Tax Incentives for Carbon Capture and Storage

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Update: The Ismail Sabri Government Budget is no longer applicable.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

Malaysia plans to reach its Low Carbon Nation Aspiration by 2040, part of its National Energy Policy 2022–2040.

The government has devised a plan to control CO2 emissions using Carbon Capture and Storage Technology (CCS) to reach this goal.

In Malaysia, the oil and gas and power generation industries are seen as the first ones to use CCS technology.

This technology comprises of 3 activities as follows:

• carbon capture;
• transportation of captured CO2; and
• underground or sea bed carbon storage.

Proposal

To recognise CCS activities as a new source of economic growth and to achieve net zero greenhouse gas emissions, it is proposed tax incentives be given as follows:

i. companies undertaking CCS in-house activity

1. Investment Tax Allowance (ITA) of 100% of qualifying capital expenditure for a period of 10 years and can be set off against up to 100% of business statutory income;
2. full import duty and sales tax exemption on equipment for CCS technology commencing from 1 January 2023 until 31 December 2027; and
3. tax deduction for allowable pre-commencement expenses within 5 years before the date of commencement of operation.

ii. companies undertaking CCS services

1. ITA of 100% of qualifying capital expenditure for a period of 10 years and can be set off against up to 100% of statutory income; or
2. tax exemption of 70% on statutory income for a period of 10 years; and
3. full import duty and sales tax exemption on equipment for CCS technology starting 1 January 2023 until 31 December 2027.

iii. companies engaging in CCS services are to be given tax deductions on fees incurred for using CCS services.

Effective Date

• For applications received by the Ministry of Finance from 25 February 2023 until 31 December 2027.
• The tax deduction can be claimed through the Income Tax Return Form from the year of assessment 2023 until 2027.

Updated on 15 July 2023- Dialogue between MOF, LHDNM, and CTIM [21/6/2023]

In Budget 2023, the Government proposed the introduction of a raft of tax incentives for carbon capture and storage (“CCS”).

CTIM believed the Government intends for these tax incentives to be available for a broad range of CCS applications across different industrial subsectors (e.g. oil & gas, concrete, plastics, etc.). CTIM sought confirmation.

MOF’s Feedback:

As an introduction to the incentive, the government plans to provide incentives to companies/businesses engaged in carbon capture and compression activities, converting it into liquid form and subsequently storing it through injection methods into geological reservoirs at the seabed using carbon capture and storage (CCS) technology.

With regard to the proposed tax deduction for allowable pre-commencement expenses incurred by Companies undertaking CCS in-house activity within five years from the date of commencement of operation, CTIM sought clarification on the following:

• What types of allowable pre-commencement expenses did the Government envisage when proposing this?
• Whether the date of commencement of operation refers to the date of commencement of the operation of such company (i.e. new company) or the date of commencement of CCS in-house activity? If the latter, please clarify why this is considered a pre-commencement expense, given that the company would already have commenced operation and is already generating income.
• Please clarify if this should also be extended to companies undertaking CCS services.

MOF’s Feedback:

Details of allowable pre-operational expenses and the commencement date of operations will be issued in a detailed guideline that will be published for general reference in the near future.

MOF is currently in the process of specifying the relevant details.

Presently, pre-operational expenses only apply to companies engaged in carbon capture and storage activities.

With regard to the proposed tax deduction on fees incurred for the use of CCS services, CTIM sought clarification on the following:

• Please confirm this deduction is meant to be a further deduction.
• Whether this is subject to the application received by MOF from 25 February 2023 until 31 December 2027?
• Is tax deduction limited to fees incurred from 25 February 2023 until 31 December 2027?

LHDNM’s Feedback:

This incentive will be explained in detail in the guidelines that will be issued for general reference in the near future.

MOF is currently in the process of specifying the relevant details.

Investment tax allowance for qualifying capital expenditure:

• Whether MOF or IRB will issue a list of CCS technologies that qualify for the incentive?
• How will the MOF determine the effective date for a chargeable person to qualify for the incentive?

MOF’s Feedback:

Detailed information on the list of CCS technologies and the effective date for eligible taxpayers to qualify for this incentive will be provided in the guidelines that will be issued for general reference in the near future.

MOF is currently in the process of specifying the relevant details.

Which will be the qualifying person for the tax exemption? (e.g. Identified companies/operators or entities authorised by relevant approving authority)

LHDNM’s Feedback:

This incentive will be explained in detail in the guidelines that will be issued for general reference in the near future.

MOF is currently in the process of specifying the relevant details.

If a company undertakes “carbon capture” in-house activity and also subscribed to “carbon storage” services from external parties, would the company be eligible for both CCS incentives under proposal items (i) and also (iii) of Appendix 16 to the Budget Speech?

LHDNM’s Feedback:

This incentive will be explained in detail in the guidelines that will be issued for general reference in the near future.

MOF is currently in the process of specifying the relevant details.

CTIM would like to confirm which Government authority will be the governing body for CCS activities.

MOF’s Feedback:

Details of the administering body for CCS activities will be finalised and explained in detail in the guidelines that will be issued for general reference in the near future.

MOF is currently in the process of specifying the relevant details.

It was also mentioned in Appendix 16 that tax deduction can be claimed through the Income Tax Return Form (“ITRF”) from YA 2023 until YA 2027.

CTIM urged the Authorities to extend the period to YA 2028 to cater for companies that are having a basis period ending on a date other than 31 December.

LHDNM’s Feedback:

This incentive will be explained in detail in the guidelines that will be issued for general reference in the near future.

MOF is currently in the process of specifying the relevant details.

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