Tax Exemption for Export of Agricultural Produce and Manufactured Products

11 June 2019

The following exemption orders were gazetted on 7 June 2019 –

• Income Tax (Exemption Order) (No. 5) Order 2019 [P.U.(A) 161/2019] (‘EO5/19’);
• Income Tax (Exemption Order) (No. 6) Order 2019 [P.U.(A) 162/2019] (‘EO6/19’); and
• Income Tax (Exemption Order) (No. 7) Order 2019 [P.U.(A) 163/2019] (‘EO7/19’).

The exemption orders provide for exemption from income tax for promotion of export¹ of certain manufactured products² and agricultural produce³. 
 
A.  Manufactured Products
 

1. A company which increases the export sales of manufactured product by at least 50% in the basis period for a year of assessment will be granted tax exemption on its statutory income of an amount equal to 30% of the value of the increased exports.⁴

2. A company which succeeds in penetrating new export market determined by the Malaysian External Trade Development Corporation (‘MATRADE’) in the basis period for a year of assessment will be granted tax exemption on its statutory income of an amount equal to 50% of the value of the increased exports.⁵

 

3. A company which is awarded an Export Excellence Award by the Minister of International Trade and Industry (‘MITI’) for achieving the highest export sales for a year of assessment will be granted tax exemption on its statutory income of an amount equal to 100% of the value of the increased exports.⁶

4. A company which increases the export sales of manufactured product in the basis period for a year of assessment will be granted tax exemption on its statutory income of an amount equal to –

1. 10% of the value of the increased exports where the manufactured product exported attains at least 30% of the value added; and

2. 15% of the value of the increased exports where the manufactured product exported attains at least 50% of the value added.⁷

5. A company having a paid-up ordinary share capital not exceeding RM2.5 million⁸ which increases the export sales of manufactured product in the basis period for a year of assessment will be granted tax exemption on its statutory income of an amount equal to –

1. 10% of the value of the increased exports where the manufactured product exported attains at least 20% of the value added; and

2. 15% of the value of the increased exports where the manufactured product exported attains at least 40% of the value added.⁹

6. For the purposes of EO6/19 and EO7/19, ‘value added’ means the sale price of the goods at factory price less the total cost of raw material.

               
B.  Agricultural Produce  
 

7. A company which increases the export sales of agricultural produce by at least 50% in the basis period for a year of assessment will be granted tax exemption on its statutory income of an amount equal to 30% of the value of the increased exports.¹⁰

8. A company which succeeds in penetrating new export market determined by MATRADE in the basis period for a year of assessment will be granted tax exemption on its statutory income of an amount equal to 50% of the value of the increased exports.¹¹

9. A company which is awarded an Export Excellence Award by MITI for achieving the highest export sales for a year of assessment will be granted tax exemption on its statutory income of an amount equal to 100% of the value of the increased exports.¹²

10. A company which achieves an increase in export sales of agricultural produce in the basis period for a year of assessment will be granted tax exemption on its statutory income of an amount equal to 10% of the value of the increased exports of the agricultural produce.¹³

11. A company having a paid-up ordinary share capital not exceeding RM2.5 million¹⁴ which achieves an increase in export sales of agricultural produce in the basis period for a year of assessment will be granted tax exemption on its statutory income of an amount equal to 10% of the value of the increased exports of the agricultural produce.¹⁵

C.  Conditions
 

12. The conditions that have to be fulfilled in order to qualify for exemption under each of the exemption orders include the following –

1. the company must be incorporated under the Companies Act 2016 and resident in Malaysia;

2. the amount of income that is exempted from tax must not exceed 70% of the statutory income of the company for a year of assessment;

3. in the case of a manufactured product, the product must –

1. be manufactured by the company;

2. not be subject to prohibition of exports under the Customs Act 1967; and

3. not be listed in the schedule to the relevant exemption order; and

4. in the case of agricultural produce, the produce must be planted, reared or caught by the company.

13. To qualify for tax exemption under EO5/19 and EO6/19, at least 60% of the issued share capital of the company must be owned directly by Malaysian citizens.

D.  Multiple claims not permitted
 

14. Each exemption order will not apply to a company in respect of the same export of agricultural produce or manufactured product if the company has, in a basis period for a year of assessment, been granted the allowances or incentives or exemptions, or claimed a deduction under any of the laws specified in paragraph 8 of the relevant exemption order.

E.  Duration
 

15. EO5/19 and EO6/19 are deemed to have come into operation from year of assessment 2016.

16. EO7/19 is deemed to have come into operation from year of assessment 2016 until year of assessment 2020.

F.  Revocation
 

17. The Income Tax (Allowance for Increased Exports) Rules 1999 [P.U.(A) 128/1999] is revoked by EO5/19.

18. The Income Tax (Exemption) (No. 17) Order 2005 [P.U.(A) 158/2005] is revoked by EO6/19.

19. Notwithstanding the revocation of the subsidiary legislation referred to in the paragraphs 17 and 18 above, the said subsidiary legislation shall continue to apply to any exemption which has been granted under the respective subsidiary legislation as if such legislation has not been revoked.