Zafrul: Existing tax incentives for MRO activities are extended until Dec 31,2022, to allow for the undertaking of a comprehensive study of the current tax incentive structure.
GIVEN the challenges surrounding the economy while the country strives to break the chain of Covid-19 infections, it is important to lay a strong foundation for recovery moving into the next year.
The focus on driving economic development is a key theme in Budget 2021, which highlights opportunities for growth to make Malaysia a destination for high-value added manufacturing and high-value service activities in sectors such as medical devices, e-commerce and logistics, as well as education technology.
To attract new companies and economic opportunities by way of foreign direct investments – this would also help boost local self-sufficiency in such areas – a comprehensive study of the existing tax incentive structure is underway to provide a competitive, transparent and more attractive tax incentive framework.
To provide space for the study to be completed, existing tax incentives that were due to end this year will be extended until 2022, said Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz.
The extension includes tax incentives for maintenance, repair and overhaul (MRO) activities for aerospace, the building and repair of ships, Bionexus status and economic corridor developments.
Moreover, the government has also allocated investment in key sectors for high value-added technology in the Budget, most notably the RM1bil for the high value-added technology special incentive package, which is meant to support research and development investment in aerospace, as well as electronic clusters such as in Batu Kawan, Penang and Kulim, Kedah industrial parks, for instance.
There is also the RM500mil High Technology Fund provided by Bank Negara Malaysia to support high technology and innovative companies.
“The fund will enable Malaysia to remain competitive in the global supply chain and maintain the supply chain ecosystem and protect high-skilled jobs, ” he said.
Owing to the pandemic, the realisation on the importance of health and healthcare has never been stronger, which is reflected in the Budget as well.
To enable Malaysia to become an investment destination especially for locally-produced vaccines, medicines and medical devices, Tengku Zafrul noted the government will strengthen the Health Ministry’s Off-Take Agreement Programme to attract investment to the country and potential vaccine production in the future.
As a further move to encourage manufacturers of pharmaceutical products including vaccines to invest in Malaysia, the government will provide a preferential tax rate incentive of 0% to 10% for 10 years.
Furthermore, the government is offering special tax rates through the Pelan Jana Semula Ekonomi Negara (Penjana) incentive package, for selected manufacturing companies that relocate their businesses to Malaysia and bring in new investments.
Not only will the incentive be extended to Dec 31,2022, its scope will also be enlarged to include companies in selected services sectors that have significant multiplier effect, by providing an income tax rate of 0% to 10% for 10 years.
Non-resident individuals holding key positions for strategic new investment by companies relocating their operations to Malaysia will also enjoy special income tax treatment of 15% for five years.
The Budget 2021 also includes a new tax incentive for the establishment of a Global Trading Centre at a 10% concessionary rate for five years, which is renewable for another five years. Meanwhile, the tax incentive for the Principal Hub will be extended until Dec 31 and its conditions relaxed.
Lastly, the limit on the sales value for value-added and additional activities carried out in the Free Industrial Zone and Licensed Manufacturing Warehouse will be increased from 10% to 40% from total annual sales value.
This article is second in a seven-part special coverage on Budget 2021.
