Question

Malaysia has many attractive tax incentives for manufacturing, agriculture, and tourism activities.  These incentives include pioneer status, investment tax allowance, reinvestment allowance, double deduction, etc. which are given with the objectives of developing Malaysia into a developed country, as well as changing the economy of the country from agriculture-based to industrial based.

A company that desires to participate in a promoted activity or produces a promoted product may make an application to the Malaysian Investment Development Authority (MIDA) for pioneer status and investment tax allowance

REQUIRED:

a. Discuss in detail the incentives for Malaysian tax purposes.  Your discussion should include a detailed explanation of the pioneer status and investment tax allowance in Malaysia.

b. Compare and contrast in details the incentives available in ANY ASEAN country (e.g: Singapore) your discussion should include a detailed explanation on the pioneer status and investment tax allowance in ASEAN country

Answer 1

a) The Malaysian Government offers many tax incentives to companies for doing business in the said country. This sort of tax concessions is given by the government to make the nation a so-called developed country. It is called as an Agrarian economy as the country is still dependent upon agriculture. The diplomats are giving tax relief so that the companies can start up their business and the nation could shift from Agrarian economy to Industrial economy.

The incentives given by government includes pioneer status and investment tax allowance to the firms. Let’s discuss the incentives given by the government in detail:

Malaysia gives various tax incentives to the companies. It includes tax exemptions, allowances and tax deductions. Tax incentives are given for tax resident companies. Pioneer Status is a tax exemption which is given to companies who choose to produce products for a period of 5 or 10 years. Investment tax allowance is an incentive is given on the capital expenditure by firm on industrial buildings, plant and machinery, technology which are used by the company for production. It is given for a period of 5 or 10 years. Pioneer status and investment tax allowance are interrelated to each other. In manufacturing and service sector, Pioneer status provides 70% to 100% of tax exemption for 5 to 10 years. Investment tax allowance provides 60 to 100% for 5 to 10 years. Companies who have higher gestation period and high capital investment should choose Investment tax allowance.

b) A comparison of incentives available in an ASEAN COUNTRY. Let’s compare and study the incentive plan of Malaysia and Singapore.

The first point of difference states that the corporate tax in Singapore is 0 to 17% whereas the tax in Malaysia is 24%. In Singapore, an annual income of S$100000 or below is tax free for a period of three years whereas according to the pioneer status a portion of 70 to 100% and in Investment Tax Allowance a portion of 60 to 100% is tax exempted for a period of 5 to 10 years. It can be clearly seen that Malaysia and its program such as Pioneer status and Investment Tax Allowance is in the favor of companies to a great extent. Branch tax is 17% in Singapore and 24% in Malaysia. Income tax is 0 to 22% in Singapore and 0 to 28% in Malaysia. No foreign source income tax in Malaysia. But it may be taxed in Singapore. GST is 7% in Singapore and 6% in Malaysia.

In a nutshell, both the ASEAN countries have their own benefits and demerits of doing business in a particular country. There are many points which are more beneficial in Singapore and there are many points which are more vital from the point of view of Malaysia. But on a concluding note, we can say that for doing business, Malaysia is more favorable in comparison to Singapore because of the advantage provided by the policy of tax incentive called as Pioneer status and Investment tax allowed which can lure many companies to take the benefit of high tax benefit structures.