Automation Capital Allowance Incentive

Chong Pei Ling, Senior Tax Manager
09/03/2022

The Automation Capital Allowance (Automation CA) incentive was first introduced in Budget 2015. The main objective of this incentive is to encourage automation in the manufacturing sector.

The Automation CA incentive is segregated into 2 industry categories i.e. labour intensive industries such as rubber, plastic wood, furniture and textile (Category 1) and other industries (Category 2).
In Budget 2020, the scope of Automation CA incentive under Category 2 was expanded to include the services sector. This was to enable service providers to invest in automation equipment in order to achieve greater efficiency and productivity in their service delivery.

The Automation CA incentive is not granted automatically. The qualifying company is required to apply and obtain prior approval from the Malaysian Investment Development Authority (MIDA) and undergo technical verification by the Standard and Industrial Research Institute of Malaysia (SIRIM) before applicants can enjoy the Automation CA incentive. 
Furthermore, the Automation CA and other incentives  such as Reinvestment Allowance (RA), Pioneer Status, Investment Tax Allowance are mutually exclusive. 

In this article, we will discuss the key differences between RA incentive and Automation CA, and the key considerations for manufacturing companies in selecting the best incentive for their investment in automation equipment. 

 

Key eligibility criteria for Automation CA incentive – Manufacturing Sector & Service Sector 

Category

Rates of incentives

Amount of capital expenditure

Category 1: Manufacturing companies in the labour intensive industries

100% accelerated capital allowance (ACA) and 100% income tax exemption (ITE) equivalent to the ACA

 

Up to RM 4 million

Category 2: Manufacturing companies in other industries and service sector

100% ACA and 100% ITE equivalent to the ACA

 

Up to RM 2 million

 

Note: The gazette order for the Automation CA for services sector is still pending as at to-date.

  • Incorporated under Companies Act 2016 and resident in Malaysia.
  • Engages in manufacturing activities / service activities and holds a business licence issued by the relevant authority.
  • Automation equipment is certified by SIRIM which is more advanced than the current technology used in its manufacturing activity or service delivery
  • Automation equipment must be used at least one (1) month after the installation / commissioning of the equipment for the purposes of technical verification by SIRIM.
  • Has been in operations for a period of at least thirty-six (36) months.
  • Incurred qualifying expenditure in the relevant basis period for the Years of Assessment (YAs) 2015 to 2023 (manufacturing sector) and YAs 2020 to 2023 (services sector)
  • Submit application for Automation CA to MIDA by 31 December 2023.
  • All supporting documents such as invoices, purchase orders, delivery orders and proof of payments are verified by an external auditor. The entire cost of the automation equipment must be paid. 
  • Possess a permit / licence / registration / accreditation / certificate / approval letter/ supporting letter from relevant Ministry / Agency / Regulator (for service sector).
 
   Read More   

 

Tax Advisory Leaders

Foo Meng Huei
Meng Huei Foo
Partner
Location: Kuala Lumpur
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Mun Yew Chong
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