Finance Bill 2021: Proposed Amendments to the Real Property Gains Tax Act 1976
15 November 2021
The 2022 Malaysian Budget (‘2022 Budget
’) was tabled by the Minister of Finance before the Malaysian Parliament on 29 October 2021. Our Alert that highlights some of the measures proposed under the 2022 Budget can be accessed here
In furtherance of the 2022 Budget, the Finance Bill 2021 (‘the Bill
’) was presented for its First Reading in the Dewan Rakyat (House of Representatives) of the Malaysian Parliament on 9 November 2021.
This article outlines the main amendments to be made to the Real Property Gains Tax Act 1976 (‘the Act
’) pursuant to the Bill.
No RPGT on disposals by citizens and permanent residents in the 6th year onwards
Gains by an individual who is a citizen and permanent resident of Malaysia from the disposal of real property and shares in a real property company (each a ‘chargeable asset’) in the sixth and subsequent years after the acquisition date of the chargeable asset will be exempted
from real property gains tax under a proposed amendment to Part I of Schedule 5 of the Act.
Expanding the categories of disposers under Part II of Schedule 5
Currently, Part II of Schedule 5 of the Act sets out the rates of tax on chargeable gains made by the following disposers:
- a company incorporated in Malaysia;
- a trustee of a trust; or
- a society registered under the Societies Act 1966 [Act 335].
The categories of disposers under Part II of Schedule 5 will be expanded by substituting the phrase ‘society registered under the Societies Act 1966 [Act 335]’ with ‘body of persons registered under any written law in Malaysia’.
Increase in retention sum for disposal by Malaysian company, trustee or registered body
Section 21B(1) of the Act currently requires the acquirer of a chargeable asset from a disposer under Part II of Schedule 5 of the Act (i.e. a company incorporated in Malaysia, a trustee of a trust, or a body of persons registered under any written law in Malaysia) (each a ‘Relevant Disposer’) to retain the whole of the money consideration or 3% of the total value of the consideration, whichever is the less, and to pay the sum retained to the Director General of Inland Revenue (‘DGIR’).
The Bill will introduce a new paragraph (a) to section 21B(1A) that requires the acquirer of a chargeable asset from a Relevant Disposer to retain the whole of the money consideration or 5% of the total value of the consideration, whichever is the less, if such disposal is effected within three years after the acquisition date of the chargeable asset by the Relevant Disposer and to pay the sum retained to the DGIR.
Non-payment of moneys by person leaving Malaysia
Where the DGIR is of the opinion that any person is about or likely to leave Malaysia without paying:
- all the tax payable by him (whether or not due or due and payable);
- all sums payable by him under section 21(4) of the Act (tax assessed but not paid within 30 days or such longer period allowed by the DGIR); or
- the debt payable by him under section 21B(2) of the Act (failure by the acquirer to pay the amount to be retained by him plus interest),
the DGIR may issue a certificate under section 22 of the Act (‘section 22 certificate’) to the Commissioner of Police or the Director of Immigration requesting that the person concerned be prevented from leaving Malaysia unless he pays such tax, sums or debt or furnishes security to the DGIR for the payment of the same.
Presently, section 32 of the Act renders it an offence for a person who knows that a section 22 certificate has been issued in respect of him to voluntarily leave or attempt to leave Malaysia without paying all the tax payable by him or furnishing security for its payment. Such person shall on conviction shall be liable to imprisonment for a term not exceeding two years or to a fine not exceeding RM5,000 or to both.
The Bill will amend section 32 in the following respects:
- expand the offence under section 32 to include non-payment of all sums or debt payable under section 22 of the Act; and
- replace the fine of an amount not exceeding RM5,000 with a fine of not less than RM200 and not more than RM20,000.
The first of the proposed amendments will align the penal provisions under section 32 with the grounds on which a section 22 certificate may be issued against a person.
Expansion of scope of no gain no loss transaction
Paragraph 3 of Schedule 2 of the Act sets out various types of disposals where the disposal price is deemed equal to the acquisition price (i.e. no gain no loss).
Paragraph 3(1)(b) of Schedule 2 presently provides that the transfer of chargeable assets owned:
- by an individual;
- by the wife of an individual;
- by an individual jointly with his wife; or
- with a connected person,
to a company (whether or not resident in Malaysia) controlled by the individual, by the individual’s wife, by the individual jointly with his wife or with a connected person, for a consideration consisting of shares in the company, or substantially of shares in the company and the balance in money payment, is regarded as a transfer where the disposal price is deemed equal to the acquisition price.
The Bill seeks to amend paragraph 3(1)(b) of Schedule 2 to expand the above tax treatment to the transfer of a chargeable asset by a nominee or trustee for an individual, or for the wife of the individual, or for both, to a company controlled by the nominee or trustee
of the aforesaid individual, or his wife, or both.
It should be noted that paragraph 3(2) of Schedule 2 provides that any transfer of assets between spouses or to a company referred to in paragraph 3(1)(b) must involve an asset owned by a citizen.
Paragraph 33 of Schedule 2 of the Act sets out various circumstances in which a loss suffered from the disposal of a chargeable asset is not allowed to be set off against other chargeable gains of a person in a year of assessment.
The Bill will amend paragraph 33(d) of Schedule 2 which presently disallows the deduction of losses arising from the disposal of shares in a real property company (paragraph 34A of Schedule 2) to also disallow the deduction of losses arising from the disposal of shares issued to the acquirer as consideration or part-consideration for the acquisition of the chargeable asset by a controlled company
under paragraph 3(1)(b) of Schedule 2 (paragraph 34 of Schedule 2).1
Partial disposal of shares
Paragraph 2 of Schedule 4 of the Act presently provides a formula to determine the chargeable gain where part of a chargeable asset comprising of real property is disposed. This paragraph will be amended under the Bill to introduce the following formula to determine the chargeable gain where part of a chargeable asset comprising of shares in a real property company is disposed of
A x C
||is the number of shares deemed to be a chargeable asset under paragraph 34 or 34A of Schedule 2 disposed;
||is the total number of issued shares deemed to be a chargeable asset in relation to the shares deemed to be a chargeable asset under paragraph 34 or 34A of Schedule 2;
or 10% of the chargeable gain, whichever is greater.
All the proposed amendments will come into operation on 1 January 2022
Alert by Jesy Ooi (Partner) of the Real Estate Practice of Skrine.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact firstname.lastname@example.org.
Refer to the preceding section of this article for discussion on paragraph 3(1)(b) of Schedule 2.