COMPUTATION OF TAXABLE INCOME
26. Capital Gains
Taxable capital gains (see item 3) are calculated on the excess of the sales price over the acquisition price.
27. Depreciation and Depletion
Depreciation adopted in the accounts is ignored for taxation purposes.
Instead, there is a system of capital allowances for qualifying capital expenditure. These allowances are given as deductions in computing taxable income, as follows.
Plant. An initial allowance of 20% is given on all qualifying plant expenditure in the year of acquisition. An annual allowance, ranging from 6% to 20% of qualifying plant expenditure, is also given in the year of acquisition and subsequent years. Accelerated initial allowances are given for:
q Machinery or plant for getting tin ore or for extracting or dressing tin concentrates;
q Machinery or plant for extracting timber from a forest;
q Environmental protection equipment;
q Monogas buses used by transport companies;
q Equipment to provide natural gas used by petrol stations;
q Machinery or plant used directly in a construction business.
Buildings. No capital allowances are allowed on buildings except those used for the purposes of a business and used as a factory, dock, wharf, jetty, or warehouse. An initial allowance is allowed at 10% of the qualifying building expenditure and the annual allowance on a straight-line basis at an annual rate of 2%. Buildings used for the purposes of approved research or industrial training or for the storage of imported goods that are to be processed and reexported qualify for industrial building allowances. Special building allowances are given
for:
q Buildings to provide child care facilities for employees who are working mothers;
q Buildings for the accommodation of employees in connection with a manufacturing business, hotel and tourism business, timber extraction business, plantation business, and approved service projects;
q Buildings for approved industrial, technical, or vocational training;
q Building for industrial purposes for approved schools and institutions of higher learning;
q Buildings used for research by R&D companies or contract R&D companies;
q Private hospitals, maternity homes, and nursing homes;
q Buildings used for storage of goods for export or imported goods for reprocessing and re-export.
Mining. All expenditure incurred in connection with the working of a mine or in preparation for the working of a mine or the acquisition of the mine or rights in or over the mine, in very broad terms, is considered qualifying mining expenditure. Depletion allowances granted to persons incurring such expenditure are deductible over the life of the mine, by dividing the residue of capital expenditure at the beginning of the period by the residual life of the mine at the end of
the period.
Expenditures incurred with respect to exploration for minerals are allowed as a deduction from aggregate income as and when it is incurred. However, the entire exploration expenditure is then added to the aggregate income when the prospecting is successful and mining allowances are allowed instead. No mining allowances are allowed if the exploration expenditure is not added back to the aggregate income of the mine. The miner is given the option not to elect for this
treatment.
Other Depletion Allowances. Other allowances are available for capital expenditure incurred by certain businesses. These include a forest allowance, an agricultural allowance, and an allowance for abortive prospecting expenditure.
28. Treatment of Dividends
Although no withholding tax is applied to dividends paid, credited, or distributed by Malaysian corporations, tax at the rate of 30% is deemed to have been deducted at source. Dividends are included gross in computing the income tax of the recipient. A tax credit of the notional tax deducted at source on the dividend (at 30%) is allowed in arriving at the net tax payable. Dividends received from overseas are also taxed on the gross amount. The tax credit allowable for the foreign tax
imposed on the dividends depends on whether Malaysia has a double tax agreement with the source country. A unilateral tax credit is also granted for the tax imposed on the dividends from countries with which Malaysia has no tax treaty.
29. Loss Carryovers
Trading losses of the basis year can be offset against income from other sources of that basis year. The balance of the unabsorbed trading losses may be carried forward indefinitel
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