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The
major incentives for companies in the manufacturing sector are the Pioneer
Status and Investment Tax Allowance and Reinvestment Allowance.
Eligibility
for either Pioneer Status or Investment Tax Allowance will be determined
according to priorities termed as promoted activities or promoted
products as determined by the Minister of International Trade and Industry.
(Please refer to the grey
list )
Applications
for Pioneer Status or Investment Tax Allowance should be submitted to MIDA.
Pioneer
Status
A
company granted Pioneer Status will enjoy partial exemption from the
payment of income tax. It will only have to pay tax on 30% of its
statutory income. The period of tax exemption is five years,
commencing from the Production Day as determined by the Minister of
International Trade and Industry.
As
an added incentive, companies located in the States of Sabah, Sarawak, the
Federal Territory of Labuan* and the designated “Eastern Corridor”**
of Peninsular Malaysia, will only have to pay tax on 15% of their
statutory income during the tax exemption period of five years.
*
Only applicable to the hotel and tourist industry
**
The Eastern Corridor of Peninsular Malaysia covers Kelantan, Terengganu,
Pahang and the district of Mersing in Johor.
Investment
Tax Allowance (ITA)
As
an alternative to Pioneer Status, a company may apply for Investment Tax
Allowance. A company granted Investment Tax Allowance will be given an
allowance of 60% in respect of qualifying capital expenditure incurred
within five years from the date on which the first qualifying capital
expenditure (such as factory, plant, machinery or other equipment used for
approved project) incurred within five years from the date on which the
first qualifying capital expenditure is incurred.
The
allowance can be utilised to offset against 70% of the statutory income in
the year of assessment. Any unutilised allowance can be carried forward to
subsequent years until the whole amount has been used up. The balance i.e.
30% of the statutory income will be taxed at the prevailing company tax
rate.
As
an added incentive, companies located in the States of Sabah, Sarawak, the
Federal Territory of Labuan* and the designated “Eastern Corridor”**
of Peninsular Malaysia will be granted an allowance of 80% in respect of
the qualifying capital expenditure incurred. The allowance can be utilised
to offset against 85% of the statutory income in the year of assessment.
Reinvestment
Allowance (RA)
Reinvestment
Allowance (RA) is granted to manufacturing companies which have been in
operation for at least 12 months and incur qualifying capital expenditure
for the expansion of production capacity, modernisation and upgrading of
production facilities, and diversification into related products and
automation of production facilities.
The
RA is in the form of an allowance of 60% of capital expenditure incurred
by the companies. The allowance can be utilised to offset against 70% of
the statutory income in the year of assessment. Any unabsorbed
allowance will be allowed to be carried forward to the following years
until it is fully utilised.
RA will be given for a period of five (5)
years beginning from the year the first reinvestment is made. The RA can
only be claimed on completion of the qualifying project i.e. after the
building is completed or when the plant/machinery is put to operational
use.
However, assets acquired from the reinvestment cannot be disposed
within two (2) years of reinvestment.
Companies
which undertake reinvestment projects in the promoted areas, of Sabah,
Sarawak and the “Eastern Corridor” of Peninsular Malaysia will be
allowed to utilise the allowance fully to offset against the statutory
income for the year of assessment.
The
above consideration for RA is applicable until the Year of Assessment
2001. After the Year of Assessment 2001, the reinvestment must also result
in an increase in productivity¹.
¹
Productivity will be measured by using the Process Efficiency Ratio as
shown below:-
Process
Efficiency Ratio (PER) = Total Output - BIMS
Total Input - BIMS
Whereby,
BIMS
(Bought in Materials and Services) is defined as the value of materials
consumed + supplies, consumables, printing and lubricants + cost of
goods sold in the same condition + utilities + payment to contractors +
payments for industrial work done by others and stores & supplies +
payments for non-industrial services.
To
encourage companies to reinvest in equipment which can improve
significantly their productivity level, an allowance of 60% will be
allowed to be used fully to offset against the statutory income, similar
to the scheme granted to the "Eastern Corridor" of Peninsular
Malaysia, Sabah and Sarawak. In this respect, a company is required to
show that the Process Efficiency Ratio (PER) has increased by at least the
same rate as the GDP growth rate for that particular industry in the
manufacturing sector.
Applications
for RA should be submitted to the Inland Revenue Board.
Incentives
for Industrial Adjustment
Companies
in operation before 31 December 1990 in the wood-based, textile, machinery
and engineering sectors are eligible for the Industrial Adjustment
Allowance (IAA) when participating in certain industrial adjustment
activities such as reorganisatioin, reconstruction or amalgamation within
the sector.
Companies
will be granted an allowance of 60% to 100% based on the industrial
adjustment activities undertaken. The allowance will be given in
respect of qualifying capital expenditure incurred within five years and
can be utilised to set off against 100% of the adjusted in the year of
assessment.
Applications
for IAA should be submitted to MIDA.
Incentives
for Small-Scale Companies
Small-scale
manufacturing companies incorporated in Malaysia with shareholders’
funds not exceeding RM500,000, and having Malaysian equity of at least
70%, are eligible for pioneer status incentive under the Promotion of Investments
Act 1986, provided they meet specified criteria and they propose to
manufacture products or participate in activities listed as promoted
products/activities for small-scale manufacturers. (Please refer to the green
list)
Incentives
to Strengthen the Industrial Linkages Programme (ILP)
Incentive
for Large Companies
To
encourage large companies to participate in an ILP, expenditure
incurred for the training of employees, product development and testing
and factory auditing to ensure the quality of vendors' products will be
allowed as a deduction in the computation of income tax.
Incentives
for the Vendor
Vendors
including SMIs which propose to manufacture promoted products or
participate in activities in an approved ILP will be eligible for the
following incentives:
-
Pioneer
Status with full tax exemption at statutory income level for a period
of five years; or
-
Investment
Tax Allowance of 60% on qualifying capital expenditure incurred within
a period of five years. The allowance can be offset against the
statutory income for each assessment year without any restriction.
To
encourage vendors to manufacture promoted products or participate in
activities for the international market, vendors in an approve ILP who are
capable of achieving world class standards in terms of price, quality and
capacity will be eligible for the following incentives:
-
Pioneer
Status with full tax exemption at statutory income level for a period
of 10 years; or
-
Investment
Tax Allowance of 100% on qualifying capital expenditure incurred
within a period of five years. The allowance can be offset against the
statutory income for each assessment year without any restriction.
(Please refer to the blue
list )
Applications for the ILP incentives should be submitted to MIDA.
Incentives
for Export
Manufacturers
producing for the export market are eligible to apply for the following:
Double
Deduction for Promotion of Exports
Certain
expenses incurred by resident companies for the purpose of seeking
opportunities for export of products manufactured in Malaysia are eligible
for double deduction.
The expenses that qualify are those incurred on:
-
overseas
advertising
-
supply
of free samples abroad
-
export
market research
-
preparation
of tenders for supply of goods overseas
-
supply
of technical information abroad
-
exhibits
and/or participation in trade or industrial exhibitions held locally
or abroad, approved by the MITI
-
services
rendered for public relations work connected with exports
-
fares
in respect of travel overseas by employees of companies for business
-
accommodation
and sustenance expenses incurred by representatives of the company who
go overseas, up to RM200 per day
-
cost
of maintaining sales offices overseas for the promotion of exports.
Double
Deduction on Freight Charges - for Rattan and Wood-based Products
Manufacturers
in Sabah and Sarawak who export rattan and wood-based products (excluding
sawn timber and veneer) will be eligible for double deduction on freight
charges incurred by them.
Double
Deduction on Sea Freight from Sabah and Sarawak*
Manufacturers
who ship their goods from Sabah and Sarawak to Peninsular Malaysia via
ports in Peninsular Malaysia will be eligible for double deduction on
freight charges incurred by them.
*
Proposed in the 2000 Budget
Double
Deduction of Export Credit Insurance Premiums
Premium
payments on export credit insurance are eligible for double deduction.
Tax
Exemption on the Value of Increased Exports
To
further promote exports, companies in the manufacturing, agricultural and
services sectors are eligible for tax exemption as follows:-
Manufacturing
Sector
-
exemption
of statutory income equivalent to 10% of the value of increased
exports provided that the goods exported attain at least 30%
value-added
-
exemption
of statutory income equivalent to 15% of the value of increased
exports provided that the goods exported attain at least 50% of
value-added
Agricultural
Sector
Service
Sector
-
exemption
of statutory income equivalent to 10% of the value of increased
exports are given to companies in selected services sectors comprising
the legal, accounting, engineering consultancy, architecture,
marketing, business consultancy, office services, construction
management, building management, plantation management, health and
education.
Industrial
Building Allowance (IBA)
A
company is eligible for industrial building allowance (IBA) of 10% of
qualifying expenditure in respect of buildings used as warehouses for
storing goods for export and re-exports.
Export
Credit Refinancing Scheme (ECR)
In
line with the Government’s objective to promote the exports of
manufactured goods, Malaysian exporters can avail themselves of export
credit refinancing (ECR) which provides short-term credit at preferential
rates of interest.
This
facility is operated by the commercial banks, while the Export - Import
Bank of Malaysia (EXIM Bank) will refinance those commercial banks which
have extended export credit to eligible exporters. The exporter may
invoice his exports in any currency but financing is made available only
in Malaysian Ringgit.
The
features of the facility are as follows:
(a)
Two types of facilities are available under the scheme: the pre-shipment ECR facility which provides working capital to direct and
indirect exporters (i.e., domestic suppliers of inputs to final exporters)
and the post-shipment ECR facility which enables Malaysian exporters
to obtain immediate funds upon shipment of eligible goods sold on credit
terms.
(b)
To be eligible for the ECR facility, goods to be exported must satisfy the
following criteria:
-
the
product should not be listed in the “negative list” (list of
products not eligible for the ECR) and it should have a minimum
value-added of 20% and a minimum domestic resource content of 30%. For
products that do not fulfil the value-added and domestic resource
content criteria, exemption is given by EXIM Bank on a case-by-case
basis.
-
Access
to the ECR scheme would be subject to the exporter having secured an
ECR credit facility with any of the commercial banks and upon
presentation of certain documents to the bank. For pre-shipment ECR,
financing is granted upon presentation of an export order or a
certificate of performance (CP). The CP is used as an alternative for
pre-shipment financing to facilitate consistent exporters whose volume
of exports are at least RM1 million per year to fund their inventory
and raw materials prior to the receipt of export orders. For
post-shipment ECR, the necessary documents are the invoice, customs
export declaration form and bill of lading (transport documents).
(c)
The maximum period of financing is four months for pre-shipment ECR and
six months for post-shipment ECR.
(d)
The eligible amount of the pre-shipment facility is 80% of the value of
the export order under the order-based method or 80% of the value of
exports of the preceding 12 months under the certificate of performance
method. For the post-shipment facility, the eligible amount of financing
is 100% of the invoice value.
(e)
The minimum amount for ECR financing is RM10,000 and the minimum drawdown
is RM2,000 and with a financing limit of maximum RM50 million.
Incentives
for Promoting Malaysian Brand Names
As
a tool to promote the marketing of local branded products,
expenditure incurred in advertising locally (for example advertisements on
billboards at strategic locations such as at international airports and
highways) is eligible for double deduction when it satisfies the following
criteria:-
-
the
company is owned by at least 70% Malaysian;
-
the
brand is owned by the company and is registered in Malaysia; and
-
the
company's product must achieve export quality standards
Training
Incentives
Pre-employment
Training
Training
expenses incurred by companies prior to the commencement of business, are
eligible for a single deduction. Companies are required to provide
evidence that the trainees will be employed as their employees.
Double
Deduction for Expenses Incurred for Approved Training
Double
deduction for expenses incurred on approved training is given to
manufacturing and non-manufacturing companies. Automatic approval on
double deduction for expenses incurred is given if the employees are
trained at approved training institutions. This incentive is available
only to those companies which do not contribute to the Human Resources
Development Fund (HRDF). For the manufacturing sector, the programme could
be undertaken either as an in-house training or at approved training
institutions. However, for the non-manufacturing sector, the training
should be held at approved training insitutions only.
Human
Resource Development Fund (HRDF)
Special
Building Allowance for Accommodation and Child Care Facilities of
Employees
A
special industrial building allowance of 10% of the expenditure incurred
on the construction/purchase of a building is given if the building is
used for accommodation of employees or is used for providing child care
facilities to employees in the manufacturing and hotel or tourism sectors.
Infrastructure
Allowance
Companies
which are engaged in the manufacturing, agricultural, hotel or tourism or
other industrial/commercial activities in the States of Sabah and Sarawak
and the designated "Eastern Corridor" of Peninsular Malaysia and
which incur qualifying capital expenditure on infrastructure such as
reconstruction, extension or improvement of any permanent structure
including bridges, jetties, ports and roads, are eligible for an
infrastructure allowance of 100%. The allowance can be utilised to set off
against 85% of the statutory income in the year of assessment. The balance
of that statutory income will be taxed at the prevailing company tax rate.
Any unutilised allowance can be carried forward to the subsequent years
until it is fully utilised.
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