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Promotions of Investments Act 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 ExpenditureStatutory Income (SI)

60% multiply by capital expenditure restricted to 70% of SI
(i) = exempt income

80% multiply by capital expenditure restricted to 85% of SI

(ii) = exempt income

100% multiply by capital expenditure restricted to 100% of

(iii)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
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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 Period Rate (% of Restricted

particulars (years) qualifying to % of
expenditure) Statutory
Income
5 100 100
Project of National
and Strategic
Importance

5 80 85
Project in Promoted
Areas

5 60 100
High Technology
Company

10 100 70
Contract R & D
Company

10 100 70
R & D Company

10 50 70
In-House R & D

10 100 70
Technical or
Vocational Training
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Company

5 60 70
Other Companies

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.

RM
Years of Assessment 1995

100`000
Net Profit 10`000
Add : Disallowable expenses 110`000
Adjusted income 20`000
Less : Capital allowance 90`000 (70% =
Statutory income 63`000)
Less :- ITA @ 60% of 30`000
50`000 60`000
Chargeable income =====

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

90`000(70% =
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Statutory income 63`000)

Less : ITA of 60% of 200`000 = 120`000 63`000
(subject to 70% of 90`000 = 63`000) 27`000
Chargeable income =====

Unabsorbed ITA c/f to Y/A 1997 (120`000 -

63`000) = RM57`000 RM8`100.00
=========
Tax payable on RM27`000 @ 30%

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