Akta Penggalakan Pelaburan 1986 - Infrastructure Allowance

Qualifying Capital Expenditure On Infrastructure

Expenditure on construction` reconstruction` extension or improvement of any permanent structure including a bridge` jetty` port or road in respect of a business or businesses in operation in a promoted area but does not include expenditure:-

  • qualifying for investment tax allowance or industrial adjustment allowance;

  • which qualifies for capital allowances under schedule 3 of the Income Tax Act 1967;

  • which qualifies for reinvestment allowance;

  • incurred on plant or machinery used directly or indirectly for the purposes of storage` treatment or disposal of scheduled wastes as defined in the Environment Quality (Scheduled Wastes) Regulations 1989;and

  • incurred on buildings used as living accommodation and on plant and machinery provided for the use of a director or management` administrative or clerical staff member.

Benefits of Infrastructure Allowance

Infrastructure allowance is given at a rate of 100% of capital expenditure incurred on infrastructure for five years from 29.10.1993 to be deducted against the statutory income which is restricted to 85%. The amount arrived at is the exempt income which is credited to the exempt account from which exempt dividends are distributed to the shareholders of the company. If the shareholder is a company any dividends paid by that shareholding company to its shareholders out of that amount shall also be exempt from tax in the hands of those shareholders. Company granted infrastructure allowance can carry forward unabsorbed losses to subsequent years. For pioneer company capital expenditure incurred during the tax relief period are deemed to have been incurred on the day following the end of the tax relief period.

Illustration on the working of Infrastructure allowance (IA)

Syarikat Berdaya Maju Sdn. Bhd. has a factory in operation in Kota Bahru` Kelantan since 1.7.1994 and is engaged in manufacturing of electronic components. Due to constant disruption of electricity supply to the company which resulted in huge losses to the company` it decided to install an electricity substation in the factory. The capital expenditure on the substation was incurred on 10.6.1996 and amounted to RM950`000. The accounts of the company are made up to 30 June annually. The statutory income of the company for the basis period year ended 30.6.1996 is RM1`200`000.

In this case` the company will qualify for infrastructure allowance as the company is located in a promoted area and the capital expenditure is incurred within the period of the incentive i.e. 29 October 1993 - 28 October 1998. The computation is as follows:- 

    Year of Assessment 1997
  
        Statutory income
        Less : IA of 100% of 950`000
        Statutory income after IA
 1,200,000 (85% = 1,020,000)
950,000
250,000
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Same facts as example I except in this case` the company has been granted investment tax allowance of 80% under section 27B(1) on 1.7.1994 for five years.

In this case` the company will be given an investment tax allowance of 80% on qualifying expenditure incurred within the period of the investment tax allowance i.e. 1.7.1994 - 30.6.1999 and the infrastructure allowance. However` the infrastructure allowance is only given after the deduction of the investment tax allowance.

Same facts as example II except in this case` the company has been granted pioneer status under section 5(1B). The tax relief period for five years commences on 1.1.1995.

In this case` the infrastructure allowance will not be given to the company during the tax relief period. The capital expenditure on infrastructure is deemed incurred on 1.1.2000 i.e. the day following the end of the tax relief period (section 41B(4)).