The Income Tax (Special Treatment for Interest on Loan) Regulations 2020
(the ‘Regulations’) were gazetted on 25 August 2020 and have effect from year of assessment 2020 onwards.
The Regulations, inter alia
, set out the tax treatment to be given by licensed banks and licensed investment banks under the Financial Service Act 2013, licensed Islamic banks under the Islamic Financial Service Act 2013, and prescribed development financial institutions under the Development Financial Institutions Act 2002 (each a ‘financial institution’) for interest due and payable in respect of loans
related to the moratorium programme under the Prihatin Economic Stimulus Package (PRIHATIN).
Regulation 4(1) of the Regulations provides that where a moratorium has been approved by a financial institution in respect of interest due and payable from 1 April 2020 until 30 September 2020 from a borrower under a loan granted by the financial institution in the basis year of assessment, such interest shall not constitute the gross income of that financial institution in the basis period for that year of assessment.
However, where interest in respect of a loan referred to in regulation 4(1) is received from 1 April 2020 until 30 September 2020, or becomes receivable on or after 1 October 2020 by a financial institution in the basis period for a year of assessment, such interest shall be treated as the gross income of the financial institution in the basis period for that year of assessment.
The following conditions shall apply to a loan and moratorium under these Regulations:
No deduction from the gross income of a financial institution is allowed under the Income Tax Act 1967 based on any impairment of a loan involved in the period of the moratorium programme referred to in regulation 4(1).
The financial institution is also required to maintain a separate account for the amount of interest referred to in regulation 4(1) and payment received in relation to such interest.