This document discusses various tax investment incentives available in Malaysia, including: 1. Pioneer status which provides a tax exemption on 70% of statutory income for 5 years for certain promoted industries and activities. 2. Investment tax allowances which allow a company to deduct 60% of qualifying capital expenditure against 70% of statutory income for 5 years. Higher rates are available for certain priority projects and locations. 3. Industrial adjustment allowances which provide tax deductions of 60-100% of qualifying capital expenditure for 5 years for companies undertaking approved restructuring programs. The document provides examples and details of how to compute taxable income and liability using these various incentives.

1. TAX INVESTMENT
INCENTIVES
ATXB223 MALAYSIAN TAXATION II 1

2. Learning Outcome
ATXB223 MALAYSIAN TAXATION II 2

3. Incentives
Promotion of Investment Act 1986 (PIA)
Pioneer status
Investment tax allowances
Industrial adjustment allowances
Income Tax Act 1967
Reinvestment allowance
Double deduction
ATXB223 MALAYSIAN TAXATION II 3

4. 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.
ATXB223 MALAYSIAN TAXATION II 4

5. 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.
ATXB223 MALAYSIAN TAXATION II 5

6. 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)
ATXB223 MALAYSIAN TAXATION II 6

7. 1. Enhanced Pioneer Relief
High-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)
ATXB223 MALAYSIAN TAXATION II 7

8. Example (PS) :
Melati Manufacturing with pioneer status had an AI
of RM2m. The company located in Kuala Kangsar and
was eligible for RM400,000 in capital allowances.
Computed the chargeable income and tax liability
(rate 25%) for the YA 2012.
Adjusted income
Less: capital allowance
Statutory income
Less Exemption (70% x 1,600)
Other income
Chargeable income
Tax liability 480K x 25%
ATXB223 MALAYSIAN TAXATION II 8

9. 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
ATXB223 MALAYSIAN TAXATION II 9

10. 2. Cont….
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)
ATXB223 MALAYSIAN TAXATION II 10

11. 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)
ATXB223 MALAYSIAN TAXATION II 11

12. Example (ITA):
Gemini Electronics SB is a manufacturing company and
has incurred RM3.4m qualifying expenditure for
YA2012. For the YA 2012, the adjusted income was
RM2.4m. It was entitled to capital allowance of
RM640K and the company has approval for ITA.
Computed the chargeable income and tax liability (rate
25%) for the YA 2012.
ATXB223 MALAYSIAN TAXATION II 12

13. ATXB223 MALAYSIAN TAXATION II 13

14. 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.
ATXB223 MALAYSIAN TAXATION II 14

15. 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:
ATXB223 MALAYSIAN TAXATION II 15
3. Cont….

16. Strengthening the basis for industrial self
efficiency
Improving industrial technology
Increasing productivity
Enhancing the efficient use of natural resources
Efficient management of manpower.
ATXB223 MALAYSIAN TAXATION II 16
3. Cont….

17. 3. Eligible Activities
IAA is given on selective industry basis such as:
Machinery & engineering
Textile
Wood based
Chemical
Iron & steel
Electronic & electrical
60% - 100% on QCE deducted against adjusted
income for 5 years
ATXB223 MALAYSIAN TAXATION II 17

18. 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
ATXB223 MALAYSIAN TAXATION II 18

19. 4. Cont….
Eligibility
Co. is R in M’sia
In operation for at least 36 mths
Incurred QE on P & M, factory used in M’sia for
the purpose of approved project
Full exemption
Co. is situated in promoted area
Co. has achieved the level of productivity as
prescribed by the MoF
Disposal of assets within 2 years of acquisition – RA
to be withdrawn
ATXB223 MALAYSIAN TAXATION II 19

20. 4. RA Rate
A 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 added
on to the 30% SI which will be taxed at 25%(YA
2009-2013).
ATXB223 MALAYSIAN TAXATION II 20

21. Example (RA)
LES incurred expenditure on Plant and Machinery of
RM800,000 qualifying for reinvestment allowance. The
company’s adjusted income for the year of assessment
2012 was RM950,000 and capital allowances of
RM250,000.
Required:
• Calculate the chargeable income for LESB for the YA
ATXB223 MALAYSIAN TAXATION II 21
2012.
• Recalculate the chargeable income for LESB for the YA,
if LESB business is based in ‘promoted area’.

22. ATXB223 MALAYSIAN TAXATION II 22
Answer:

23. ATXB223 MALAYSIAN TAXATION II 23

24. 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
ATXB223 MALAYSIAN TAXATION II 24

25. Q & A
ATXB223 MALAYSIAN TAXATION II 25