Tax Incentive - Increased of Export Sales Incentive

Ministry of Finance ("The Minister") has issued Income Tax (Exemption) (No.6) Order 2019 on 7 June 2019 about tax incentive given to company with increased of export sales.

Exemption

1. The Minister exempts a qualifying company which achieves increase in export sales of agricultural produce and product from manufacturing from the payment of income tax in respect of the income derived from export sales in the basis period for a year of assessment.
2. The exemption is subject to the following conditions:
   • At least 60% of the issued share capital of the qualifying company is owned directly by Malaysian citizen;
   • The agricultural produce is planted reared or caught by the qualifying company; and
   • The product from manufacturing is manufactured by the qualifying company.
3. The exemption does not apply to the export of:
   • Product from manufacturing which is subject to prohibition of exports under the Customs Act 1967; and
   • Product from manufacturing which is listed in the Schedule below.

Schedule

No.	Product	Harmonized System code (HS Code)
1.	Tin ingot or slab, tin ore and concentrate	80.01; 2609.00 000
2.	Natural rubber sheet and slab, standard Malaysian rubber, crepe natural rubber, natural rubber latex and natural gum	4001.10; 4001.21; 4001.22; 4001.29; 4001.30
3.	Crude palm kernel oil, palm kernel cake and crude palm oil	1513.21 100; 2306.60 000; 1511.10 000
4.	Copra, copra cake and crude coconut oil	1503.00 000; 1513.11 000; 2306.50 000
5.	Log, sawn timber (ungraded and non-kiln dry) and wood chip (except briquette)	44.08; 44.07; 44.01; 44.30
6.	Petroleum oil (crude and other than crude oil) and petroleum gas and other gaseous hydrocarbon (liquefied or in gaseous state) hydrogen, nitrogen and oxygen	2709.00; 2710.00; 27.11; 27.12; 27.13; 2804.10 000; 2804.30 000; 2804.40 000

Amount of Income to be Exempted

1. The amount of income exempted is an amount equal to:
   • 10% of the value of increased exports of the manufacturing product of the qualifying company where the manufacturing product exported attained at least 30% of the value added;
   • 15% of the value of increased exports of the manufacturing product of the qualifying company where the manufacturing product exported attained at least 50% of the value added; or
   • 10% of the value of increase exports of the agricultural produce of the qualifying company.
2. The amount of exempted shall not exceed 70% of the statutory income of the qualifying company for a year of assessment.
3. "Value added" means the sale price of goods at the factory price which is less the total cost of raw material.

Determination of Value of Increased Exports

1. The value of increased exports shall be determined based on the difference between:
   • The free-on-board value of export sales in a basis period with free-on-board value of export sales in the basis period immediately preceding that basis period, where both basis periods of the qualifying companya are 12 months period ending on the same date; or
   • The average free-on-board value of export sales in a basis period with the average free-on-board value of export sales in the basis period immediately preceding that basis period, where both basis period of the qualifying company are not 12 months period ending on the same date due to the change of the basis period of qualifying company or the qualifying company is newly incorporated.
2. The value of free-on-board export sales in a basis period or the basis period immediately preceding that basis period shall not be equal to zero.

Insufficiency of Income
Where, by reason of the absence or insufficiency of the statutory income, exemption cannot be granted or cannot be granted in full as the qualifying company is entitled for that year of assessment, then so much of of the statutory income in respect of which exemption cannot be granted for that year of assessment shall be given exemption for the first subsequent year of assessment for the basis period for which the qualifying company has statutory income from the export of agricultural produce or product from manufacturing and for subsequent year or years of assessment until the exemption is granted in respect of the whole statutory income as the qualifying company is entitled but shall not exceed 70% from the statutory income for each year of assessment.

Separate Source and Separate Account

1. Where a qualifying company carries on an activity in relation to the export of agricultural produce or product from manufacturing and activity other than the activity in relation to the export of agricultural produce or product from manufacturing, each activity shall be treated as a separate and distinct source of the activity.
2. The qualifying company which is granted an exemption shall maintain a separate account for the income derived from each activity.

Non-Application
The Order shall not apply to a qualifying company in respect of the same export of agricultural produce or product from manufacturing if in the basis period for a year of assessment:

1. The qualifying company has been granted reinvestment allowance under Schedule 7A of the Act or investment allowance for service sector under Schedule 7B to the Act;
2. The qualifying company has been granted any incentive under the Promotion of Investment Act 1986;
3. The qualifying company has been granted any exemption under paragraph 127(3)(b) or subsection 127(3A) of the Act; or
4. The qualifying company has made a claim for deduction under any rules made under section 154 of the Act except:
   • Rules in relation to allowance under Schedule 3 to the Act;
   • The Income Tax (Deduction for Audit Expenditure) Rules 2006; or
   • The Income Tax (Deduction for Expenses in relation to Secretarial Fee and Tax Filing Fee) Rules 2014.