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Akta Penggalakan Pelaburan 1986 - Investment Tax Allowance

Promoted Products or Activities
    Any company participating or intending to participate in a promoted activity or producing a promoted product may be eligible to apply for ITA. Similar lists of promoted products or activities as applied for pioneer status would also be applied for ITA. ITA and pioneer status are mutually exclusive in respect of the same promoted activity or product. The same activity or product which has been granted pioneer status or ITA previously cannot qualify for pioneer status or ITA again.

Capital Expenditures
    Qualifying capital expenditure for the various sectors are defined in the PIA 1986.


Benefits of Investment Tax Allowance
    The computation of ITA for a Year of Assessment is as follows :-
Rate of ITA
Capital Expenditure Statutory Income (SI)
    (i)
60% multiply by capital expenditure restricted to 70% of SI = exempt income
    (ii)
80% multiply by capital expenditure restricted to 85% of SI = exempt income
    (iii)
100% multiply by capital expenditure restricted to 100% of SI = exempt income
    The exempt income is credited to the exempt account from where exempt dividends are distributed to the shareholders of the company. If the shareholders is a company, any dividends paid by that shareholding company to its shareholders out of that amount shall also be exempt from tax in the hands of those shareholders.
    Companies granted ITA can carry forward unabsorbed losses and capital allowances to subsequent years.
    An approvals for ITA may be granted retrospectively from a date which is not earlier than three years (or such dates) from the date of application.


Rate of Allowance

The table below lists out the rate of allowance, years of exemption and restriction to the statutory income for the different categories of companies.

Companies and other particulars
Period
(years)
Rate (% of qualifying expenditure)
Restricted to % of Statutory Income
    Project of National and Strategic Importance
5
100
100
    Project in Promoted Areas
5
80
85
    High Technology Company
5
60
100
    Contract R & D Company
10
100
70
    R & D Company
10
100
70
    In-House R & D
10
50
70
    Technical or Vocational Training Company
10
100
70
    Other Companies
5
60
70




Illustration on the workings of Investment Tax Allowance

    Example 1
    Syarikat Smartnonics Sdn. Bhd. was granted ITA of 60% for producing a promoted product commencing from 1.1.1994. It closed its accounts on 31.12.1994 and incurred capital expenditure of RM50,000. Capital Allowance for Y/A 1995 is RM20,000 and disallowance expenses to be added back is RM10,000.
      Years of Assessment 1995
RM
      Net Profit
      Add : Disallowable expenses
      Adjusted income
      Less : Capital allowance
      Statutory income
      Less :- ITA @ 60% of 50,000
      Chargeable income
100,000
10,000
110,000
20,000
90,000 (70% = 63,000)
30,000
60,000
=====


    Tax payable on 60,000 @ 30% = 18,000
    Note : ITA to be fully allowed since the sum is less than the restricted sum of RM63,000 i.e. 70% of Statutory Income (RM 90,000).
    Example II
    Using same information as in Example I the company has incurred capital expenditure of RM200,000 for Y/A 1996.
    Year of Assessment 1996
    Statutory income
    Less : ITA of 60% of 200,000 = 120,000 (subject to 70% of 90,000 = 63,000)
    Chargeable income

    Unabsorbed ITA c/f to Y/A 1997 (120,000 - 63,000) = RM57,000

    Tax payable on RM27,000 @ 30%
90,000(70% = 63,000)
63,000
27,000
=====


RM8,100.00
=========




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