Companies embarking on sustainability activities may be entitled to tax benefits as part of the Government's effort to promote sustainable growth in Malaysia.
The recent revamp of Ministries such as the Ministry of Energy, Green Technology and Water and the Ministry of Natural Resources and Environment is an indication of the increasing level of commitment undertaken by the Government of Malaysia in relation to the 'green' agenda.
A survey1 conducted by PricewaterhouseCoopers has shown that global business leaders recognise the need for tax and regulations to drive sustainability. A combination of carrot (tax incentives) and stick (regulation, tax charges) is deemed necessary for effective sustainability implementation.
How effective do you feel each of the following tools are/would be at encouraging your business to reduce its environmental impact? Base: Total (654)
In addition, numerous policies have been introduced to align mitigation, adaptation, investment and financing of sustainability measures. Among them are the National Green Technology Policy and the Second National Communication, Vulnerability and Adaptation (V&A) Plan of Action.
The National Green Technology policy is a RM1.5 billion funding scheme to improve the supply and utilisation of Green Technology. Malaysian companies that produce or use green technology are eligible for a 2% interest rate discount that will be borne by the Government. The Government will also guarantee 60% of the financing amount via Credit Guarantee Corporation Malaysia Berhad (CGC) whilst the participating financial institutions will bear the remaining 40% financing risk2.
|Features||Producer of Green Technology||User of Green Technology|
|Financing size||Maximum: RM 50 million per company||Maximum: RM 10 million per company|
|Financing tenure||Up to 15 years||Up to 10 years|
|Eligibility criteria||Legally registered Malaysian-owned companies (at least 51%) in all economic sectors||Legally registered Malaysian-owned companies (at least 70%) in all economic sectors|
|Participating financial institutions||
All commercial and Islamic banks.
Development Financial Institutions (DFIs): Bank Pembangunan, SME Bank, Agrobank, Bank Rakyat, EXIM bank and Bank Simpanan Nasional
(Listing of commercial banks and Islamic banks available from Bank Negara)
National Communication, Vulnerability and Adaptation (V&A) Plan of Action is an ongoing activity launched in May 2006 to ensure improvement and sustained efforts on Malaysia's technical and institutional capacities to help the country meet its obligations under the United Nations Framework Convention on Climate Change (UNFCCC)3.
In the 2010 budget, tax incentives for buildings obtaining Green Building Index (GBI) certificate was introduced. The GBI is a comprehensive rating system designed specifically for Malaysian tropical weather, environmental and development context, to evaluate the environmental design and performance of Malaysian buildings. It is based on a building's energy efficiency, indoor environment quality, sustainable site planning and management, materials and resources, water efficiency and innovation4.
In addition to the incentives granted to GBI rated buildings, below are examples to illustrate activities which will enable a company to qualify for tax incentives5.
|Examples of Sustainability Initiative||Reference|
|A company which provides an area for child care facilities for young children which enable parents to bring their children to work. Facilities include a room equipped with children's books, toys, adult providing supervision for the young children as well as time for employees to visit their children at work will qualify for a single tax deduction for the amount spent on the child care facility||S 34 (6) (i) of the Income Tax Act, 1967 allows for a single tax deduction|
|Safety training programmes organised for non-employees of a company are entitled to a single tax deduction. The objective of providing safety training is to provide information on safety which are applicable to the community||S 34 (6) (n) of the Income Tax Act, 1967 allows for a single tax deduction|
|Setting-up and managing a school for children with learning disabilities catered for the children of the school-going age who require extra help and attention to address their disabilities. Managing such a non-profit oriented school will enable the company to qualify for a tax exemption||PU (A) 247/2008 Income Tax (Exemption) (No. 5) Order 2008 allows for tax exemption|
|An organisation implementing processes to manage the recycling of its waste is eligible for claiming its 6-year capital allowance within a 2-year period.||Income Tax (Accelerated Capital Allowances) (Recycling of Wastes) Rules 2000 permits accelerated capital allowance|
|A company which incurs high capital expenditure in installing its own water chilling plant to recycle its water to produce electricity is considered a company that conserves energy for its own consumption and due to the high initial investments for the future benefit of its company, the Ministry of Finance provides the company with a Pioneer status with tax incentives||Promotion of Investments Act|
|An individual or a company acquiring property with GBI certification is entitled to the exemption of stamp duty||PU (A) 410/2009 Income Tax (Exemption) (No. 8) Order 2009|
1 PricewaterhouseCoopers, "Appetite for Change", 2010
2 Green Technology Financing Scheme, www.gtfs.my, accessed March 2010
3 United Nationals Development Programme - Malaysia, www.undp.org.my, accessed March 2010
4 Green Building Index, "GBI Assessment Criteria for Non-Residential New Construction (NRNC)", April 2009
5 PricewaterhouseCoopers analysis, 2010