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Review of Tax Incentive for Automation in Manufacturing and Services Sector

Updated: Nov 9, 2022

To Download Budget 2023 Speech and some other related publications - https://t.me/YourAuditor/3276

Current Position

Automation Capital Allowance (A-CA) is a tax incentive introduced in Budget 2015 to encourage manufacturers to engage in innovative and productive activities, expedite the adoption of automation, especially for labour-intensive industries, and further spur automation initiatives.


The incentive is split into 2 categories of industries i.e.

  • High Labour-intensive Industries (Rubber products, plastics, wood, furniture and textiles); and

  • Other Industries

It was proposed in Budget 2020 that the existing Automation Capital Allowance (ACA) incentive for Category 2 of the manufacturing sector be expanded to the services sector to boost productivity and efficiency in labour-intensive industries.

Manufacturing and services companies which incur qualifying capital expenditure on automation equipment are given tax incentives as follows:


Category 1: Labour-Intensive Industry (rubber, plastic, wood and textile products)

  • ACA of 100% for automation equipment on the first RM4 million for Qualifying Capital Expenditure incurred and can be utilised within 1 year.

Category 2: Industries other than Category1 including the services sector

  • ACA of 100% for automation equipment on the first RM2 million for qualifying capital expenditure incurred and can be utilised within 1 year.

Both categories are eligible for income tax exemption equivalent to 100% of qualifying capital expenditure incurred for automation equipment. Thus, eligible capital expenditure that can be absorbed is 200%within a year.


The tax incentive is for applications received by the Malaysian Investment Development Authority (MIDA) until 31 December 2023.


Guideline and Procedure for the Application of Automation Capital Allowance (Automation CA) for Services Sector – for an existing company only.

173
.1 Guideline and Procedure for the application of Automation Capital Allowance (Automat
Download 1 GUIDELINE AND PROCEDURE FOR THE APPLICATION OF AUTOMATION CAPITAL ALLOWANCE (AUTOMAT • 499KB

Proposal

To further drive productivity and improve efficiency through automation, it is proposed the ACA for automation equipment be enhanced as follows:

  • scope of automation to include the adaptation of Industry 4.0 elements;

  • scope of tax incentives is expanded to include the agriculture sector; and

  • capital expenditure threshold for categories 1, 2 and agriculture be aligned and increased up to RM10 million.

Effective Date

For applications received by MIDA and the Ministry of Agriculture and Food Industries from 1 January 2023 until 31 December 2027.



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