Amendment of Schedule 1 – Rates of Tax on Disposal of Capital Assets

Finance (No 2) Bill 2023 proposed Amendment of Schedule 1

Schedule 1 to the Income Tax Act 1967 is amended by inserting after Part XX the following part:

“Part XXI

Notwithstanding Part I, income tax shall be charged for a year of assessment on the income of a company, limited liability partnership, trust body or co-operative society from the disposal of capital asset referred to in paragraph 4(aa) at the following rates:

1. in relation to a disposal of capital asset situated in Malaysia which was acquired before 1 January 2024—
   1. at the rate of 10 per cent on every ringgit of the chargeable income from the disposal of the capital asset; or
   2. at the rate of 2 per cent of gross on the disposal price of the capital asset;
2. in relation to a disposal of capital asset situated in Malaysia which was acquired on or after 1 January 2024 at the rate of 10 per cent on every ringgit of the chargeable income from the disposal of the capital asset;
3. in relation to a disposal of capital asset other than a disposal under paragraphs (a) and (b), at the applicable rate to the company, limited liability partnership, trust body or co-operative society as specified under Part I or IV on every ringgit of the chargeable income from the disposal of the capital asset.”.

Explanation:

The Finance (No 2) Bill 2023 suggests amending Schedule 1 of the Income Tax Act 1967 by introducing a new part, Part XXI, which addresses the income tax on the disposal of capital assets for certain entities. This amendment focuses on the rates applicable to the chargeable income derived from the disposal of capital assets.

Tax Impact: The tax impact of this amendment is the introduction of specific rates for the income tax on capital asset disposals based on the acquisition date and location of the asset.

Examples:

(a) Disposal of Capital Asset Acquired Before 1 January 2024:

• Rate: 10% on every ringgit of chargeable income from the disposal.
• Alternatively, 2% of the gross disposal price.
• Example: If a company sells a capital asset acquired before 1 January 2024 for RM1,000,000 with a chargeable income of RM100,000, the income tax would be RM10,000 (10% of RM100,000) or RM20,000 (2% of RM1,000,000).

(b) Disposal of Capital Asset Acquired On or After 1 January 2024:

• Rate: 10% on every ringgit of chargeable income from the disposal.
• Example: If a company sells a capital asset acquired on or after 1 January 2024 with a chargeable income of RM150,000, the income tax would be RM15,000 (10% of RM150,000).

(c) Disposal of Capital Asset Other Than (a) and (b):

For the income tax rate for income received in Malaysia from outside Malaysia for the disposal of capital assets is subject to the prevailing tax rates.

• Rate: The applicable rate specified under Part I or IV.
• Example: If a company sells a capital asset not covered by (a) or (b) with a chargeable income of RM80,000, and the applicable rate under Part I is 5%, the income tax would amount to RM4,000 (5% of RM80,000)

These examples illustrate how the proposed amendment would impact the income tax calculation for different scenarios of capital asset disposal.