11 November 2021

Budget 2022 is the largest budget to date at RM332.1 billion. According to the government, no sector has been left out and it will help each and every Malaysian. So what’s in it for you? What should you keep an eye out for? Thanneermalai Somasundaram of Thannees Tax Consulting Services explains.

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Produced by: Sim Wie Boon

Presented by: Sim Wie Boon

Podcast Transcription

Sim Wie Boon: Good morning. You’re tuned into Ringgit & Sense, the show is all about personal finance and I’m Sim Wie Boon. The government has unveiled Budget 2022 on October 29th and it is the largest budget to date at RM332 billion. The lion’s share goes to education and health but according to the government , no sector has been left out as the budget is supposed to reflect the Keluarga Malaysia theme. So, what’s in it for you? What should you keep an eye out for? Joining me to discuss this is Thanneermalai Somasundaram, Managing Director of Thannees Tax Consulting Services. Good morning and welcome to the show, Thannee. Since the theme is Keluarga Malaysia so let’s start with the Keluarga bill. So, will there be anything for the children?

Thanneermalai: Sadly. Nothing really much for children at all, except they are giving in the school like food for the children from the underprivileged family. Milk will be given to them. So, really nothing from a tax perspective, there’s no special tax relief for children etc. Nothing for the children.

Sim Wie Boon: But there are discounts and made available for PTPTN graduates and stuff like that?

Thanneermalai: No. I’m thinking about the primary school children and all that but generally all children will be given RM150 to buy books and whatever they want to spend on their school, including the undergraduates. Undergraduates also will get it. So, students right from primary school all the way to undergraduate will get that RM150. Those in the 18 – 20 group, because these guys are all using mobile phones, so they will get e-wallets. They will get the extra RM150. Otherwise not much for children. It is more directly been given to help the children from underprivileged family so that they are no mild nutrition, so that they give them the right food, the milk etc. That assistance has been given to the children.

Sim Wie Boon: Speaking of children, you have been talking about the parents. What should parents be looking out for in terms of tax relief then?

Thanneermalai: Look. There is a RM2,500 extra that they are getting on top of the lifestyle relief of RM2,500. That’s what the parents are going to get. Anybody should use that RM2,500 and as far as parents I concern, not from a children point of view, in their own perspective, they can be upskilling their own, in terms of their own capability in terms of work etc. They can be upskilling themselves. So, that’s another thing you can now carry on in getting the relief as far as up-scaling is concerned. And that would be something that worthwhile. So, if they are spending their education on up-scaling, they are still entitled to it. But this budget is focusing a lot on the people at the poorer end. So, that’s again when you talk about this Bantuan Rakyat, they are going to get this cash. For example, you are going to get RM2,000 if you are earning less than RM2,500 and with 3 children or if you are a single parent, you are going to get your RM500. But from the parents’ perspective, the wealthier parents and if you are going to buy cars, such as you are bringing in CKD electric car in which you are helping to promote electric car that get away the gasoline into electric vehicle, there will be a 100% of sales tax exemption whenever you buy a CKD car which means the locally assemble cars and there will be 50% on CBU which is totally imported cars up to 30th June next year. The next thing is to move from gasoline to electric in order to reduce pollution which is what they all are taking in car stores at the moment. Up to year 2025, if they are actually bringing in CKD components and assemble the car locally for the electrical vehicle, there will be 100% not just from sales tax exemption also be on exercise duty and custom duty and the cars will be cheaper in price. So practically you pay no taxes if you are buying electric vehicle which assemble from CKD kits. But if you are bringing in CBU, you’ll also get the similar exemption, but it is only up to year 2023 whereas the other one goes up to year 2025. Also if you are an individual and you’ll need to charge your car and you need to put in your charging station. So, they will give you RM 2,500 as tax relief for building or buying the necessary facilities to actually have a charging station in your house. So, you’ll get RM2,500 of tax relief and that’s what you are going to get in terms of that.

Sim Wie Boon: But this doesn’t apply for hybrid, does it?

Thanneermalai: No. It has got to be electric totally.

Sim Wie Boon: What about travel?

Thanneermalai: Yes. I think individuals are quite tired of sitting at home. So, if you are now spending RM 1,000 for domestic travel like staying in a hotel in Pangkor Island or somewhere else, the government is saying like “Please. Take some time and go visit our hotels.” and so RM 1,000 is also being exempted. That is something that is pretty good. And the other things from the individual perspective which is if you are really short of money, the government has reduced the employee contribution from 11% to 9% and you can continue or elect for it in the next year. So, they are allowing the employees to have a little bit of extra cash but It’s not going to add a lot as it is just a 2% reduction of the employee contribution.

Sim Wie Boon: But do you think it is important? From a financial planning perspective, why it is important to raise the limit yourself? Let’s say it’s a 2% increase from a RM 5,000 of the salary.

Thanneermalai: It has reduced. Now, your employee contribution is at 11% for compulsory, but you can now elect to contribute 9% instead. But from my personal view is to be careful, don’t unnecessarily take money from this retirement schemes because you need money to live in the future. We all have longer life now. Even if you retire in the age of 60, now the life expectancy is about 77 to 80 years. So can you imagine? Taking money out from EPF is not something I would actually personally recommend. If possible, try not going for the reduce to rate. Keep it. At the moment, you got different saving schemes from the individual perspective. You got the EPF, you have the RM 3,000 exemption for the PRS, the private retirement schemes. Now in this budget, they said that if you have deferred annuity schemes that you buy from insurance company, they will give you an equivalent of RM3,000.

Sim Wie Boon: On top of the PRS?

Thanneermalai: It is equivalent, not above. It is at RM 3,000. Either you’ll get this, or you’ll get that. You’ll get either the PRS or the deferment. It’s not on top of another.

Sim Wie Boon: Okay.

Thanneermalai: You have for medical insurance a RM 3,000 on top of that. That one is on top. You can buy medical insurance for another RM 3,000. Don’t forget all these are various individual schemes that you should save and if you want to think about your children, you mustn’t forget about the SSPN. That’s another RM 8,000 that you’ll get. Another RM 8,000 you should save for your children and with this, at least you can pay for their education in time to come. SSPN is very good.

Sim Wie Boon: Okay. We are going to take a short break for some messages. Don’t go anyway. BFM 89.9.

Sim Wie Boon: Welcome back. You are tuned into Ringgit & Sense. I’m Sim Wie Boon. Today’s topic is Budget 2022 and what’s in it for you? Thanneermalai Somasundaram, The Managing Director of Thannees Tax Consulting Services joins me to talk about what should we keep an eye out for in Budget 2022. I want to go back a bit on the personal tax relief that you were touching on which is RM 2,500 for phones, computers and tablets. That’s on top of the existing RM 2,500 that you have. How should individual maximize this? What should be they looking at?

Thanneermalai: If they haven’t spend the RM 5,000 now, they still have until 31st of December to make sure you spend the RM 5,000. On a productive thing that will help you, like if you buy a handphone, tablet or computer or you need it for your child, buy it now. Then, if you need to buy another one for another child, you can buy in January. You buy one in December this year and the other one in January next year, so you will get RM 5,000 for this year and also you’ll have another RM 5,000 in another year. Try and maximize it.

Sim Wie Boon: The wording is a bit vague initially because they did said that it is an extension. I think it is a bit of a confusion whether it is for year 2021 or year 2022? So is that clear that you can actually do that?

Thanneermalai: It’s very clear. To me, it is year 2021 entitled to RM 5,000 and year 2022 for another RM 5,000. So that is very clear and there’s no issue at all. You’ll get it, so spend it. That’s good money spend but buy the things that will be productive for you and your children.

Sim Wie Boon: Moving on to the other side which is business owners that have small businesses or employers that have employees. What are the reliefs and what are the measures that they should be looking out for?

Thanneermalai: I think as far as the employers concern, if their companies are big and they have structure internship programs, they can bring in internship and then they can get double deduction. Basically, if you employ somebody for RM1,000 and you will get RM2,000. So, you’ll get a double deduction. Structure programs are not too difficult to get. You just need to get it approved by the talent cooperation and then you can get that. So, you bring in internees who are graduates and you employ them under this program then you will get double deduction. Then as far as small businesses that I concern,  for example, if you are a SME or a micro-SME, you got to pay advance taxes either monthly or bi-monthly. So what they have given to SMEs now is defer month of that monthly instalment in 2022, saying the first 6 months you don’t have to pay for the taxes. You just have to start paying after June this year. You can defer that. Secondly, what they have given for these SMEs. For example, if you have RM 100,000 while the tax rate is 70% and you are paying RM 170,000 eventually, so you are going to get a special rebate of RM 20,000 from the tax payable. So, that’s also something you should watch out and claim that RM20,000 which is really a gift to you because instead of paying RM 170,000, you are going to give RM 150,000 only. So, RM 20,000 is actually a gift from the government. Also, if you are a company or a business and you are in scholarship to undergraduate for example, you’ll get a double deduction for that scholarship because you are helping students in university etc. Then, if you are company, business, or even sole proprietor and you are doing renovation now, you will be getting a deduction. For example, normally when you start a restaurant, you will be renovating on the structure as painting, decorating but I am not saying about buying table, chairs, kitchenware and all that, you will not get a deduction at all because it is regarding as creating, setting and therefore it is capital expenditure. But now, they are given you a special deduction up to RM 300,000 if you renovate during the COVID period up to next year. So you should use that and do your repairs that don’t qualify for a deduction like if you are doing decorative work on your restaurant or you are doing sometimes else that you will not get a deduction, you can get a deduction on a basis that you are renovating now up to RM 300,000, so you should use that RM 300,000. And from an individual perspective, if you are a businessman with lots of the properties and you are the owner, as long as you are giving a reduction of rental for more than 30% to your tenant and it could be any company which is not SMEs only, the government will give a deduction against your rental income. So, you’ll get a special rental income deduction although you did not receive the money. For example, when you received RM 70 where you should receive RM 100 instead, you will get RM 30 of deduction from RM 70 that you received because you have given away RM 30 of rental deduction to the tenant. So, that’s the kind of benefit of the budget. The main benefit of this budget is not through tax, it is coming in through various type of loans. So, if you are a SME, there’s various guarantee cooperation because you can’t go to the bank. Usually when you go to the bank, they will say, “What is your future cash flow look like?” because when they look at the last one year and if you are in a bad shape then they won’t give you money. So, you got to go to this cooperation and there are couple of institution that will give you the guarantee. You will also be getting the matching grants. For example, if you take the tourism industry, a lot of hotels including the budget hotel has been badly hit. So, if you do the repairs now, they will give you the dollar-to-dollar matching grants. So, you must also look out for wherever you can get grants, incentives and deductions because you must make you profits before you can get a deduction in tax. Grants are very good because you don’t need to worry about profits. If you take the Bumiputera for example, there is practically RM11.4 billion for the Bumiputera umbrella development. Then, there is also RM6.6 billon allocated for Bumiputera education while there are 200 million ringgit for the Chinese and also there are RM145 million allocated for the Indian and these will be given away as all those things are not tax driven. Hence, you must go there quickly and register yourself so that you can collect part of the 11.4 billion ringgits as if you are a Bumiputera for business development or the 6.6 billion ringgits for Bumiputera education while for the Indians and Chinese, there will be 145 million ringgit and 200 million ringgits. And there are micro loans that can be given away. For example, if you are in a very small enterprise, they will give you interest free loans for 6 months, which is 0 interest capped at RM 10,000 for micro businesses. For the bigger businesses, you can borrow 6 months of interest-free loans of up to RM 75,000.

Sim Wie Boon: Just revisiting some of the things those small businesses or businesses can look out. I mean. Initially you touch a bit on upskilling individually, right? You should look out for individual tax relief when you upskilling yourself but will the employers get something of upskilling their employees as well?

Thanneermalai: There’s no double deduction but there’s absolutely tax deduction. Whatever you spend on the employees and education whether it is an English class, technical classes or any other skills and even if you send them to outside classes, you will get tax deduction because it is all in relation to actually helping you to grow and carry on your business but you will never get a double deduction for that. So not to worry, anything that you spend on the employee and educating them is deductible. Not to worry at all.

Sim Wie Boon: Before we end the show, what are the other specific measures or specific taxes that you would like to highlight and talk about before we finish off?

Thanneermalai: I think what people have to watch about now is the foreign source income. They got to manage it because they should not be surprised when they bring the money in or submit it and find themselves been subjected to tax. That’s one thing that they certainly need to watch out. If you are doing a RPGT or the removal of RPGT and you are going to sell the properties, please defer the sale to 1st January if you have held the property for more than 6 years. Don’t sell it in the next 2 months and try to defer the sale and purchase agreement to 1st of January. That’s important. Otherwise you’ll have to pay for the unnecessary 5% of tax. What I thought was the sales declaration for SVDP which we called it Self Voluntarily Declaration for Indirect Tax. Nowadays, I think all the businesses especially a lot of SMEs are registered for service tax purposes and sales tax purposes because their turnovers exceed RM500,000. If you are not done things right for the last couples of years, this is a great opportunity for you to come clean, and there will be a reduction of the penalties significantly or a total waiver. Initially, they will be a 100% waiver of penalties just pay the tax. And they are also willing to even consider a revision of the tax which means, yes, you’ve not done this right and you don’t want them to come to audit and ask unnecessary question which waste your time. You may also go into a voluntary basis, clean yourself all the way up to 2020. So you don’t have any headaches from the authorities coming in, talking to you, messing around and wasting your time. So that’s something you should consider using that personally. The businesses are entitled to what we called reinvestment allowance. For example, if you invest in your plant and machinery in the industrial buildings now, you may have enjoyed it for the last 15 years but now they are giving you another opportunity to enjoy to the further 2 years in 2022 and 2023. So, please try and invest because you will get an extra 60% which means if you spend RM100, you will get RM100 deduction plus another RM60 on top of that. So for every RM100, you will get RM160 of tax deduction. You are automatically entitled to it. So try and invest during this period in plant and machinery if you can for manufacturing businesses and agriculture.

Sim Wie Boon: Just a quick note on the foreign source income. Does it apply to foreign rental income as well?

Thanneermalai: Yes. For example, if you have property and if you have rental income, if you have bank account that receiving fixed deposit interests and dividend income because we don’t tax dividend income in Malaysia. Now if you bring in foreign dividend income, that’s going to be taxed. Even foreign pension income can be taxed. Practically, all foreign income will be taxed. Even if the income is not taxable normally in Malaysia but if you have received it in Malaysia but due to you are remitting it from overseas now, it will be taxable. You got to make sure that the credit attached to it. The difficulty is how do you attribute. You may be earning that money over many years. How are you going to calculate the credit? Because you may have already paid tax in the foreign country.

Sim Wie Boon: Exactly.

Thanneermalai: You got to bring that back and that I think it is going to be the point of difficulty that many people are going to have. It can be done. It is not impossible for tax specialists like us. We certainly know how to do it but for the ordinary man will not know how to do it. It’s going to be difficult to decide from which year that the income may come from which it may have gone 20 years ago and you have been earning the money and now bring it back. How do you attribute the tax you have paid? And you need the records. Unfortunately, our tax people love records. Without the records, you are gone. Without the records, you are naked. The authorities would come and actually hit you. This is going to be a major area of concern to a lot of people on this foreign source incomes. This is maybe something precursor to the future where they might decide in the future that they will bring all worldwide income to subject to tax despite you remit or not, which is all the countries in the world have that, except Singapore, Hong Kong and Malaysia.

Sim Wie Boon: Yup, we will keep an eye on that. That’s all the time we have for Ringgit & Sense. I have been speaking to Thanneermalai Somasundaram, Managing Director of Thannees Tax Consulting Services. Thank you very much for your insights, Thanneer. Join us again next week for more discussion of personal finance. 

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