The Income Tax, also regarded as Special Treatment for Interest on Loan 2020, was gazetted on 25 Aug 2020. These special regulations will be in effect from year of assessment 2020 onwards.
The special treatment of interest is gazetted under the PRIHATIN Moratorium Programme to support various causes. It is basically to protect people, support businesses, and benefit small contractors with the needed economic stimulus.
The right to exercise regulations under the tax treatment is to be given to different authorities, which include the following:
- Licensed investment banks and licensed banks that are under the Financial Service Act 2013
- Licensed Islamic banks that are under the Islamic Financial Service Act 2013
- Every prescribed development financial institution that is under the Development Financial Institutions Act 2002 (a ‘financial institution’)
They all are authorized for the tax treatment of the interest due and payable in respect of loans. The loans should be related to the moratorium program under the PRIHATIN Economic Stimulus Package (PRIHATIN).
Regulation 4(1) of the Regulations under the PRIHATIN Moratorium Programme provides that where a financial institution approves the moratorium in respect of interest due and payable from 1 April 2020 until 30 September 2020, the interest shall not constitute the gross income of that financial institution in the basis period for that year of assessment. If the moratorium from a borrower is under a loan granted by the financial institution in the base year of assessment, the interest is not calculated in the gross income of the financial institution.
However, where interest concerning regulation 4(1) is received from 1 April 2020 until 30 September 2020 or becomes receivable on or after 1 October 2020 shall be treated as total income in the basis period for an assessment year.
Here are the following conditions that apply to a loan and moratorium under these Regulations:
- The loan has to be in Ringgit.
- There should be no outstanding payment on the loan by the borrower for more than 90 days as of 1 April 2020.
- The borrower company which could be other than small and medium enterprises must have applied for the moratorium in the relevant financial institution.
- According to the Income Tax Act 1967, no deduction from the gross income of a financial institution is allowed based on any impairment of a loan involved in the period of the moratorium program referred to in regulation 4(1).
- The financial institution has to maintain a separate account for the amount of interest treated under the PRIHATIN Moratorium Scheme and payment received concerning the interest referred to in regulation 4(1) of the scheme.