TAX INCENTIVES

Pioneer Status
Topic Coverage
On eligibility, determination of tax
relief period and capital expenditures,
treatment of capital allowances,
computation of tax incentives (up to
the level of income tax payable and
exempt income account)
Topic Objectives
At the end of the discussion, student should be
able to:
1. Identify the criteria for a company to apply for
pioneer status
2. Calculate the income tax payable and tax-exempt
income account of a company with pioneer status
tax incentive
Introduction
• Wide range of tax incentives offered by the Malaysian Government
such as income exemption, extra allowances on capital expenditure
incurred and special deduction of expenses.
• Objectives: To promote investments in selected industry sectors & to
attract foreign direct investments.
• MIDA - The principal Malaysian Government agency responsible for
the promotion of investments & coordination of industrial
development and selected services sectors in the country.
• Among the major tax incentives offered in Malaysia are Pioneer
Status, Investment Tax Allowance and Reinvestment Allowance.
MIDA: Incentives Categorisation
Examples of Tax Incentives
Pioneer status Available under the Promotion
of Investments Act 1986 (PIA
Investment Tax Allowance 1986)

Reinvestment Allowance
Available under the Income Tax Act
Double Deductions 1967 (except DD, can also available
under PIA; for promotion of exports)

Other tax incentives

 To be applied through the Malaysian
Investment Development Authority
(MIDA) by companies that:
• Involved in ‘promoted activities’ or
‘promoted products’ (PAPP); or
Eligibility • Located in promoted areas (states of
Kelantan, Terengganu, Perlis, Pahang,
(Promotion of Investments Act 1986)
Mersing, Labuan, Sabah and
Sarawak); or
• Registered as a contract research and
development company; or
• Registered as a high technology
company.
PIONEER STATUS
In brief
Pioneer Status (PS)-in brief
• Available for companies which involved in ‘promoted activities’ or
‘promoted products’ (PAPP).
• Among the promoted industries that may qualify for PS are
manufacturing, tourism, agricultural, R&D, education & healthcare.
• The tax relief period starts on its production day (stated in the
pioneer status certificate issued by MITI). The qualified industry
would enjoy corporate income tax exemption of either 70% or 100%
for a period of 5 years or 10 years, depending on the industry.
• Extension of tax relief period from 5 to 10 years is only available for
eligible industries that fulfilled the requirements as stipulated in
PU(A) 218/97.
Requirements of Pioneer Status Tax
Relief Period Extension
1. The pioneer company
(i) had incurred capital expenditures at least RM25 million on
factory building/plant & machinery used in PAPP (excluding land
cost); or
(ii) had employed 500 full time Malaysian employees
before the end of the tax relief period
2. The pioneer company is highly potential to promote
economic & technological improvement in line with the
aspiration of the Malaysia Government.
8 Categories of
Pioneer Status
in Section 5 of
[Promotion of
Investments Act
1986]
DETERMINATION OF RELIEF PERIOD
Determination of Tax Relief Period
• Tax relief period of pioneer company begins on its production
day and continue for a period of 5 years.
• The production day is stated in the pioneer certificate
• Company successful in its application (been granted PS) must
request for a pioneer certificate within 24 months from the date
of such grant or extended period as allowed by the Minister
(MITI) (s 7(1).
• Production day – the day the company achieved 30% production
of the installed capacity (produce marketable quantities of the
promoted product of not less than 30% of the rated production
capacity)
 DETERMINATION OF CAPITAL
EXPENDITURE

It refers to all capital expenditures

incurred on factory building as well as
plant & machinery used in PAPP
activities, excluding the land cost
 TREATMENT OF CAPITAL
ALLOWANCES
1) RE from pre-pioneer asset is deemed to be the
RE on the day pioneer status period begins
[s18(3)(a)]
2) QE incurred in the basis period immediately
before pioneer status begins is deemed to be
incurred on the commencement day of the
pioneer business.
 TREATMENT OF CAPITAL
ALLOWANCES
1) RE from pioneer asset at the end of pioneer
status period is deemed to be the RE on the day
post-pioneer status period begins [s18(3)(b)]
2) QE incurred in the basis period immediately
before the post-pioneer status begins, is deemed
to be incurred on the commencement day of the
post-pioneer status period.
 TREATMENT OF CAPITAL
ALLOWANCES
1) Any unabsorbed capital allowance at the end of
the pre-pioneer period can be carried forward to
the pioneer period.
2) Beginning 1.10.2005, any unabsorbed capital
allowance at the end of the pioneer period can
be carried forward to the post-pioneer period.
COMPUTATION OF TAX INCENTIVES
 • Statutory income from PS business will be
treated differently from Statutory income from
Basics in Non PS business.
• Only 70% of the statutory income from PS
Computing business is available to be credited/transferred
into exempt income account. The remaining
Pioneer 30% is regarded as deemed total income and
not entitled for any further deduction, &

Status (PS) • Before crediting 70% of the statutory income

into exempt income account, that amount
Incentives need to be first reduced/abated by
i. Adjusted loss from non pioneer business, if
[non promoted area] any, or
ii. Business loss from other pioneer business of
the entity (if any)
ILLUSTRATION
The following are information related to CBD Sdn Bhd, a company
which was granted a Pioneer Status for one of its business activities in
YA2020:
1. Business A (Pioneer Status): Statutory Income of RM100,000 &
Business Loss – Brought Forward of RM2,000.
2. Business B (Non-Pioneer Status): Statutory Income of RM120,000.
3. Business C (Non-Pioneer Status): Current Year Business Loss of
RM15,000
WORKING 1: TO COMPUTE INCOME TAX PAYABLE AMOUNT

RM
A) PROMOTED PRODUCT/ACTIVITY (PS BUSINESS)
STATUTORY INCOME [BUSINESS A] 100,000
Less: Exemption - 70% of the STATUTORY INCOME A (See Working 2) -70,000
DEEMED TOTAL INCOME [BUSINESS A] 30,000
B) NON PROMOTED PRODUCT/ACTIVITY (NON PS BUSINESS)
STATUTORY INCOME [BUSINESS B] 120,000
(-/+) Business loss - b/f; Other Incomes -
AGGREGATE INCOME [BUSINESS B] 120,000
(-) Non Pioneer Loss - Current Year* [BUSINESS C] n/a
TOTAL INCOME [BUSINESS B] 120,000
CHARGEABLE INCOME
[DEEMED TOTAL INCOME BUSINESS A + TOTAL INCOME BUSINESS B] 150,000
INCOME TAX PAYABLE [e.g. 24% x 150,000] 36,000
WORKING 2: TO COMPUTE TAX INCENTIVE AMOUNT

RM
70% OF STATUTORY INCOME [BUSINESS A] 70,000
Less: Non Pioneer Loss - Current Year* [BUSINESS C] -15,000
Less: Pioneer Loss - b/f* [BUSINESS A] -2,000
AMOUNT TRANSFER TO EXEMPT INCOME ACCOUNT 53,000

70% of Statutory Income from Business A will be reduced by

any existing Non-Pioneer Loss - Current Year and Pioneer Loss
- Brought Forward. All the remaining will then be transferred
to Exempt Income Account
 CONCLUSION
Although an eligible company may apply for Pioneer Status, a
proper tax planning is required to reap the most benefit out of
this tax incentive.