Government package and promote their offerings in an effort to create economic activity and generate new tax revenues.
Economic development incentives are a fact of life in the competitive real estate development and construction industries.
The slow global economy pick up has caused a shift away from incentives that are sold to the public simply as revenue generators. The public wants to hear about jobs and how the incentives given by government will strengthen the local economy.
The fact is that incentives continue to encourage investment and today, emphasis is geared toward the creation of jobs.
If an economic incentive package can be shown to expand jobs, it’s going to enjoy greater public and political support in the immediate future.
By using government incentives, developers can reduce the net cost of construction, which can be passed on as more favourable and competitive lease terms for tenants, or a lower cost per square foot for the end user.
Incentives simply allow the developer to manage and share, but certainly not eliminate, their risk.
These incentives may include property tax abatements, construction material sales tax relief, special utility rates, government or private grants, and various tax credits.
Effectively exploring the short- and long-term impact of incentives on profitability puts developers in a better position to secure the most favourable financing package.
Malaysia offers a wide range of tax incentives for the promotion of investments in selected industry sectors.
Through tax incentives, the Government aims to attract foreign direct investments (FDIs) as investors from abroad need to be incentivised to relocate or set up their operations in Malaysia.
These tax incentives appear in various forms, such as exemption on income, extra allowances on capital expenditure incurred, double deduction of expenses, special deduction of expenses, preferential tax treatments for promoted sectors, exemption of import duty, sales tax and excise duty, etc.
In the past, many of the tax incentives were directed to encourage growth in the manufacturing and agricultural sectors.
This trend has changed in recent years when the service sector began to play a bigger role in the Malaysian economy.
Players in the service sectors such as those involved in Islamic financial services, ICT, education, tourism, healthcare as well as research and development, are now getting their fair share of the tax incentives.
Some of the major tax incentives available in Malaysia are the Pioneer Status (PS), Investment Tax Allowance (ITA) and Reinvestment Allowance (RA).
In due to construction sector, Government give Accelerated capital allowances where companies which incur capital expenditure on purchase of moulds used in the production of Industrialised Building System (IBS) in the construction industry.
Accelerated capital allowances on related equipment to be fully written off within a period of three years [Income Tax (Accelerated Capital Allowances) (Mould for the Production of Industrialised Building System Component) Rules 2006].
Pioneer Status (PS) and Investment Tax Allowance (ITA) also can be given to any company involved in the following tourism projects:
- construction of medium and low cost hotels of up to 3-star category as certified by the Ministry of Tourism
- construction of holiday camps and recreational projects including summer camps
- construction of convention centres with a hall capable of accommodating at least 3,000 participants
An exemption of 70% of statutory income for five years with the balance of 30% of the statutory income taxable at current corporate tax rate.
Tax exemption of up to 70% of statutory income for each year of assessment from ITA computed at 60% on qualifying capital expenditure incurred within five years from the date which the approval is to take effect.
Government also giveincentive for buildings awarded the Green Building Index (GBI) certificate by the Board of Architects Malaysia.
GBI is a green rating index on environment friendlybuildings and is calculated based onthe following criteria:
- energy and water efficiency;
- indoor environmental quality;
- sustainable management and planning of building sites in respect of pollution control and facilities of workers;
- usage of recyclable and environment friendly materials and resources; and
- adoption of new technologies.
This includes incentive on exemption of income. Resident individuals and companies whichare owners of buildings and which haveincurred additional qualifying expenditurein relation to construction of a newbuilding, alteration, renovation, extensionor improvement of an existing building forthe purposes of obtaining GBI certificates.
Tax exemption of up to 100% of the statutoryincome computed at 100% of the amount ofqualifying capital expenditure incurred for thatbuilding (effective for GBI certificate issued from 24Oct 2009 to 31 Dec 2014) [Income Tax (Exemption)(No. 8) Order 2009].
Government also give exemption of stamp duty tobuyers of buildings (including residentialproperties) awarded with GBI certificatesbought from real property developers.
Stamp duty exemption on the instruments of transfer of ownership of such buildings. The exemption is given only once to the first owner of the building and is calculated on the additional cost incurred to obtain the GBI certificate (effective for sales and purchase agreements executed from 24 Oct 2009 until 31 Dec 2014) [Stamp Duty (Exemption) Order 2009].
Infrastructure Allowance (IA) alsoa type of incentivegiven by the Government toany company which has incurred capitalexpenditure on infrastructure in anyconstruction, reconstruction, extension orimprovement of any permanent structureincluding a bridge, jetty, port or road in respectof a business or businesses in operation in apromoted area.
Qualifying capital expenditureexcludes those qualifying for investment taxallowance, capital allowance or RA and capitalexpenditure incurred on waste disposal or forthe use of management, administrative or clerical staff.
Tax exemption of up to 100% of the statutory income for a year of assessment from IA computed at 100% on capital expenditure on infrastructure incurred for application made up to 31 Dec 2010 (2006 Budget).
Government incentives are flexibility, encouragement of technological innovation, improved relationships between the private and public sector, substantial cost savings, and better management.
(this article written for 1BINA.my)