TAX INVESTMENT INCENTIVES

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Learning Outcome

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Incentives

Promotion of Investment Act 1986 (PIA)

Pioneer status

Investment tax allowances

Industrial adjustment allowances

Income Tax Act 1967

Reinvestment allowance

Double deduction

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1. Pioneer Status

Granted to mfg., food processing , commerce, agri., tourism & R&D co. which incur capital expenditure for promoted products/ activities

Tax exemption on 70% of SI for 5 years.

The balance of SI will taxed at normal rate 25%.

Promoted activity – means a manufacturing, agr, hotel, tourist or other industrial or commercial activity determined by minister under Sec 4, PIA.

Promoted product – any product as determined by the minister under sec 4.

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1. Cont….

Promoted areas – defined as Eastern Corridor of Peninsular M’sia (states of Kelantan, Terengganu, Pahang, Mersing), Sabah and Sarawak, Federal territory of Labuan, Perlis.

Extension of 5 years.

Manufacturing activity or activity relating to the treatment of water or projects that are of national and strategic importance to Malaysia.

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1. Enhanced Pioneer Relief

Approved projects in promoted area

(85% of SI)

A project of national & strategic importance (100% of SI)

Producing intermediate goods under approved scheme (100% of SI)

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1. Enhanced Pioneer ReliefHigh-tech projects & co. granted strategic

knowledge based status (100% of SI)

Producing specified machinery & equipment (100% of SI)

Food processing (another round)

Located outside promoted areas (70% of SI)

Located in promoted areas (85% of SI)

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Adjusted income

Less: capital allowance

Statutory income

Less Exemption (70% x 1,600)

Other income

Chargeable income

Tax liability 480K x 25%

Example (PS) :Melati Manufacturing with pioneer status had an AIof RM2m. The company located in Kuala Kangsar andwas eligible for RM400,000 in capital allowances.Computed the chargeable income and tax liability(rate 25%) for the YA 2012.

2. Investment Tax Allowance

Alternative to Pioneer status/ mutually exclusive

Prov of S26(1) PIA - Granted to manufacturing, agr, hotel, tourism and R&D co. which incur capital expenditure on industrial building, plant and machinery directly used for the purpose of promoted activities/products

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ITA is well suited for project or industries that are capital extensive and long gestation period.

60% of QCE deducted against 70% SI for 5 years from approval date.

Approved projects in promoted area (80% QCE of 85% SI)

A project of national & strategic importance (100% QCE of 100% SI)

Producing intermediate goods under approved scheme (60% QCE of 100% SI)

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2. Cont….

2. Enhanced ITA

High-tech projects & co. granted strategic knowledge based status (60% QCE of 100% SI)

Providing technical/vocational training (100% QCE of 70% SI)

Producing specified machinery & equipment (100% QCE of 100% SI)

Food processing (another round)Located outside promoted areas (60% QCE of

70% SI)Located in promoted areas (80% QCE of 85% SI)

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Example (ITA):Gemini Electronics SB is a manufacturing company andhas incurred RM3.4m qualifying expenditure forYA2012. For the YA 2012, the adjusted income wasRM2.4m. It was entitled to capital allowance ofRM640K and the company has approval for ITA.Computed the chargeable income and tax liability (rate25%) for the YA 2012.

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3. Industrial Adjustment

Allowance (Sec 31, PIA)

IAA is available with effect from YA 1991, to a manufacturing that undertakes an approved industrial adjustment programme.

Must make a written application to Minister for International Trade and Industry – to participate in industrial adjustment project.

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Industrial Adjustment – any activities proposed to be undertaken by a particular sector in manufacturing to restructure by the way:

Reorganization

Reconstruction or amalgation within that particular sector with a view to:

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3. Cont….

Strengthening the basis for industrial self efficiency

Improving industrial technology

Increasing productivity

Enhancing the efficient use of natural resources

Efficient management of manpower.

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3. Cont….

3. Eligible Activities

IAA is given on selective industry basis such as: Machinery & engineeringTextileWood basedChemicalIron & steelElectronic & electrical

60% - 100% on QCE deducted against adjusted income for 5 years

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4. Reinvestment Allowance

(Sch 7A, ITA)2nd round incentive for co. who had enjoyed PS or ITA

Granted to mfg. co. & agri. based co. (w.e.f. YA 1997) which incur capital expenditure on:

Expansion of production capacity

Modernization & upgrading of production facilities

Diversification into related products

Automation in the existing business

60% of QCE deducted against 70% SI for 5 years

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4. Cont….

Eligibility Co. is R in M’siaIn operation for at least 36 mthsIncurred QE on P & M, factory used in M’sia for

the purpose of approved projectFull exemptionCo. is situated in promoted areaCo. has achieved the level of productivity as

prescribed by the MoFDisposal of assets within 2 years of acquisition – RA

to be withdrawn

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4. RA RateA flat rate of 60% of QCE incurred will be given to

the company as RA.In order for RA to be credited into exempt income

account, the RA has to be set off against the 70% of SI.

If RA exceeds the 70% of SI – unabsorbed RA can be carried forward indefinitely to be set off against future SI.

If RA is below the 70% of SI, the amount of RA is credited to exempt income acc.

The excess of 70% SI over the RA claimed is addedon to the 30% SI which will be taxed at 25%(YA 2009-2013).

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Example (RA)LES incurred expenditure on Plant and Machinery ofRM800,000 qualifying for reinvestment allowance. Thecompany’s adjusted income for the year of assessment2012 was RM950,000 and capital allowances ofRM250,000.Required:• Calculate the chargeable income for LESB for the YA

2012.• Recalculate the chargeable income for LESB for the YA,

if LESB business is based in ‘promoted area’.

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Answer:

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5. Double Deduction (S. 154)

Additional deduction of revenue expense:

Encourage taxpayer to use a particular service

Venture into overseas market

Improve productivity by conducting R&D & training

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Q & A

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