Tax Incentives

1.0 INVESTMENT INCENTIVES

Investment incentives are an important tool to attract local and foreign entrepreneurs to invest into the manufacturing and service sectors that helps to develop and expand the business and moving forward our country to become an industrialize nation.

1.1 INVESTMENT INCENTIVES IN MALAYSIA

In Malaysia, investment incentives are provided in the form of direct subsidies or corporate income tax credits that compensates the investors for their capital cost. In other words, investment incentives are available to the investors to reduce their overall tax burden and it is known as tax incentives.

In order to get the optimal benefits from the incentives provided by the government, investors must have good knowledge on tax incentive and effectively plan their business and investment strategies because each incentives have different impact on the company income or profit.

According to Ministry of International Trade and Industry (MITI), there are two types of tax incentives available in Malaysia, both direct and indirect, are provided for in the Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Sales Tax Act 1972, Excise Act 1976 and Free Zones Act 1990. All these Acts have cover investments in different sectors such as manufacturing, agriculture, tourism which including hotel, and approved service sectors as well as Research and Development (R&D), training and environmental protection activities.

Based on (Nozara Mat Udin), under indirect incentives, exemptions are given to the taxpayers for specific products or services either imported or produced locally in the form of exemption from import duty, sales tax and excise duty. Indirect incentive is governed by specific acts such as Excise Act 1976, Sales Tax Act 1972, Service Tax Act 1975 and Custom Act 1967. Whereas under direct incentives, the government provides grants or tax exemptions either partial or full relief from paying income tax for a specified period(s). This incentive is governed by two main acts which are Promotion of Investment Act (PIA) 1986 and Income Tax Act (ITA) 1967.

Under PIA 1986, various tax investments incentives are available, including pioneer status, investment tax allowance, infrastructure allowance, tourism incentives and double deductions. Whereas tax incentives under ITA 1967 include reinvestment allowance, double deductions, promotion of export, allowance for increased export and green building.

1.2 MANUFACTURING SECTOR

Manufacturing sector is one of the important sector that helps in economy growth in Malaysia because manufacturing sector has created many job opportunities which has reduce the unemployment rate of the country, increase the income of residence and then increase the payment of income tax to Inland Revenue Board of Malaysia (IRBM) as revenue income of Malaysia. Thus, government has prepared many tax incentives to encourage investors to invest in this sector. Industrial Co-ordination Act 1975 (ICA) has defined manufacturing as ‘the making, altering, blending, ornamenting, finishing or otherwise treating or adapting any articles or substance with a view to its use, sale transport, delivery, or disposal and included the assembly of parts and ship repairing but shall not include any activity normally associated with retail or wholesale trade’.