III. MECHANISMS FOR INTEGRATING ENVIRONMENTAL CONSIDERATIONS INTO AGRICULTURAL POLICY
B. Agricultural incentives
3. Specific incentives3.1. Incentives for research and development
The government places a strong emphasis on research and development activities including those in the agricultural sector. Those incentives and support programmes, which are aimed at further promoting greater research and development by the private sector, are detailed below.
(i) Encourage in-house research and development
This incentive is intended to encourage companies to undertake in-house research and development and technological innovation as part of their activities and not as a separate outfit. In-house research means research and development carried out in Malaysia within a company for the purposes of its own research. Manufacturing and agricultural companies undertaking in- houseresearch and developmentcan obtain the following incentives:
Double deduction on research and development expenditure.The double deduction incentive on research and development expenditures for approved research under section 34A of the Income Tax Act, 1967, provides for double deduction of revenue or operating expenditure (other than capital expenditure) from the gross income of a business for the year of assessment in which the expenditure is incurred, on research and development projects approved by the Minister of Finance. Research means any systematic or intensive study carried out in the field of science or technology with the object of using the results of the study for products, produce or processes. Certain activities, such as quality control of products or routine testing of materials, devices, products or produce and market research, do not qualify under the definition. Revenue or operating expenditures incurred for approved research includes raw materials used directly in research projects, payments for technical services undertaken in Malaysia, and basic salaries of staff involved directly in research projects.
In general, capital expenditure eligible for ITA includes expenditure on buildings, machinery and equipment used in research. Such expenditures, however, do not qualify for the double deduction incentives granted for approved research as mentioned above. As such, Malaysian companies undertaking in-house research and development should explore the possibilities of benefiting from both the double deduction and ITA, as these incentives complement each other.
(ii) Encouraging independent research and development
Contract research and development companies comprise firms that provide research and development services to companies other than related companies. They are eligible to apply for pioneer status for a period of five years or ITA of 100 per cent on the qualifying capital expenditure incurred within a period of 10 years. In the case of pioneer status, full tax exemption of statutory income will be granted; for ITA, the allowance will be abated from the statutory income and abatement for each year of assessment will be limited to 70 per cent of the statutory income.
Research and development companies that provide such services both to related and non-related companies are eligible to apply for ITA of 100 per cent on the qualifying capital expenditure incurred within a period of 10 years. That allowance will be abated from the statutory income, and abatement for each year of assessment will be limited to 70 per cent of statutory income. Related companies do not enjoy double deduction for payments made to the research and development company.
Contract research and development companies or research and development companies that do not take advantage of the incentive under the Promotion of Investment Act, 1986, can apply for the fulfillment of definition as contract research and development companies or as research and development companies to enable them to enjoy the double deduction incentive under Section 34B of the Income Tax Act, 1967, when receiving payment for services rendered. That stipulation is also relevant to research and development companies which decide not to avail themselves of ITA, in order to allow their related companies to enjoy the double deduction incentive. In such a case, each applicant should also fulfill the criteria for eligibility (i.e., comply with the definition of a contract and research and development company; independent research and development company; or related company).
The research undertaken should be in accordance with the needs of the country and it should be of benefit to the Malaysian economy. At least 70 per cent of the revenue of the company should be derived from research and development activities. For agriculture-based research and development, at least 5 per cent of the workforce of the company must be appropriately qualified personnel performing research and technical functions.
(iii) Other incentives for research and development
Other incentives granted to encourage research and development activities include exemptions from import duty, excise duty and sales tax on machinery/equipment, materials, raw materials and samples used for research by contract research and development companies and manufacturing companies undertaking in-house research.
Under Section 4B of the Income Tax Act, 1967, double deduction of expenditure that is not capital expenditure is given on expenses incurred by companies for the use of facilities and for services provided by approved research companies or institutions. The term "approved research companies" implies contract research and development companies, while the list of approved research institutions must be approved by the Ministry of Finance. Companies which use the facilities and services of approved research companies or institutions qualify automatically for the double deduction incentive. Such companies can then claim the double deduction directly from the Department of Inland Revenue without having to make a separate application to MIDA for approval. Under section 34B also, double deduction is granted for contributions in cash to approved research institutions. Application for research and development should be submitted to MIDA.3.2. Incentives for high technology
The government has also introduced specific incentives to encourage high technology industries in the both the manufacturing and agriculture sectors. High technology companies that are defined as companies engaged in promoted activities or in the production of promoted products in areas of new and emerging technologies are eligible to apply for the following incentives:
The list of promoted products or promoted activities is highly biased towards the manufacturing sector. The Ministry of Agriculture is working to include a number of agriculture activities which can be considered as high technology.
For the granting of incentives, a high technology company must fulfill the following criteria:
Several other incentives are available to Malaysian exporters including exporters of processed and non-processed agricultural products. Those incentives are detailed below.
(i) Double deduction for expenses on promotion of export
Certain expenses incurred by resident companies in promoting their products in overseas markets are eligible for double deduction. Those expenses include:
To encourage exports to non-traditional markets, premium payments in respect of export credit insurance insured with local insurance companies are eligible for double deductions.
Approved buildings used as warehouses, bulk storage installations for storing goods for export are eligible for the Industrial Building Allowance, which comprises an initial allowance of 10 per cent and an annual allowance of 2 per cent. Applications for double deductions and the Industrial Building Allowance have to be submitted to the Department of Inland Revenue.
(iii) Drawback facilities
Under Section 99 of the Customs Act, 1967, manufacturers including agro-based companies who have to pay customs duty on imported raw materials, components and/or packing materials used in the manufacture of finished products for export are entitled to claim duty drawback.
Under Section 29 of the Sales Tax, 1972, and Section 19 of the Excise Act, 1976, manufacturers who have to pay sales tax/excise duty on raw materials, components and packing materials used in the manufacturing of finished products for export are entitled to claim tax/duty drawback.
(iv) Incentives for training
The government offers incentives for companies to provide training for their employees with the objective of developing and upgrading skills as well as improving productivity and quality. Agriculture and agro-based companies are also eligible for such incentives, which include:.
In addition to the above new incentives, the existing double deduction incentives for approved training will continue. Under that incentive, manufacturing companies employing less than 50 Malaysian workers and having a paid-up capital of less than M$ 2.5 million will enjoy a double deduction or further deduction on approved training expenses.
Approved training means training aimed at developing and upgrading craft, supervisory and technical skills, and improving quality and productivity. Automatic approval on double deduction is given if employees are trained at designated approved training institutions.