The Promotion of Investments Act 1986 states that the term “company” in relation to agriculture includes:
- gro-based cooperative societies and associations
- Sole proprietorships and partnerships engaged in agriculture.
Companies producing promoted products or engaged in promoted activities (Please refer to the List of Promoted Activities and Products – General) in the agricultural sector qualify for the following incentives.
1. Main Incentives for the Agricultural Sector
(i) Pioneer Status
As in the manufacturing sector, companies producing promoted products or engaged in promoted activities are eligible for Pioneer Status.
A Pioneer Status company enjoys a partial exemption from income tax. It pays tax on 30% of its statutory income for five years, commencing from its Production Day (defined as the day of first sale of the agriculture produce).
Accumulated losses and unabsorbed capital allowances incurred during the pioneer period by companies whose pioneer status will expire on and after 1 October 2005 are allowed to be carried forward and deducted against post-pioneer income of a business relating to the same promoted activity or promoted product.
Applications received from companies located in the promoted areas i.e. the States of Perlis**, Sabah and Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia, will enjoy a 100% tax exemption on their statutory income during their 5-year exemption period. All project applications received by 31 December 2010 will be eligible for this enhanced incentive.
Applications should be submitted to MIDA.
** The State of Perlis has been declared as one of the promoted areas effective from 2 September 2006 and companies undertaking promoted activities or manufacture products in this state will be eligible for incentives presently given to such areas.
(ii) Investment Tax Allowance
As an alternative to Pioneer Status, companies producing promoted products or engaged in promoted activities can apply for Investment Tax Allowance (ITA). A company granted ITA is eligible for an allowance of 60% on its qualifying capital expenditure incurred within five years from the date on which the first qualifying capital expenditure is incurred.
Companies can offset this allowance against 70% of their statutory income in the year of assessment. Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30% of the statutory income is taxed at the prevailing company tax rate.
Applications received from companies located in the promoted areas i.e. the States of Perlis**, Sabah and Sarawak, and the designated “Eastern Corridor” of Peninsular Malaysia, will enjoy an allowance of 100% on the qualifying capital expenditure incurred within a period of five years. The allowance can be utilised to offset against 100% of the statutory income for each year of assessment. All project applications received by 31 December 2010 will be eligible for this enhanced incentive.
Applications should be submitted to MIDA.
To increase the benefits to agricultural projects, the government has broadened the definition of qualifying capital expenditure to include expenditure incurred on:
- Clearing and preparation of land
- Planting of crops
- Provision of plant and machinery used in Malaysia for the purpose of crop cultivation, animal farming, aquaculture, inland fishing or deep-sea fishing, and other agricultural or pastoral pursuits
- Construction of access roads including bridges, construction or purchase of buildings (including those provided for the welfare of people or as living accommodation), and structural improvements on land or other structures which are used for crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits. Such roads, bridges, buildings, structural improvements on land and other structures should be on land forming part of the land used for the purpose of such crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits
In view of the time lag between start-up and processing of the produce, integrated agricultural projects qualify for ITA for an additional five years for expenditure incurred for processing or manufacturing operations.
Applications should be submitted to MIDA.
(iii) Incentives for Food Production
(a) Incentives for New Projects
To encourage food production, a company which invests in a subsidiary company engaged in food production, together with the subsidiary company, qualifies for one of the following incentive packages:
Incentive Package A:
- A company which takes up at least 70% equity in a subsidiary company engaged in food production receives a tax deduction equivalent to the amount of investment made in that subsidiary; and
- The subsidiary company enjoys full income tax exemption on its statutory income for 10 years commencing from the first year the company enjoys profits, in which:
- Losses incurred before and during the exemption period can be brought forward after the exemption period of 10 years;
- Dividends paid from the exempt income are exempted in the hands of the shareholders.
Incentive Package B:
- A company which takes up at least 70% equity in a subsidiary company engaged in food production will be given group relief for the losses incurred by the subsidiary company before it records any profit, and
- The subsidiary company enjoys full income tax exemption on its statutory income for 10 years. This commences from the first year the company enjoys profits, in which:
- Losses incurred during the tax exemption period can be brought forward after the exemption period of 10 years; and
- Dividends paid from the exempt income are exempted in the hands of the shareholders.
The eligible food products are as approved by the Minister of Finance. These include kenaf, deep-sea fishing, vegetables, fruits, herbs, spices, aquaculture, and the rearing of cattle, goats and sheep.
Companies should commence food production within a period of one year from the date the incentive is approved. The incentive period for this scheme is extended for applications received until 31 December 2010.
Applications should be submitted to the Ministry of Agriculture and Agro-based Industry
b) Incentives for Existing Companies which Reinvest
An existing company that reinvests in the production of the above food products also qualifies for the same incentives for a period of five years.
The food production project for both new and existing companies should commence within a year from the date the incentive is approved. Applications should be submitted to the Ministry of Agriculture and Agro-based Industry by 31 December 2005.
c) Tax Incentives for ‘Halal’ Food Production
To encourage new investments in ‘halal’ food production for the export market and to increase the use of modern and state-of-the-art machinery and equipment in producing high quality ‘halal’ food that comply with the international standards, companies which invest in ‘halal’ food productions and have already obtained ‘halal’ certification from JAKIM are eligible for the Investment Tax Allowance of 100% of qualifying capital expenditure incurred within a period of 5 years.
This allowance can be offset against 100% of the statutory income in the year of assessment. Any unutilized allowances can be carried forward to subsequent years until the whole amount has been fully utilized. Applications received from 11 September 2004 are eligible for this incentive.
Applications should be submitted to MIDA.
For further information on obtaining ‘halal’ certification from JAKIM, please visit http://www.halaljakim.gov.my/
(iv) Incentive for Reinvestment in Food Processing Activities
A locally-owned manufacturing company with Malaysian equity of at least 60% that reinvests in promoted food processing activities is eligible for another round of the Pioneer Status or Investment Tax Allowance (ITA) incentive. Activities located in the promoted areas, i.e. the States of Perlis**, Sabah, Sarawak and the “Eastern Corridor” of Peninsular Malaysia, are eligible for the Pioneer Status and ITA incentives in accordance with that given to promoted areas.
2. Additional Incentives for the Agricultural Sector
(i) Reinvestment Allowance
Persons or companies engaged for at least 12 months in the production of essential food such as rice, maize, vegetables, tubers, livestock, aquatic products, and any other activities approved by the Minister of Finance can enjoy the Reinvestment Allowance (RA).
The qualifying capital expenditure includes expenditure incurred on:
- Clearing and preparation of land
- Planting of crops
- Provision of plant and machinery used in Malaysia for the purpose of crop cultivation, animal farming, aquaculture, inland fishing or deep-sea fishing, and other agricultural or pastoral pursuits
- Construction of access roads including bridges, construction or purchase of buildings (including those provided for the welfare of people or as living accommodation), and structural improvements on land or other structures which are used for crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits. Such roads, bridges, buildings, structural improvements on land and other structures should be on land forming part of the land used for the purpose of such crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits
The RA is in the form of an allowance of 60% of the qualifying capital expenditure incurred within a period of 15 years beginning from the year the first reinvestment is made. The allowance can be offset against 70% of the statutory income in the year of assessment. Untilised allowances can be carried forward to the following years until fully utilised. Companies that undertake reinvestment projects in the promoted areas i.e. the States of Perlis**, Sabah, Sarawak and the designated “Eastern Corridor” of Peninsular Malaysia, can offset the allowance fully against their statutory income for that year of assessment.
Claims should be submitted to the IRB.
(ii) Accelerated Capital Allowance
Upon the expiry of the Reinvestment Allowance (RA), companies that reinvest in promoted agricultural activities and food products are eligible to apply for the Accelerated Capital Allowance (ACA). These activities include the cultivation of rice, maize, vegetables, tubers, livestock, aquatic products and any other activities approved by the Minister of Finance.
The ACA on the capital expenditure is to be utilised within two years, i.e. an initial allowance of 20% in the first year and an annual allowance of 40%.
Claims should be submitted to the IRB, accompanied by a letter from MIDA certifying that the companies are undertaking promoted agricultural activities or producing promoted food products.
(iii) Agricultural Allowance
A person or a company carrying on an agricultural activity can claim capital allowances and special industrial building allowances under the Income Tax Act 1967 for certain capital expenditure. Capital expenditure which qualifies includes expenditure incurred on:
- Clearing and preparation of land
- Planting of crops
- Provision of plant and machinery used in Malaysia for the purpose of crop cultivation, animal farming, aquaculture, inland fishing or deep-sea fishing, and other agricultural or pastoral pursuits.
- Construction of access roads including bridges, construction or purchase of buildings (including those provided for the welfare of people or as living accommodation), and structural improvements on land or other structures which are used for crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits. Such roads, bridges, buildings, structural improvements on land and other structures should be on land forming part of the land used for the purpose of such crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits.
(iv) 100% Allowance on Capital Expenditure for Approved Agricultural Projects
Schedule 4A of the Income Tax Act 1967 provides for a 100% allowance on capital expenditure for Approved Agricultural Projects as approved by the Minister of Finance. This covers qualifying capital expenditure incurred within a specific time frame for a farm that cultivates and utilises a specified minimum acreage as stipulated by the Minister of Finance.
Approved agricultural projects are those for the cultivation of vegetables, fruits (papaya, banana, passion fruit, star fruit, guava and mangosteen), tubers, roots, herbs, spices, crops for animal feed and hydroponic-based products; ornamental fish culture; fish and prawn rearing (pond culture, tank culture, marine cage culture, and off-shore marine cage culture); cockles, oysters, mussels, and seaweed culture; shrimp, prawn and fish hatchery; and certain species of forest plantations.
The incentive enables a person carrying on such a project to elect to deduct the qualifying capital expenditure incurred in respect of that project from his aggregate income, including income from other sources. Where there is insufficient aggregate income, the unabsorbed expenditure can be carried forward to subsequent years of assessment. Where he so elects, he will not be entitled to any capital allowance or agricultural allowance on the same capital expenditure.
The qualifying capital expenditure eligible for deduction includes expenditure incurred on:
- Clearing and preparation of land
- Planting of crops
- Provision of plant and machinery used in Malaysia for the purpose of crop cultivation, animal farming, aquaculture, inland fishing or deep-sea fishing, and other agricultural or pastoral pursuits.
- Construction of access roads including bridges, construction or purchase of buildings (including those provided for the welfare of people or as living accommodation), and structural improvements on land or other structures which are used for crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits. Such roads, bridges, buildings, structural improvements on land and other structures should be on land forming part of the land used for the purpose of such crop cultivation, animal farming, aquaculture, inland fishing and other agricultural or pastoral pursuits.
This incentive is not available to companies that have been granted incentives under the Promotion of Investments Act 1986 and whose tax relief periods have not started or have not expired.
Claims should be submitted to the IRB.
(v) Double Deduction for Expenses to Obtain “Halal” Certification and Quality Systems and Standards Certification
To enhance the competitiveness of Malaysian companies in the global market for “halal” products (products suitable for consumption by Muslims) including “halal” food, double deduction will be given for the purpose of income tax computation to companies which incur expenses in obtaining;
- Quality system and standards certification as well as ‘halal’ certification from the Department of Islamic Development Malaysia (JAKIM)
- International quality systems and standards certification
This incentive is effective from the year of assessment 2005.
Claims should be submitted to the IRB.
