1967 Commencement of amendments to the Income Tax Act 1967 3. (1) Except for paragraphs 4(a), 4(b), 4(d), 6(a), 6(b), 7(b), 7(c), sections 8, 17, 18, 19, 22, 23 and paragraph 24(b) the provisions of this Chapter shall have effect for the year of assessment 1986 and subsequent years of assessment. (2) Paragraph 4(d) shall have effect for the year of assessment 1984 and subsequent years of assessment. (3) Section 23 shall have effect for the year of assessment 1985 and subsequent years of assessment. (4) Paragraphs 6(a), 6(b), 7(b), 7(c) and section 22 shall have effect for the year of assessment 1987 and subsequent years of assessment. (5) Paragraphs 4(a), 4(b), sections 8, 17 and 19 shall be deemed to have come into force on 25 October 1985. (6) Paragraph 24(b) shall be deemed to have come into force on 25 October 1985: Provided that in the case where a long-term loan agreement— (i) was entered into and the money lent or deposited in Malaysia was remitted to Malaysia before 25 October 1985 or was entered into and for which permission was given by the Controller of Foreign Exchange under the Exchange Control Act 1953 [Act 17] on or before 25 October 1985; and (ii) the terms, conditions or duration of that long-term loan have not been altered in any manner on or after 25 October 1985, the interest paid or credited on such loan shall continue to be exempt for the duration of the loan notwithstanding the withdrawal of the exemption provided for in paragraph 31 of Schedule 6 to the Income Tax Act 1967. Finance (No. 2) 9 (7) Section 18 shall come into force on 1 January 1986. 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— (a) by substituting for the interpretation of “approved loan” in subsection (1), the following: ‘ “approved loan” means 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 by a person not resident in Malaysia where the loan or credit agreement was executed in Malaysia or where the loan or credit agreement was executed outside Malaysia with the prior approval of the Minister;’; (b) by deleting the interpretation of “long-term loan” in subsection (1); (c) by deleting the interpretation of “shareholders’ funds” in subsection (1); and (d) by inserting immediately after subsection (6), the following new subsection (7): “(7) Any reference in this Act to interest shall apply, mutatis mutandis, to gains or profits received and expenses incurred, in lieu of interest, in transactions conducted in accordance with the Syariah.”. Amendment of section 3A 5. Section 3A of the principal Act is amended by substituting for paragraph (a), the following: “(a) a company, two million ringgit;”. Amendment of section 5 6. Section 5 of the principal Act is amended— (a) by substituting for the full stop at the end of subsection (1), a colon; 10 Laws of Malaysia ACT 323 (b) by inserting the following new proviso to subsection (1): “Provided that in ascertaining the chargeable income of an individual resident in Malaysia there shall be excluded the income consisting of interest accruing in or derived from Malaysia and received from a person referred to in subsection 109C(4) in respect of interest paid or credited to that individual.”; and (c) by substituting for subsection (3), the following: “(3) In ascertaining the chargeable income of any person for the purpose of section 3A there shall not be taken into account any statutory income or adjusted loss in respect of petroleum operations by a petroleum company and dividends paid by a petroleum company out of its income derived from its petroleum operations within the meaning of the Petroleum (Income Tax) Act 1967 [Act 45 of 1967].”. Amendment of section 6 7. Subsection 6(1) of the principal Act is amended— (a) by deleting the words “or long-term loan” in subparagraph (b)(i); (b) by substituting for the full stop at the end of paragraph (e), a semi-colon; and (c) by inserting immediately after paragraph (e), the following new paragraph (f): “(f) subject to the provisions of section 109 C but notwithstanding any other provisions of this Act, income tax shall be charged for each year of assessment upon the income of an individual resident in Malaysia which consists of interest (other than interest exempt from tax under this Act or any order made thereto) accruing in or derived from Malaysia and received from a person referred to in subsection 109C(4) at the appropriate rate as specified under Part VI of Schedule 1.”. Finance (No. 2) 11 Amendment of section 13 8. Subsection 13(1) of the principal Act is amended by substituting for the proviso to subparagraph (b)(ii), the following: “Provided that the benefit or amenity enjoyed under this subparagraph is confined only to the employee and members of his immediate family.”. Amendment of section 18 9. Section 18 of the principal Act is amended— (a) by inserting immediately after the interpretation of “harvesting”, the following new interpretation of “insurance”: ‘ “insurance” includes a takaful scheme pursuant to the Takaful Act 1984 [Act 312];’; and (b) by inserting immediately after the interpretation of “plantation”, the following new interpretation of “premiums”: ‘ “premiums”, in relation to insurance, includes contributions or instalments payable under a takaful scheme pursuant to the Takaful Act 1984;’. Amendment of section 44 10. Section 44 of the principal Act is amended— (a) by substituting for the full stop at the end of subsection (6), a colon; and (b) by inserting immediately after subsection (6), the following new proviso: “Provided that where the statutory income from an employment, pension or profession falls to be assessed in the name of an individual’s wife for the relevant year pursuant to subsection 45(4), there shall be deducted from such statutory income or the aggregate of such statutory income, as the case may be, an amount equal to any gift of money of the kind mentioned in this subsection, made by her in the basis year for that year.”. 12 Laws of Malaysia ACT 323 Amendment of section 45 11. Section 45 of the principal Act is amended— (a) by inserting immediately after the words “income from employment” in subsection (4), the words “, from pension granted on optional retirement from employment under any written law”; (b) by substituting for subsection (5), the following: “(5) Notwithstanding any other provisions of this Act, where under subsection (4) the wife’s income from an employment, pension or profession falls to be assessed for a year of assessment in her name— (a) her total income falling to be aggregated with that of her husband under subsection (2) for that year of assessment shall be reduced by the amount of statutory income from such employment, pension or profession and she shall be treated as having no chargeable income for that year of assessment in regard to that part of her total income which is aggregated with that of her husband; and (b) the income assessed in her name shall be the amount of statutory income from such employment, pension or profession or the aggregate of such statutory income, as the case may be, reduced by any deduction falling to be made pursuant to subsection 44(6).”; and (c) by inserting immediately after the words “income from employment” in sub