Updated on 15 July 2023- Dialogue between MOF, LHDNM, and CTIM [21/6/2023]Update: The Ismail Sabri Government Budget is no longer applicable. Malaysia's national budget for 2023 was re-tabled again in February 2023.
To Download Revised Budget 2023 Speech and some other related publications - https://www.ccs-co.com/post/budget-2023-malaysia-madani
Current Position
Automation Capital Allowance (ACA) 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.
Category 1: High Labour-intensive Industries (Rubber products, plastics, wood, furniture and textiles); and
Category 2: Industries Other than Category 1
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.
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 to RM10 million.
Effective Date
For applications received by MIDA and the Ministry of Agriculture and Food Security (MAFS) from 1 January 2023 until 31 December 2027.
Updated on 15 July 2023- Dialogue between MOF, LHDNM, and CTIM [21/6/2023]
CTIM proposed the mutually exclusive rules to be applied on an asset basis instead of a company basis.
MOF's Feedback:
The proposal was duly noted.
Further studies will be conducted regarding the mutually exclusive clause to ensure its suitability for implementation.
For assets under hire purchase, kindly confirm there is no requirement for the hire purchase instalments to commence and end within the qualifying period from 1 January 2023 until 31 December 2027 to qualify for the accelerated capital allowance (“ACA”) claim.
In essence, as long as it is a qualifying asset, the incentive applies to the whole capital expenditure incurred.
LHDNM's Feedback:
The ACA incentive also applies to assets acquired through hire-purchase agreements.
The eligible capital expenditure for hire-purchased assets is the principal amount incurred during the basic period of a particular assessment year for assets acquired between 1 January 2023 and 31 December 2027.
Therefore, principal payments made outside the incentive period are not eligible to enjoy this incentive.
ACA on capital expenditure up to RM10 million is welcomed.
Still, there should be clarity on whether it is a 200% allowance like in the past (i.e. 100% accelerated capital allowance plus 100% automation capital allowance) or just a 100% accelerated capital allowance.
LHDNM's Feedback:
This extended Accelerated Capital Allowance (ACA) incentive refers to the incentive under ACA (Automation Enhancement).
This incentive should be read and applied with the income tax order that provides an exemption equal to 100% of the ACA (Automation Enhancement) amount.
This exemption applies to statutory income from eligible projects but is limited to 70%.
The characteristics of the incentive are the same as the original incentive.
This matter will be clarified in the relevant subsidiary legislation.
MOF's Feedback:
The characteristics of the incentive will be the same as the original incentive.
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