BAC3201 TAXATION 3

Chan Pui Mun QIUP-201604-000286

Phoon Pui Yan QIUP-201604-000791
Introduction of tax
incentives
• Defined as all measures that provide explicitly for a
more favorable tax treatment of certain activities
or sectors compared to what is granted to the
general industry.

• Fiscal measures used by governments to attracts

investment domestically and internationally in
certain key sectors of the economy.

• Two tax direct: direct and indirect

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Incentive for Research and
Development
• Introduced R&D in year 1982 as a 133% eleveted
deduction, soon increasing the benefir to an attractive,
internationally competitive double deduction (200%)
in year 1986.

• R&D is systematic or intensive study carried out in

the field of science or technology.

• Using R&D study for production or improvement of

materials, devices, products, produce or processes.

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Incentive for Research and
Development
R&D Company
• company that provides R&D services in Malaysiato its
related and/or unrelated companies can enjoy
• ITA of 100% of qualifying capital expenfiture (QCE)
incurred within 10 years, can offset against 70% of
statutory income.
In-house R&D
• Company carries out R&D within the company in
Malaysia for the purpose of its own business
• ITA of 50% QCE within 10 years, can offset against
70% statutory income.
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Incentive for Research and
Development
Contract R&D
• Comapny that provides R&D service in Malaysia to
its unrelated companies.
• Pioneer status -income tax exemption of 100% on
statutory income for 5 years
• ITA for 100% of QCE within 10 years, cna offset
against 70% of statutory income for each year of
assessment.

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Incentives for Small and
Medium Enterprises
Under tax purposes, SMEs defined as :
 a company resident in Malaysia with a paid up of ordinary
shares capital of RM2.5million or

 less at the beginning of the basis period of a year of assessment

whereby such company cannot be controlled by another
company with a paid up capital exceeding rm2.5million
*effective from the Year Assessment (YA) 2009 under (MIDA | Malaysian
Investment Development Authority)

According to (MIDA | Malaysian Investment Development

Authority), SMEs with a chargeable incomes of up to RM500,000
are eligible for a reduction of 20% on chargeable incomes.
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Incentives for Small and
Medium Enterprises
Small Scale Companies
 Incorporated in accordance with the Companies Act 1965.

 Shareholders' fund not more than RM2,5 million with the

following Malaysian equity ownership :

• Minimum 60% Malaysian equity with shareholders’ fund

up to M500,000

• 100% Malaysian equity and shareholders’ fund up to

RM500, 000 to RM2.5 million

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Incentives for Small and
Medium Enterprises
The following incentives are entitled for small scale companies:

i. Pioneer Status with income tax exemption of 100% of the statutory

income for a period of five years. Unabsorbed capital allowances as
well as accumulated losses incurred during the pioneer period can
be carried forward and deducted from the post pioneer income of
the company; or

ii. Investment Tax Allowance of 60% on the qualifying capital

expenditure incurred within five years. This allowance can be offset
against 100% of the statutory income for each year of assessment.
Any unutilized allowances can be carried forward to subsequent
years until fully utilized.

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Effectiveness and Effects of
Tax Incentives
Effectiveness means that tax incentives meet the stated
objective.

To achieve the ‘effectiveness’ measures, the increasing in

investment and FDI is not enough, the desired social benefits in
broader welfare terms should be taken into account.

If incentives are poorly designed, it can result in giving money

away without affecting investment and operating decisions.

Other leakages occur where taxpayers use tax incentives to

reduce the tax liability from non-qualified activities
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Merits and Demerits of Tax
Incentives
Merits of tax incentives
Correcting market failure
For example, the under-production of investment activities by
private sector is revised by using tax incentive to correct it, thus
generate positive externalities (Munongo, Akanbi, & Robinson,
2017)

Demerits of tax incentives

Misallocation of resources
The increase in investment due to tax incentives in some cases
will correct market failures while in most instances it may lead to
too much investment in activities that have incentives and
reduced investment in those activities without incentives,
thereby leading to misallocation of resources
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Conclusion
Tax incentive has many effectiveness and effects.

There are different types of tax incentives offered in

Malaysia

Inform of tax exemptions, allowances related to capital

expenditure and enhanced tax deductions

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