RE promotion in Malaysia is based on the Small Renewable energy Power (SREP) programme. Projects developed under the SREP programme are eligible for Pioneer Status (PS) or Investment Tax Allowance (ITA). These incentives have been provided from 2001 but have been enhanced over the years.
Generation of RE for own use has been enhanced to ITA under the 2008 Budget.
This means that companies which invest in BIPV for their own use can get ITA benefits in addition the Capital Allowance (CA).they normally enjoy. This is equivalent to a “double tax deduction”. The corporate tax rate is 26% for 2008, and 25% for 2009 and beyond.
Current PS and ITA incentives, in brief, are:
For RE to be sold under the SREP scheme:
· PS - 100% of investment against 100% of statutory income (taxable income) for 10 years, or
· ITA – 100% against 100% of statutory income (taxable income) for 5 years.
For RE to be used for own consumption:
· ITA – 100% against 100% of statutory income (taxable income) for 5 years.
The government’s fiscal incentives are in addition to the MBIPV project incentives indicated under the “Market” section of this project.
Sample calculations for a hypothetical example are shown below.
Table 1 - Rates of Capital Allowances
|
|
Type of Asset
|
Initial All. Rate (%)
|
Annual All. Rate (%)
|
|
1.
|
Motor vehicles, heavy machinery
|
20
|
20
|
|
2
|
Plant and machinery
|
20
|
14
|
|
3.
|
Others
|
20
|
10
|
Note: PV system components fall under item 2 – “plant and machinery”
Table 2 - Business Revenue & Expenditure
|
Business income for the year:
|
RM 1,000,000
|
|
Operating expenditure for the year
|
RM 800,000
|
|
Statutory income, SI (taxable income)
|
RM 200,000
|
|
Capital investment in RE for own use
|
RM 100,000
|
Example 1:
Capital Allowance (CA) Savings
Table 3 below shows the CA provisions based on Tables 1 (plant and machinery) and Table 2, above. Corporate tax rate for year 1 (2008) is 26% and for year 2 onwards (2009 and beyond) is 25%.
Table 3 – Capital Allowance Tax Savings
|
Year
|
Tax Rate
|
CA %
|
CA value RM [CA% x RE]
|
CA Tax Saving
[tax rate x CA RM]
|
Cumulative Tax Saving
|
|
1 (2008)
|
25%
|
IA: 20%
AA: 14%
|
IA: RM 20,000
AA: RM 14,000
|
RM 5,000
RM 3,500
|
RM 8,500
|
|
2
|
25%
|
AA: 14%
|
AA: RM 14,000
|
RM 3,500
|
RM 12,000
|
|
3
|
25%
|
AA: 14%
|
AA: RM 14,000
|
RM 3,500
|
RM 15,500
|
|
4
|
25%
|
AA: 14%
|
AA: RM 14,000
|
RM 3,500
|
RM 19,000
|
|
5
|
25%
|
AA: 14%
|
AA: RM 14,000
|
RM 3,500
|
RM 22,500
|
|
6
|
25%
|
AA: 10%
|
AA: RM 10,000*
|
RM 2,500
|
RM 25,000
|
Note: CA for year 6 is 10% to make total of 100% over the period.
Capital Allowance and Investment Tax Allowance savings for the example in Table 2 are shown in Table 8 below
Investment Tax Allowance (ITA) savings
The tax saving from ITA for the investment in RE plant, based on 100% of the qualifying investment at the corporate tax rate of 26% in 2008, are shown in Table 4.
Table 4 – Investment Tax Allowance Savings
|
Year
|
1 (2008)
|
2
|
3
|
4
|
|
Statutory income, SI
|
RM 200,000
|
|
|
|
|
SI after CA deduction
|
RM 166,000
|
|
|
|
|
ITA eligibility
|
RM 100,000 *
|
0
|
0
|
0
|
|
Tax rate
|
25%
|
25%
|
25%
|
25%
|
|
Tax savings
|
RM 25,000
|
0
|
0
|
0
|
Note: ITA eligibility fully utilised in year 1.
Therefore, the total corporate tax savings is RM 50,000 (see Table 5), and net investment by the investor is also RM 50,000 as summarised in Table 6 below.
Table 5 – Total Tax (Fiscal) Savings
|
Year
|
1
|
2
|
3
|
4
|
5
|
6
|
Total
|
|
CA Value – RM
|
34,000
|
14,000
|
14,000
|
14,000
|
14,000
|
10,000
|
100,000
|
|
Tax Rate &
|
25
|
25
|
25
|
25
|
25
|
25
|
N/A
|
|
Tax Saving: CA – RM
|
8,500
|
3,500
|
3,500
|
3,500
|
3,500
|
2,500
|
25,000
|
|
Tax Saving: ITA – RM
|
25,000
|
0
|
0
|
0
|
0
|
0
|
25,000
|
|
Total Tax Savings (CA+ITA) – RM
|
33,000
|
3,500
|
3,500
|
3,500
|
3,500
|
2,500
|
50,000
|
Table 6 – Investment in RE for Own Use
|
Qualifying capital investment
|
Corporate tax savings
|
Net investment by owner
|
|
100,000
|
50,000
|
50,000
|
|
Percentage
|
50.0%
|
50.0%
|
