11 BBTX4203 T7

Topic  Investment
Tax Incentives
7
LEARNING OUTCOMES
By the end of this topic, you should be able to:
1. Analyse the impact of tax incentives on investments;
2. Discuss the major tax incentives available to investors under
Income Tax Act 1967 and Promotion of Investment Act 1986; and
3. Compute exempt income.
 INTRODUCTION
This topic will introduce you to investment tax incentives. The topic is designed in
a way you will understand the concepts and principles of investment incentives.
Tax incentives are tools used by the government to encourage certain business
activities and industries to ensure continuous stimulation of the economy.
Tax incentives in Malaysia can be divided into direct and indirect incentives. The
direct tax incentives give partial or total relief from income tax payment for a
specified period. The incentives are provided through the Promotion of
Investments Act, 1986 (PIA 1986) and Income Tax Act, 1967 (ITA 1967).
Indirect tax incentives, on the other hand, provide exemptions from import duty,
sales tax and excise duty. The indirect incentives are provided by Customs Act
1967, Sales Tax Act 1972, Excise Act 1976 and Free Zones Act 1990. These incentives
cover investments in the manufacturing, agriculture, tourism (including hotel) and
approved services sectors as well as research and development (R&D), training
and environmental protection activities.
Copyright © Open University Malaysia (OUM)

TOPIC 7 INVESTMENT TAX INCENTIVES  121
The topic will cover the main tax incentives provided by the Malaysian
government to boost investments in Malaysia. The impacts of the tax incentives on
investment are also discussed. Finally, yet importantly, the example on
computation of exempt income will be discussed.
7.1 INVESTMENT TAX INCENTIVES

The Malaysian Government provides a large number of tax incentives to
encourage investment in Malaysia. With the onset of globalisation, countries have
opened their economies and Malaysia has to compete for these limited investments
from domestic and foreign sources. In order to stand on a better footing, our tax
incentives must be more attractive given that all other economic factors are also
favourable.
SELF-CHECK 7.1
There are other economic factors apart from tax incentives that must also
be favourable in order to attract investment. Examples are political
stability and smooth succession of power.
Can you think of any other factors that must also be favourable in order
to attract foreign direct investments?
SELF-CHECK 7.2
Why is it important to have an attractive tax incentive package for our
country?
As mentioned earlier, the range of direct tax incentives is very wide and it covers
various sectors. In this topic, we will only focus on a few direct tax incentives under
ITA 1967 and PIA 1986.
7.2 INCENTIVES UNDER INCOME TAX ACT

1967
A number of tax incentives have been introduced by the government to promote
foreign investments and priority industries under the ITA 1967. In this topic, we
will focus on the most important incentives – reinvestment allowance and double
deductions.

122  TOPIC 7 INVESTMENT TAX INCENTIVES
7.2.1 Reinvestment Allowance

This incentive is more commonly known as a second round incentive for
companies that have already utilised the pioneer status (PS) or investment tax
allowance (ITA).
A manufacturing company can apply for Reinvestment Allowance (RA) if:

(a) It has been in operation for at least one year;
(b) It incurs qualifying capital expenditure to expand, upgrade, modernise or
automate its existing business; or
(c) Diversifies its existing business into any related products within the same
industry.
The rate of RA is 60% of the qualifying capital expenditure incurred by the

company. The allowance is given as a tax credit that can be offset against 70% of
its statutory income for the year of assessment. Any unutilised allowance can be
carried forward to subsequent years until it is fully utilised.
In special circumstances, a company can offset the RA against 100% of its statutory
income for the YA. The special circumstances are that the company:
(a) Undertakes reinvestment projects in the promoted areas; or
(b) Attains a productivity level exceeding the level determined by the Ministry
of Finance.
With effect from YA 1997, the RA will also apply to any qualifying agricultural
projects undertaken by a company for the cultivation of rice, maize, fruits,
vegetables, tubers and roots, livestock farming, spawning, breeding or culturing
aquatic products, and any other activities approved by the Minister.

Pursuant to the Finance Act 2009, manufacturing activity has been defined
more specifically under Sch 7A of the ITA to mean the:
(a) Conversion by manual or mechanical means of organic and inorganic
materials into a new product by changing the size, shape, composition,
nature or quality of such materials;
(b) Assembly of parts into a piece of machinery or products; or
(c) Mixing of materials by a chemical reaction process including a
biochemical process that changes the structure of a molecule by the
breaking of the intramolecular bonds or by altering the spatial
arrangement of atoms in the molecule.
The RA will be given a period of five consecutive years. It starts from the year the
first reinvestment is made. Companies can only claim the RA upon the completion
of the qualifying project. For example, after the building is completed or when the
plant or machinery is put to operational use. Assets acquired for the reinvestment
cannot be disposed of within a period of two years from the time of the
reinvestment.
A company that intends to reinvest before the expiry of its PS tax incentive can
surrender its PS for cancellation and be eligible for RA. Applications for RA should
be submitted to the IRB, while applications for the surrender of Pioneer Status for
RA should be submitted to the Malaysian Industrial Development Authority
(MIDA).
7.2.2 Tourism Incentives

The Government has also introduced various tax incentives to encourage and
promote growth in the tourism industry. This industry has seen significant growth
and has become a main contributor to the Malaysian economy.
Tourism projects, including eco-tourism and agro-tourism projects, qualify to

apply for Pioneer Status or Investment Tax Allowance (ITA) incentives. Tourism
projects include hotel businesses, tourist projects including indoor and outdoor
theme parks, construction of holiday camps, recreational projects including
recreational camps and construction of convention centres with a capacity to
accommodate at least 3,000 participants.

Pioneer Status (PS) is one of the most attractive tax incentives and it is available
under the Promotion of Investment Act (PIA), 1986. The main advantage in
acquiring PS is the partial or full (in certain cases) exemption from income tax for
a period of five years. The incentive was granted for up to 70% exemption of
statutory income (gross income after deduction of allowable expenses and capital
allowances). As the allowed exemption is only 70% of the statutory income, the
balance of the 30% statutory income is taxable at the current corporate tax rate of
24%. Thus, the effective tax rate of pioneer companies is 7.2% (30% × 24%).
ITA is an alternative incentive to PS and they are mutually exclusive incentives.

Mutually exclusive means companies may only choose one of the incentives at the
exclusion of the other. ITA is also made available under PIA 1986 and is
advantageous for projects which are capital intensive. The qualifying capital
expenditure for tourism projects include the expenditure incurred on the clearing
of land, planting of trees, construction of infrastructure facilities, the provision of
birds, animals and other exhibits and the provision of structural improvements on
land and other structures.
Investment tax allowance (ITA) is given at 60% of the capital expenditure incurred
within five years from the date of approval. This can be utilised to offset up to 70%
of the statutory income. Based on the current corporate tax rate of 24%, the
effective tax on the companyÊs statutory income is 7.2% (30% × 24%). Any
unutilised ITA may be brought forward to future years even after the tax relief
period. Applications should be submitted to MIDA before commencement of
business and any application for 4 and 5 star hotels received by 31 December 2020
are eligible for these incentives.
Generally, some additional exemptions of the incentives are available to certain

sectors which are considered by the Government as being of national and strategic
importance to Malaysia. The additional exemptions are normally in terms of
extensions of the tax relief period and/or higher exemption rates. Some of the
additional exemptions available are as follows:
(a) Enhanced Incentives for Undertaking New Investment in Hotel: Companies

undertaking new investments in four and five star hotels in Sabah and
Sarawak are eligible for PS with income tax exemption of 100% of the
statutory income for five years and ITA of 100% on the qualifying capital
expenditure incurred within five years.

(b) Incentives for Reinvestments in Hotels: Companies reinvesting in expansion

and modernisation of one to five star hotels are eligible for additional three
rounds of Investment Tax Allowance 60% (100% for four and five star hotels
in Sabah and Sarawak) on the qualifying capital expenditure incurred within
five years.
The allowance can be offset against 70% (or 100% for four and five star in
Sabah and Sarawak) of the statutory income in each year of assessment. For
group of companies, only three companies in a group are eligible for tax
incentives.
(c) Incentive for Reinvestment in Tourism Projects: Companies reinvest in the

expansion and modernisation in tourism projects are eligible for additional
two rounds of PS or Investment Tax Allowance. For PS, with income tax
exemption of 70% of the statutory income for five years and for ITA of 60%
on the qualifying capital expenditure incurred within five years. The
allowance can be offset against 70% of the statutory income in each year of
assessment utilised.
Where a company carrying on a hotel business incurs capital expenditure on a

hotel building, extending or modernising an existing hotel building to the
approved standards, the building is deemed to be an industrial building and will
also qualify for industrial building allowances (IBA). The allowances consist of an
initial allowance of 10% and an annual allowance of 3%. Under Budget 2002, the
allowances were extended to purchased buildings and all hotels that were
registered with the Ministry of Culture, Arts and Tourism. Up to YA2002, the
industrial buildings had to be undertaken by a pioneer company or by a company
granted an ITA.
7.2.3 Double Deductions

Double deduction simply means that certain kinds of expenses are allowed to be
deducted twice. The main reason for allowing this incentive is to encourage
spending on those types of expenses. Normally expenses that are allowed to be
double deducted are expenses that bring benefits to the country as a whole.
These are given to encourage taxpayers to use a particular service, to venture into
the overseas market, to improve productivity by conducting research and
development, and to spend on training.

Examples are:
(a) Remuneration paid to handicapped employees to encourage more
employers to employ disabled people, and
(b) Advertising of Malaysian brand name goods in foreign countries to
encourage exports.
Table 7.1 provides the current list of expenses allowed for double deductions
under ITA 1967:
Table 7.1: Double Deductions under ITA 1967
i Expenditure incurred by a company mainly for promoting tourism to Malaysia.
ii Expenditure incurred by companies on the training of employees under an

approved training programme.
• Companies in the services sector are also eligible if such training is undertaken
with an approved institution or any government training institution.
iii Expenditure incurred on advertising Malaysian brand names registered locally or

overseas and professional fees paid to companies promoting Malaysian brand names.
• With effect from YA2007, the double deduction which is given on expenses
incurred in advertising Malaysian brand names for goods of export quality is
extended to a company within the same group that incurs the advertising
expenditure.
iv Expenditure on the provision or maintenance of childcare centres and double

deduction on childcare allowance given to employees from YA2013.
v Expenses for halal certification, quality systems and standards certification

(effective from year of assessment 2005).
vi Expenses on issuance of AgroSukuk approved by the Securities Commission or

Labuan Financial Services Authority from YA2013 to YA2015, and the additional
expenses of issue of retail sukuk and retail bonds from YA2012 to YA2015.
vii Freight charges incurred by manufacturers for shipping goods from Sabah and
Sarawak to Peninsular Malaysia using ports in Peninsular Malaysia.
viii Freight charges paid to a local shipping company for transportation on board a
Malaysian ship by manufacturers exporting rattan and wood-based products
(excluding sawn timber and veneer).
ix Insurance premium incurred for the import and export of goods where the risks
are insured with an insurance company incorporated in Malaysia.

x Interest on loan to small businesses with condition that the employer must produce
a certificate of approval and the interest is permitted expenses under section 33, ITA
1967.
xi Promotional expenditure incurred on seeking opportunities for the export of

manufactured products, agriculture produce and services.
xii Remuneration paid to a physically or mentally disabled employee.
xiii Salaries paid to unemployed graduates registered with the Economic Planning Unit
for two years (effective from year of assessment 2004).
xiv Training of any handicapped person who is not an employee of the company who
is registered with the Ministry of National Unity and Social Development.
xv With effect from year of assessment 2003, double deductions are also given for
expenses incurred by partnerships and sole proprietors registered with the Registrar
of Businesses for the promotion of exports of the following professional services:
(a) Accounting,
(b) Architecture,
(c) Engineering and integrated engineering,
(d) Legal, and
(e) Medical and dental.
xvi Export credit insurance premiums for conventional and takaful.
Source: Jeyapalan Kasipillai (2013)

Those employing disabled eligible for double tax deductions

Kota Kinabalu: Employers who have responded to the GovernmentÊs call to
take in disabled persons with the relevant qualifications or skills as their staff
are entitled to claim double income tax deductions.
Inland Revenue Board Assistant Director, Dg Laiti Hj Ahmad, said this in a

briefing on „Employment and the Disabled‰, here Saturday.
According to her, this pertains to remuneration (wages) paid to the disabled.
„LetÊs say an employer pays the disabled an annual income totalling RM10,000.
He is eligible for a RM10,000 deduction and, on top of that, an additional
deduction of that amount, under Section 33 of the Income Tax Act 1967.
„However, there is a condition, in that the employer must furnish proof in the
form of a letter from the Welfare Services Department that his worker is a
disabled person and has also registered with the Ministry of National Unity
and Social Development.
„Secondly, the employer is further eligible for the double deduction, under
Section 34(6) (e) of the same Act for the purchase of equipment or provision of
facility meant to lessen the burden and help enhance the work of the disabled
staff.
Meanwhile, the private sector, be it a limited company or sole proprietorship

that offered to sponsor a disabled person, and who is not their employee, for
training with the purpose of helping the said person in his or her career
prospects, is also eligible for the benefits.
„If they had spent RM15,000 on the course, they are entitled to claim double the
amount of deduction.
„The condition is that the training programme must have the approval of the
Finance Ministry and is run by an accredited training institution and conducted
in Malaysia. If the course is held anywhere else, or if it is just an ordinary course,
then there is no exemption,‰ she explained, among others.
Source: Sarawak Tribune (2006)

7.3 INCENTIVES UNDER PROMOTIONS OF

INVESTMENTS ACT 1986
Apart from the incentives under ITA, there are also other incentives available to
investors under the Promotion of Investments Act, 1986 (PIA). These incentives
under PIA are focused on projects that are:
(a) Capital intensive;
(b) With high value-added content; and
(c) Involving new and emerging technologies.
MIDA, a division of the Ministry of International Trade and Industry, is the body
that controls the promotion and coordination of all these incentives in Malaysia.
Therefore, applications for tax incentives should be made through this division.
7.3.1 Pioneer Status

Pioneer status (PS) is also known as a tax holiday. It is available to manufacturing,
agriculture, tourism and research and development companies. The incentive of
PS is for companies that participate in promoted activities or engage in the
manufacture of promoted products.
To enjoy PS, a company must request a pioneer certificate within six months of
operation. A company granted PS gets partial exemption from payment of income
tax for five years. The exemption involves 70% of statutory income, which means
it pays tax only on 30% of its statutory income. The exemption period commences
from its production day. Production day is defined as the day its production level
reaches 30% of its capacity.
The exemption can be even higher or longer in special circumstances as explained

below:
(a) Companies located in promoted areas are given 100% tax exemption for a
five-year period. This is to encourage investment in the promoted area.
Promoted areas include the eastern corridor of Peninsular Malaysia, the
states of Sabah and Sarawak, Perlis and the Federal Territory of Labuan (for
hotel and tourism only).

(b) A company engaged in a promoted activity or the manufacture of a

promoted product in areas of new and emerging technologies also qualifies
for 100% exemption on statutory income for five years.
Examples of the promoted activities and products are:
(i) Automation;
(ii) Bio-technology;
(iii) Electronics;
(iv) Building material sciences;
(v) Information technology; and
(vi) Renewable energy technology.
(c) Strategic projects of national importance are given 100% tax exemption for a
longer period of 10 years. Such projects involve heavy capital investment and
high technology. They will generate:
(i) Extensive linkages to Malaysian industries; and/or
(ii) Transfer or develop technological processes to Malaysia.
The exemption period for a PS company can be renewed upon expiry

provided the Government is satisfied that:
(i) The company employs more than 500 persons;
(ii) The companyÊs fixed assets value (excluding land) are more than RM25
million; and
(iii) The Government is of the opinion that the company contributes to the
economic and technological development of the country.
Accumulated losses and unabsorbed capital allowances incurred during the

pioneer period and have not been fully utilised after the pioneer period can
be carried forward and deducted against the post-pioneer income of a
business relating to the same promoted activity or promoted product.

7.3.2 Investment Tax Allowance

Investment Tax Allowance (ITA) is an alternative to PS. A company enjoying PS is
not eligible to apply for ITA. Similar to PS, it applies to companies producing
promoted products or engaged in promoted activities.
A company granted ITA gets an allowance of 60% on its qualifying capital

expenditure incurred within a five-year period. The allowance can be offset against
taxes paid up to 70% of its statutory income. Any unutilised part of the allowance
can be carried forward indefinitely to subsequent years until the whole amount is
used up.
Applications made between 13 September 2003 and 31 December 2010 will receive
enhanced incentives. Investment in the promoted areas will enjoy an allowance of
100% on the qualifying capital expenditure incurred within five years. The
allowance can be utilised to offset against 100% of the statutory income for each
year of assessment.
7.3.3 Industrial Adjustment Allowance

Industrial Adjustment Allowance (IAA) is given to manufacturing companies that
undertake approved industrial adjustment activities in the following sub-sectors:
(a) Machinery and engineering industry;
(b) Wood-based industry;
(c) Textile industry; and
(d) Oil palm refineries restructuring their operations.
Provided that these companies are not enjoying PS or ITA for a similar activity or
product, they are able to apply for IAA. The company must undertake industrial
adjustment in the following forms in order to qualify:
(a) Modernisation with the use of modern and up-to-date production processes
and plant and equipment;
(b) Consolidation in particular, liquidation, amalgamation or mergers of
companies;
(c) Restructuring of the capital ownership and structure of the industry;
(d) Rationalisation – Expansion and diversification of activities into related
industries;

(e) Mergers of companies; and

(f) Relocation of production facilities to a more economic location.
The working of IAA is similar to ITA but it is deducted against the adjusted
income. Companies granted IAA could carry forward unabsorbed losses and
capital allowances to subsequent years.
7.3.4 Promotion of Export Industries

The Malaysian Government has also provided incentives for the promotion of
export industries. The export of certain goods or agriculture produce which are
manufactured, assembled, processed, packed, graded or sorted in Malaysia are
given double deductions on the approved expenses incurred for the purpose of
looking for opportunities to create and increase the demand for exports.
Table 7.2 provide a list of expenses allowed for double deductions under the
income tax (Promotion of Exports) Rules 1986 (amendment) Rules 2003:
Table 7.2: Double Deductions under Promotion of Exports
i Expenses directly attributable to carrying out export market research or the

obtaining of marketing information.
ii Expenses directly attributable to the preparation of tenders for the supply of goods
or agriculture produce to prospective customers outside Malaysia.
iii Expenses directly attributable to the provision of samples without charge to

prospective customers outside Malaysia, including the cost delivery of the samples.
iv Expenses by way of fares in respect of travel to a country outside Malaysia by a

representative of the company being travel necessarily undertaken for the purposes
of negotiating or for the concluding of contract for the sale of goods or agriculture
produce on behalf of the company or for the purpose of participating in trade fairs
or industrial exhibitions approved by the Minister. The actual expenses are subject
to a maximum of RM300 per day for accommodation and a maximum of RM150 per
day for sustenance for the whole period commencing with the representativeÊs
departure from Malaysia and ending with his return to Malaysia.
v Expenses directly attributable to the provision of exhibits for trade fairs or industrial
exhibitions which are held outside Malaysia and approved by the Minister.
vi Expenses directly incurred for participating in trade fairs or trade or industrial

exhibitions approved by the Minister other than the expenses mentioned in items
(iv) and (v) above.

vii Expenses for giving technical information to persons outside Malaysia relating
generally to goods or agriculture produce of the company offered for sale,
excluding expenses for giving technical information after purchase.
viii Expenses for the cost of maintaining sales offices overseas for the promotion of
exports from Malaysia
ix Expenses for the services rendered for public relations work connected with the
export.
x Professional fees incurred in packaging design on condition that the goods are of
export quality and the company employs local professional services.
xi Publicity and advertisement expenses in any media outside Malaysia.
Source: Jeyapalan Kasipillai (2013)
There is also an incentive for increased exports under the Income Tax (Allowance
for Increased Export) Rules 1999. Resident companies in the manufacturing,
agriculture and services sectors which export goods that have a value-added
element may claim this incentive with effect from 1 January 1998. Value added
means the sale price of goods at ex-factory price less the total cost of raw materials.
The allowance given for a YA is deducted against 70% of the companyÊs statutory
income.
SELF-CHECK 7.3
From all the tax incentives that we have discussed above, which is the
most attractive to a manufacturing company?

7.4 EXEMPT INCOME COMPUTATION

Now, let us look at an example of exempt income computation.
Example:
Angsana Sdn Bhd was granted pioneer status for the manufacture of a
promoted product. The companyÊs production date was certified as 1 January
2015. Angsana Sdn Bhd made up accounts for each year to 31 December. The
companyÊs results were as follows:
Year ending 31 December

2015 2016 2017 2018 2019
RMÊ000 RMÊ000 RMÊ000 RMÊ000 RMÊ000
Adjusted income(loss) 3,700 2,500 4,400 1,800 5,200
Capital Allowances 2,300 1,200 900 1,500 3,300
You are required to compute the tax-exempt income for years of assessment
2015 to 2019 for Angsana Sdn Bhd if:
(a) The factory is situated in Johor Bahru, Johor
(b) The factory is situated in Arau, Perlis
Sample solution:

2015 2016 2017 2018 2019
Adjusted income (loss) 3,700 2,500 4,400 1,800 5,200
Less: Capital Allowances (2,300) (1,200) (900) (1,500) (3,300)
Statutory Income 1,400 1,300 3,500 300 1,900
(i) 70% exempted (PS) 980 910 2,450 210 1,330
(ii) 100% exempted (PS) 1,400 1,300 3,500 300 1,900

If the factory is situated in Johor Bahru:
The total exempted income of Angsana Sdn Bhd for five years with pioneer
status tax incentives is RM5,880,000. All capital allowances are fully utilised to
the relevant year of assessments.
If the factory is situated in Arau:

The total exempted income of Angsana Sdn Bhd for five years with pioneer
status tax incentives is RM8,440,000. All capital allowances are fully utilised to
the relevant year of assessments.
EXERCISE 7.1
Baiduri Sdn Bhd was granted an investment tax allowance for the
manufacture of a promoted product at its factory in Ipoh. The
companyÊs production date was certified as 1 January 2015. Baiduri
Sdn Bhd made up accounts for each year to 31 December. The
companyÊs results were as follows:

2015 2016 2017 2018 2019
Adjusted income 1,700 900 500 1,800 5,200
(loss)
The company incurred qualifying capital expenditure for plant and

machinery on 1 April 2015 amounting to RM3 million. The initial and
annual capital allowances rates for the plant machinery are 20% and
14% respectively.
You are required to compute the tax-exempt income for years of

assessment 2015 to 2019 for Baiduri Sdn Bhd.

• The range of direct tax incentives is very wide and covers various sectors.
• The topic only focuses on a few direct tax incentives under ITA 1967 and PIA
1986.
• Reinvestment allowance:
− Exemption is given for 15 years.
− The rate of RA is 60% of the qualifying capital expenditure.
− The allowance is a tax credit to be offset against 70% of a companyÊs

statutory income.
− Exemption is higher for companies in promoted areas and which attain a

specified productivity level.
• Double deductions expenses are allowed to be deducted twice for the

following:
− Research and development;
− Approved training;
− Approved trade fairs;
− Remuneration paid to handicapped employees;
− Insurance premiums on import and export of cargo;
− Export credit insurance premiums;
− Freight charges (manufacturers from Sabah and Sarawak);
− Promotions of exports;
− Promotion of tourism;
− Advertising of Malaysian brand name goods overseas; and
− Expenditure to obtain certain standards certification.

• Pioneer Status:
− Companies are given a tax holiday for five years.
− 70% of the statutory income will be exempted from tax.
− Exemption is higher and longer for companies in designated regions,

strategic projects and high-technology companies.
• Investment Tax Allowance:
− An alternative to pioneer status.
− Also given for five years.
− An allowance of 60% on its qualifying capital expenditure.
− The allowance to be offset against 70% of its statutory income.
• Industrial Adjustment Allowance:
− Manufacturing companies which undertake industrial adjustment

activities.
− Companies that are not enjoying PS or ITA for similar activity or product.
− The workings of IAA are similar to ITA but they are deducted against the
adjusted income.
Eastern corridor Promoted areas

Malaysian brand name Qualifying capital expenditure
Promoted activity and product Statutory income

1. There are a few other economic factors apart from tax incentives that must
be favourable in order to attract investment. List out any four of these factors.
2. What are the advantages of tax incentives for our country?
3. What are the key features of tax incentives?
4. What is the difference between Pioneer Status and Investment Tax

Allowance?
5. How does a company apply for Pioneer Status/Investment Tax Allowance?
6. Is a company from a non-manufacturing sector eligible to apply for Pioneer

Status/ Investment Tax Allowance?
7. Are there any tax incentives available for exporters?
8. List out any five of the tax incentives available under ITA and PIA that were
not discussed in this topic.
1. Suria Sdn Bhd was granted pioneer status for the manufacture of a promoted
product at its factory in Malacca. The companyÊs production date was
certified as 15 November 2014. Suria Sdn Bhd made up accounts for each
year to 30 September. The companyÊs results were as follows:
Year ending 30 September
2015 2016 2017 2018 2019
Adjusted income 3,800 1,200 (800) 400 200

(loss)
Capital Allowances 1,600 800 550 200 250

(a) You are required to compute the tax-exempt income for years of
assessment 2015 to 2019 for Suria Sdn Bhd.
(b) How would the amount of tax-exempt income differ if the project is of
national importance?
2. Anggerik Sdn Bhd was granted an investment tax allowance for the
manufacture of a promoted product at its factory in Banting, Selangor. The
companyÊs production date was certified as 1 January 2015. Anggerik Sdn
Bhd made up accounts for each year to 31 December.
The companyÊs project can qualify for either pioneer status or investment tax
allowance. Projections for the companyÊs projects are as follows:
2015 2016 2017 2018 2019
Adjusted income (loss) 3,700 2,500 4,400 1,800 5,200
The company incurred qualifying capital expenditure for motor vehicles on

17 July 2015 amounting to RM6 million. The initial and annual capital
allowances rates for the plant machinery are 20%.
You are required to advise Anggerik Sdn Bhd on the choice of incentive with
reasons.
3. Perdana Sdn Bhd, has been established as a company manufacturing

computer components. The company has a 31 December year-end. During
the year to 31 December 2017, Perdana launched an expansion programme
that was treated as a qualifying project for the purposes of reinvestment
allowance.
On 1 June 2018, one additional machine was purchased for the purposes of
the expansion programme. The acquisition price of the machine amounted
to RM250,000.

The following details are available:
Adjusted loss – year to 30 June 2018 RM200,000
Adjusted income – year to 30 June 2019 RM280,000
Adjusted losses brought forward from YA2017 Nil
Unabsorbed capital allowances brought forward from YA2016 Nil
Unabsorbed reinvestment allowance brought forward from Nil

YA2016
You are required to compute the following for YA2018 and YA2019:
(a) Reinvestment allowances
(b) Amount of exempt income
Note: Annual and initial allowances on all qualifying plant expenditure are
14% and 20% respectively.

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Topic  Investment

Copyright © Open University Malaysia (OUM)

7.1 INVESTMENT TAX INCENTIVES

7.2 INCENTIVES UNDER INCOME TAX ACT

Copyright © Open University Malaysia (OUM)

7.2.1 Reinvestment Allowance

A manufacturing company can apply for Reinvestment Allowance (RA) if:

The rate of RA is 60% of the qualifying capital expenditure incurred by the

Copyright © Open University Malaysia (OUM)

7.2.2 Tourism Incentives

Tourism projects, including eco-tourism and agro-tourism projects, qualify to

Copyright © Open University Malaysia (OUM)

ITA is an alternative incentive to PS and they are mutually exclusive incentives.

Generally, some additional exemptions of the incentives are available to certain

(a) Enhanced Incentives for Undertaking New Investment in Hotel: Companies

Copyright © Open University Malaysia (OUM)

(b) Incentives for Reinvestments in Hotels: Companies reinvesting in expansion

(c) Incentive for Reinvestment in Tourism Projects: Companies reinvest in the

Where a company carrying on a hotel business incurs capital expenditure on a

7.2.3 Double Deductions

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Table 7.1: Double Deductions under ITA 1967

i Expenditure incurred by a company mainly for promoting tourism to Malaysia.

ii Expenditure incurred by companies on the training of employees under an

iii Expenditure incurred on advertising Malaysian brand names registered locally or

iv Expenditure on the provision or maintenance of childcare centres and double

v Expenses for halal certification, quality systems and standards certification

vi Expenses on issuance of AgroSukuk approved by the Securities Commission or

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xi Promotional expenditure incurred on seeking opportunities for the export of

xii Remuneration paid to a physically or mentally disabled employee.

xvi Export credit insurance premiums for conventional and takaful.

Source: Jeyapalan Kasipillai (2013)

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Those employing disabled eligible for double tax deductions

Inland Revenue Board Assistant Director, Dg Laiti Hj Ahmad, said this in a

According to her, this pertains to remuneration (wages) paid to the disabled.

Meanwhile, the private sector, be it a limited company or sole proprietorship

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7.3 INCENTIVES UNDER PROMOTIONS OF

7.3.1 Pioneer Status

The exemption can be even higher or longer in special circumstances as explained

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(b) A company engaged in a promoted activity or the manufacture of a

The exemption period for a PS company can be renewed upon expiry

Accumulated losses and unabsorbed capital allowances incurred during the

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7.3.2 Investment Tax Allowance

A company granted ITA gets an allowance of 60% on its qualifying capital

7.3.3 Industrial Adjustment Allowance

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(e) Mergers of companies; and

7.3.4 Promotion of Export Industries

Table 7.2: Double Deductions under Promotion of Exports

i Expenses directly attributable to carrying out export market research or the

iii Expenses directly attributable to the provision of samples without charge to

iv Expenses by way of fares in respect of travel to a country outside Malaysia by a

vi Expenses directly incurred for participating in trade fairs or trade or industrial

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xi Publicity and advertisement expenses in any media outside Malaysia.

Source: Jeyapalan Kasipillai (2013)

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7.4 EXEMPT INCOME COMPUTATION

Year ending 31 December