Investment Tax Allowance

Promotions of Investments Act 1986 - Investment Tax Allowance

Promoted Products or Activities

Any company participating or intending to participate in a promoted activity or producing a promoted product may be eligible to apply for ITA. Similar lists of promoted products or activities as applied for pioneer status would also be applied for ITA. ITA and pioneer status are mutually exclusive in respect of the same promoted activity or product. The same activity or product which has been granted pioneer status or ITA previously cannot qualify for pioneer status or ITA again.

Promoted Products or Activities

Any company participating or intending to participate in a promoted activity or producing a promoted product may be eligible to apply for ITA. Similar lists of promoted products or activities as applied for pioneer status would also be applied for ITA. ITA and pioneer status are mutually exclusive in respect of the same promoted activity or product. The same activity or product which has been granted pioneer status or ITA previously cannot qualify for pioneer status or ITA again.

Capital Expenditures

Qualifying capital expenditure for the various sectors are defined in the PIA 1986.

Benefits of Investment Tax Allowance

The computation of ITA for a Year of Assessment is as follows :-

Rate of ITA Capital Expenditure Statutory Income (SI)
    1. 60% multiply by capital expenditure restricted to 70% of SI = exempt income

    2. 80% multiply by capital expenditure restricted to 85% of SI = exempt income

    3. 100% multiply by capital expenditure restricted to 100% of SI = exempt income
      The exempt income is credited to the exempt account from where exempt dividends are distributed to the shareholders of the company. If the shareholders 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.
      Companies granted ITA can carry forward unabsorbed losses and capital allowances to subsequent years.
      An approvals for ITA may be granted retrospectively from a date which is not earlier than three years (or such dates) from the date of application.

 

Rate of Allowance

The table below lists out the rate of allowance, years of exemption and restriction to the statutory income for the different categories of companies.

Companies and other particulars Period (years) Rate (% of qualifying expenditure) Restricted to % of Statutory Income
    Project of National and Strategic Importance
 5 100 100
    Project in Promoted Areas
 5 80 85
    High Technology Company
 5 60 100
    Contract R & D Company
 10 100 70
    R & D Company
 10 100 70
    In-House R & D
 10 50 70
    Technical or Vocational Training Company
 10 100 70
    Other Companies
 5 60 70
Illustration on the workings of Investment Tax Allowance

Example 1

Syarikat Smartnonics Sdn. Bhd. was granted ITA of 60% for producing a promoted product commencing from 1.1.1994. It closed its accounts on 31.12.1994 and incurred capital expenditure of RM50,000. Capital Allowance for Y/A 1995 is RM20,000 and disallowance expenses to be added back is RM10,000.

Years of Assessment 1995 RM
Net Profit 100,000
Add : Disallowable expenses 10,000
Adjusted income 110,000
Less : Capital allowance 20,000
Statutory income 90,000 (70% =
Less :- ITA @ 60% of 50,000 63,000)
Chargeable income 30,000
  60,000
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Tax payable on 60,000 @ 30% = 18,000 Note : ITA to be fully allowed since the sum is less than the restricted sum of RM63,000 i.e. 70% of Statutory Income (RM 90,000).

Using same information as in Example I the company has incurred capital expenditure of RM200,000 for Y/A 1996.

Year of Assessment 1996  
Statutory income 90,000(70% =
Less : ITA of 60% of 200,000 = 120,000 (subject to> 63,000)
70% of 90,000 = 63,000) 63,000
Chargeable income

27,000

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Unabsorbed ITA c/f to Y/A 1997 (120,000 - 63,000) = RM57,000  
Tax payable on RM27,000 @ 30% RM8,100.00
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