INVESTMENT

INCENTIVES
DR ARYATI JULIANA
BKAT3023 ADVANCED TAXATION 1
  Promotion of Investment Act 1986 (PIA)
 Pioneer status
 Investment tax allowances
 Industrial adjustment allowances
 Infrastructure allowance
INCENTIVES
 Income Tax Act 1967
 Reinvestment allowance
 Double deduction
 Promotion of export
 Allowance for increased export
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 PIONEER STATUS (PS)
Granted to mfg., food processing , commerce, agri., tourism &
R&D co. which incur capital expenditure for promoted products/
activities
 Tax exemption on 70% or 100% (certain companies) of SI for 5
or 10 (certain companies) years starting from the date of
production
 The balance of SI will be taxed at normal rate 24%.
Promoted activity – means a manufacturing, agriculture,
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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Cont…
 the exempted SI amount are credited to exempt income account and can be
used to declare exempted dividend from the account.
 the amount of adjusted loss from pioneer business (unutilised and current
year) and current year non-pioneer business loss will reduce the amount of
SI credited to exempt account.
 the unutilised losses and capital allowances may be carried forward to the
post pioneer periods to be set off against future business income.
 the unabsorbed pioneer loss at the end of pioneer period are allowed to be c/f
up to a maximum of 7 consecutive YA.
 any unutilised pioneer loss or non-pioneer loss and donation made during
the year will not reduce the amount of 30% SI.
 the 30% SI will be deemed total income and taxed at the existing income tax
rate.

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No. Types of Pioneer Status (PS) % of Pioneer
exemption periods

1 Normal PS for promoted products/activities (manufacturing and non-manufacturing such

as agriculture, hotel projects and small companies). 70 5

2 National and strategic importance. 100 10

3 Contract R&D company. 100 5
4 High technology company including new and emerging technologies and Industrial
100 5
Linkage Programme.

5 Selected industries – machinery and equipment industry, specialised machinery and

equipment industry, utilisation of biomass to produce value added products, generation of
renewable energy. 100 10

6 Automotive component modules. 100 5

7 Company undertaking reinvestment in post-pioneer period. 70 or 100 5
8 Commercialisation of R&D findings. 100 10

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Example 1:

Miskom Sdn Bhd has been granted pioneer status company. The company reported the
following for the year ended 30 September 2019:

RM

Adjusted income 250,000

Capital allowances 35,000
Current year adjusted loss from non-pioneer business 10,000
Losses carried forward from pioneer business 6,000

Compute the chargeable income, income tax payable and amount credited to exempt income
account of Miskom Sdn Bhd for year of assessment 2019.

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Balasis Sdn Bhd is engaged in the manufacturing of a promoted product. Hence, the company
planned to apply for pioneer status incentive. The company provided three years projection
data as follows:
Year 1 Year 2 Year 3
RM’000 RM’000 RM’000

Net Profit/(loss) before tax (4,000) 5,000 8,000

Qualifying capital expenditure 3,000 3,600 4,200
Capital allowances 1,500 2,000 2,500

Note:
The net profit/(loss) before tax above were stated after crediting the following income:
Year 1 Year 2 Year 3
RM’000 RM’000 RM’000

Rental 150 200 190

Interest 200 340 210

REQUIRED:
(i) Advise Balasis Sdn Bhd on the amount of its profits that would be exempted under
the pioneer status incentive and the chargeable income of Balasis Sdn Bhd for each
of the three (3) years.

(ii) Compute the amount to be credited to exempt income account for each of the three
(3) years.

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* Balance of unutilised pioneer loss = RM4,350 – RM350 – RM672 = RM3,328

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PIONEER STATUS TAX SAVING

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INVESTMENT TAX ALLOWANCE (ITA)

• Alternative to Pioneer status

• Both PS and ITA are mutually exclusive
(i.e. a company can only enjoy either
one of the incentive and not both)

• Prov of S26(1) PIA - Granted to

manufacturing, agriculture, 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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BKAT3023 ADVANCED TAXATION 13
 Cont…
 ITA is well suited for project or industries that are capital extensive and long
gestation period.
 60% or 100% (certain companies)of QCE deducted against 70% or 100%
(certain companies) of SI for 5 years from approval date.
 Any unutilized allowance can be carried forward to subsequent years until the
whole amount has been fully utilised even after the tax relief period.
 Unabsorbed ITA at the end of ITA period can be c/f up to 7 consecutive YA.
 The balance of that statutory income (30% of SI) will be taxed at the prevailing
company tax rate.
 The amount of ITA deducted will be credited to the exempt income account.
 If ITA is less than 70% of SI, the balance will be added with 30% of SI and
taxable.

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No Category QCE Exemption No. of
(%) (% of SI) years

1 Normal ITA (manufacturing and non-manufacturing, 60 70 5

such as agricultural, hotel projects and small
company).
2 National and strategic importance. 100 100 5
3 Contract R&D company. 100 70 10
4 R&D company. 100 70 10
5 In-house research. 50 70 10
6 High technology company including new and 60 100 5
emerging technologies and Industrial Linkage
Programme.
7 Technical or vocational training company and private 100 70 10
higher educational institutions.
8 Selected industries – machinery and equipment 100 100 5
industry, specialised machinery and equipment
industry, utilisation of biomass to produce value
added products, generation of renewable energy.
9 Automotive components modules. 60 100 5
10 Company undertaking reinvestment in post-pioneer 50,60 70 or 100 5 or 10
period. or 100
11 Production of halal food product. 100 100 5
12 Conservation of energy for own consumption. 60 100 5

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Example 3:
Sibuko Sdn Bhd participates in manufacturing promoted product and its application for
investment tax allowance (ITA) has been approved on 19 October 2019. The company
provided the following detail for the year ended 31 October 2019 and 2020:

Year Ended Year Ended

31 Oct. 2019 31 Oct. 2020

Qualifying capital expenditure 78,000 135,000

Adjusted income from business 90,000 242,000
Capital allowances 18,000 48,000
Interest income 5,000 48,000

Compute the total income of Sibuko Sdn Bhd and state the amount to be credited to the exempt
income account for the relevant years of assessment.

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 YA 2019 YA 2020

Adjusted income 90,000 242,000

Less: Capital allowances 18,000 48,000

SI 72,000 194,000

70% of SI 50,400 135,800

Less: ITA 46,800* 81,000^

Balance of SI 3,600 54,800

30% of statutory income 21,600 58,200

Interest income 5,000 48,000
Balance of 70% SI 3,600 54,800

Total income 30,200 160,600

Amount credited to exempt account 46,800 81,000

*60% x 78,000 = RM46,800

^60% x RM135,000 = RM81,000

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ITA TAX SAVING

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CALCULATE THE TAX SAVING IF THE QCE ARE AS
FOLLOWS:

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CHOICE OF INCENTIVES: PS OR ITA

 if the company is a capital-intensive company, ITA

might be a better alternative than ps.
 if the company focuses more on operating income
and do not anticipate to incur huge capital
expenditure during the five years period, PS would
be a better choice.
 the company should choose incentives that will give
the most tax benefit to them i.e. the lower tax liability
and higher exempt income.

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 REINVESTMENT ALLOWANCE
 2nd round incentive for co. who had enjoyed PS or ITA
Granted to mfg. co. which incur capital expenditure on:
Expansion of production capacity
Modernization & upgrading of production facilities
Automation in the existing business
Diversification into related products
 Available for companies which have been in operation for at
least 36 months

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

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Cont…
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 24%.

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For other incentives, refer
1. https://www.hasil.gov.my/en/international/incentives
2. https://www.mida.gov.my/setting-up-
content/incentives/
3. Promotion of Investment Act 1986
4. Income Tax Act 1967

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