Tax Services

Green tax incentives for

a sustainable Malaysia
PwC Alert Issue No. 86 October 2010 PP9741/10/2010 (025623)
PwC
With rising energy
costs and the threat
of global warming,
many businesses
are now recognising
the benets of using
green technology to
reduce their carbon
footprint and minimise
waste with the goal of
reducing their impact
on the environment.
To address the pressing issue of climate change, the Malaysian Government
has also given greater focus to green developments in recent years and
is making concerted efforts to encourage Malaysians to embrace green
technology. This is evident through some of the measures implemented by the
Malaysian Government which reveal the Governments intention to stimulate
the adoption of green technology. These measures include:
Restructuring of the Ministry of Energy, Water and Communications to the
Ministry of Energy, Green Technology and Water (KeTTHA) in April 2009
Launching of the National Green Technology Policy in July 2009 with a
National Green Technology Council, chaired by our Prime Minister, Datuk
Seri Najib Razak to accelerate the development of green technology in
Malaysia
Introduction of a series of tax incentives to encourage the public and
private sectors to invest in green technology
Establishment of the Green Technology Finance Scheme totalling RM1.5
billion for companies that supply and utilise green technology
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PwC Alert Issue 86 2
What is green
technology?
Green technology is dened by KeTTHA as the development and application
of products, equipment and systems used to conserve the natural environment
and resources, which minimises and reduces the negative impact of human
activities.
What are the current
tax incentives for
green technology?
Prior to Budget 2010, tax incentives were given to companies which generate
energy from renewable sources and for energy conservation activities. The tax
incentives are summarised in Tables 1 and 2 below.
A company qualifying for and wishing to enjoy any of these tax incentives
will have to submit an application to the Government authorities (i.e. Ministry
of Finance or Ministry of Industrial Development Authority (MIDA)) before 31
December 2010 as these tax incentives expire on that date.
Some potential problems arising from the practical application of tax
incentives for companies which incur qualifying capital expenditure for energy
conservation for own consumption (energy efciency project) include:
MIDA is the one stop processing centre for this application while the
Energy Commission carries out the technical evaluation for the energy
efciency (EE) projects and products. However, there is lack of clarity as to
the designated authority for certifying the cost for the EE project incentive.
It is also not clear as to what constitutes the qualifying capital expenditure
for the EE project, for example, is it the system (e.g. air-conditioner) or the
EE assets (e.g. chillers)?
Table 1: Tax incentives for the generation of energy from renewable sources
Sector / Activity Corporate tax incentives Indirect tax incentives
Companies
generating energy
from renewable
sources
Pioneer status with tax exemption of
100% of statutory income for ten years;
or
Investment tax allowance on qualifying
capital expenditure incurred to be set-
off against 100% of statutory income
for ve years.
Import duty and sales tax exemption on
equipment used to generate energy from
renewable sources not produced locally; and
Sales tax exemption on equipment purchased
from local manufacturers.
Companies
generating renewable
energy for own
consumption
Investment tax allowance on qualifying
capital expenditure incurred to be set-
off against 100% of statutory income
for ve years.
Others N/A Import duty and sales tax exemption on solar
photovoltaic system equipment for the usage
by third parties be given to importers including
photovoltaic service providers approved by the
Energy Commission; and
Sales tax exemption on the purchase of
solar heating system equipment from local
manufacturers.
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PwC Alert Issue 86 3
In addition, income received from the sale of certied emission reduction would be exempted from income tax. This tax
incentive will expire on 31 December 2010.
The Green Building Index (GBI) was launched on 21 May 2009. It is the Malaysian construction industrys recognised
green rating tool, developed specically for the Malaysian tropical climate for buildings. The GBI was conceived to
promote sustainability of buildings and raise awareness among developers, architects, engineers, contractors and the
public about environmental issues and our responsibilities to future generations. Buildings will be awarded the GBI rating
based on six key criteria:
Energy efciency 1.
Indoor environmental quality 2.
Sustainable site planning and management 3.
Material and resources 4.
Water efciency 5.
Innovation. 6.
Table 2: Tax incentives for energy conservation
Sector / Activity Corporate tax incentives Indirect tax incentives
Companies providing
energy conservation
services
Pioneer status with tax exemption of
100% of statutory income for ten years;
or
Investment tax allowance on qualifying
capital expenditure incurred to be set-
off against 100% of statutory income
for ve years.
Import duty and sales tax exemption on energy
conservation equipment that are not produced
locally; and
Sale tax exemption on the purchase of locally
produced equipment.
Companies which
incur capital
expenditure for energy
conservation for own
consumption
Investment tax allowance on qualifying
capital expenditure incurred to be set-
off against 100% of statutory income
for ve years.
Others N/A Import duty and sales tax exemption on EE
equipment (e.g. high efciency motors and
insulation materials) to importers including
authorised agents approved by the Energy
Commission; and
Sales tax exemption on the purchase of
locally manufactured EE consumer goods (e.g.
refrigerator, air conditioner, lighting, fan and
television).
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PwC Alert Issue 86 4
Together with the launch of GBI, the Government introduced tax incentives for GBI-certied buildings in Budget 2010 to
encourage the construction of buildings using green technology. The tax incentive is summarised in Table 3 below.
Note *Not applicable to a company which has been granted investment tax allowance or pioneer status under the Promotion of
Investments Act 1986 [Act 327] in respect of qualifying expenditure incurred on activity for generation of renewable energy or for
conservation of energy.
It is noteworthy that there are issues for consideration relating to this GBI tax incentive, which broadly include the
following:
Qualifying expenditure Incidental costs such as GBI registration fees, GBI facilitator cost and consultancy cost are a.
not included as the additional capital expenditure incurred to obtain the GBI certicate.
Qualifying expenditure some green assets are given a reference base cost while others are not. For example: b.
Green assets Reference base cost Comments
Insulated glazing unit Tempered glass Claimable on the difference of glass
rates. Base shall be of reasonable
thickness and of type of glass which
complies with the performance of
similar window/curtain walling size.
Wall insulation NIL 100% claimable
Frequently asked questions revolve around the determination of the reference base cost and which the designated
authority to determine the said cost is.
c. Qualifying person Only a person who incurs qualifying expenditure and commences his business at the GBI
building would qualify for GBI income tax incentive. Hence, property developers, private house owners who lease
GBI residential properties to collect passive rental income, and rst property buyers would not qualify for GBI
income tax incentive.
d. GBI income tax incentive and/or stamp duty exemption is standard and is not enhanced if the GBI certied building
attains a higher category, for example from Silver to Platinum category.
Table 3: Income Tax/Stamp Duty Incentives for GBI certied building
Building expenditure incurred by a
person or company
(Income Tax (Exemption) (No. 8)
Order 2009*)
100% tax exemption on additional capital expenditure to obtain GBI
certicate
Set-off against 100% statutory income
Once in a lifetime claim on GBI buildings
Incentive claimed once certicate is issued for new buildings and upgrade of
existing buildings
Effective date: Buildings awarded GBI certicates from 24 October 2009 to 31
December 2014
Property buyers
(Stamp Duty (Exemption) Order
2009)
Stamp duty exemption based on additional cost to obtain GBI certicate
Buildings and residential properties with GBI certicate
Applies only to purchases from developers
First property owner only
Effective date: Sale and purchase agreements executed from 24 October 2009
until 31 December 2014.
Green tax incentives for a sustainable Malaysia October 2010
PwC Alert Issue 86 5
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PwC Alert Issue 86 6
Generally, the current tax incentives for green technology in Malaysia may
not be sufciently attractive to the public and private sectors as compared to
those given in our neighbouring countries. Nevertheless, the Prime Minister
has indicated his commitment to sustainability, having made it a key pillar in
the New Economic Model, and by announcing that Green Technology will be
one of the priority areas in Budget 2011. Furthermore, following the Prime
Ministers declaration at the United Nations Climate Change Conference in
Copenhagen last year to reduce Malaysias carbon emissions by up to 40%
as compared to 2005 levels, it is clear that green technology will play an
increasingly important role.
The government has actively taken initiatives to promote the adoption
of green technology as part of the strategy for sustainable development.
Besides showing the government's commitment to the green agenda, these
initiatives also give rise to many business opportunities which should be
grasped before they expire upon lapse of time.
Contacts
If you have any enquiries on Green Technology tax incentives, please
contact the following:
Margaret Lee
Senior Executive Director
margaret.lee.seet.cheng@my.pwc.com
+603 2173 1501
Cynthia Ng
Senior Consultant
cynthia.hh.ng@my.pwc.com
+60 3 2173 1438
Where do we go
from here?
Green tax incentives for a sustainable Malaysia October 2010
PwC Alert Issue 86 7
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