III. MECHANISMS FOR INTEGRATING ENVIRONMENTAL CONSIDERATIONS INTO AGRICULTURAL POLICY
B. Agricultural incentivesinvestment tax allowance (ITA) and reinvestment allowance.
1.1. Pioneer status
Any company or person engaged in a "promoted activity" or the manufacture of "promoted products" is eligible for pioneer status. Pioneer status enables a company to obtain partial exemption from the payment of income tax. The company will have to pay tax only on 30 per cent of its statutory income for a period of five years. The tax relief period commences from the production date as determined by the Minister of International Trade and Industry and stated on the pioneer certificate issued to the pioneer company. Under this incentive, pioneer companies will, in effect, be paying an equivalent of 9 per cent corporate tax instead of the current 30 per cent.
Companies will only have to pay tax on 15 per cent of their statutory income if they are located in Sabah, Sarawak and the "Eastern Corridor" of peninsular Malaysia. The period of tax relief remains at five years, which is in line with the efforts of the government to further develop those areas. Effectively, the companies will be paying tax at a rate of only 4.5 per cent.
In relation to agriculture, PIA allows companies as well as agro-based
cooperative societies, Area Farmers’
Associations, Area Fishermen’s Associations, State
Fishermen's Association, Federal Fishermen’s
Association, sole proprietorships, partnerships or associations solely
engaged in agriculture, to apply for pioneer status.
ITA is an alternative to pioneer status. Only companies engaged in "promoted activities" or manufacturing "promoted products" will be eligible to apply for ITA. The allowance is attractive in he case of capital intensive projects or projects with long gestation periods. Such companies will be granted an allowance of 60 per cent in respect of qualifying capital expenditure incurred within five years from the date of approval of the project. The ITA allowance can be off-set against 70 per cent of the statutory income in the year of assessment. The remaining 30 per cent of income is subject to the prevailing company tax rate. However, any allowance that is not utilized can be carried forward to subsequent years.
Special preference is given to companies located in Sabah, Sarawak and the Eastern Corridor of peninsular Malaysia. Those companies will be given an allowance of 80 per cent in respect of the qualifying capital expenditure incurred. The allowance can be off-set against 85 per cent of the statutory income in the year of assessment. Effectively, the companies will be paying tax at a rate of approximately 4.5 per cent.
To assist agricultural projects, the government has broadened the definition of qualifying capital expenditure to include:
In view of the time lag between the start-up of agricultural projects and the processing of the produce, integrated agricultural projects are eligible for ITA for a further five years in the case of expenditures incurred for manufacturing.
The Minister of International Trade and Industry determines the granting of either the pioneer status or ITA depending on whether "promoted activities" or "promoted products" are involved.
Application for pioneer status and ITA should be submitted to MIDA.
In the case of companies that are granted pioneer status, applications
for pioneer certificates have to be made to the Ministry
of International Trade and Industry. Claims for ITA must be submitted directly
to the Department of Inland Revenue when companies submit their annual
This incentive, which was previously available (prior to the 1996 budget) only to manufacturing companies including agricultural processing and integrated agricultural projects, has been extended to include the production of essential food items: rice, maize, fruit, vegetables, tubers, livestock farming and aquatic products. It is aimed at encouraging large companies to invest in food production. Non-food agricultural activities, such as flower growing, are excluded. The reinvestment allowance is given in respect of the qualifying capital expenditure incurred for the following: clearing and preparation of land; crop planting; the provision of irrigation or drainage systems; the provision of plant and machinery; the construction of access roads including bridges; and the construction or purchase of buildings (including those provided for the welfare of persons or as living accommodation for persons) and structural improvements to land or structures.
The incentives are given in the form of an allowance of 60 per cent of the capital expenditure incurred by the company for such activities. Previously the amount was 50 per cent. The utilization of the allowance for each assessment year will be restricted to 70 per cent of the statutory income. The balance of the statutory income will be taxed at the current prevailing tax rate. It will be permitted to carry forward any portion of unabsorbed allowance to the following years until it is fully utilized.
Companies that reinvest in promoted areas, that is, the Eastern Corridor
of peninsula Malaysia as well as Sabah and Sarawak, can off-set the allowance
against statutory income for the year of assessment. The proposals are
effective from the year of assessment 1997. The reinvestment allowance
is administered by the Department of Inland Revenue and claims for the
incentive can be submitted directly to the Department.