The Petroleum (Income Tax) (Investment Allowance) Regulation 2023 [P.U.(A) 264/2023] (“the Regulations”) were gazetted on 30 August 2023.
 
The Regulations are deemed to have come into operation on 30 November 2010.
 
The main provisions of the Regulations are summarised below.
 
Application
 
The Regulations apply to a project undertaken by a chargeable person as approved by the Minister of Finance (“the Minister”) in relation to: (a) a high carbon dioxide gas project¹ for the Tangga Barat Cluster project; and (b) a deepwater project² for the Gumusut Kakap project (each a “qualifying project”).
 
For the purposes of the Regulations, the petroleum operations carried on by a chargeable person in respect of a qualifying project is to be treated as separate and distinct petroleum operations of that chargeable person from his other petroleum operations in marginal fields³, deepwater projects and projects which are not qualifying projects.
 
The Regulations set out, among others, the basis for determining the gross income, adjusted income, adjusted loss, capital allowance, statutory income, investment allowance and assessable income of a chargeable person in relation to a qualifying project.
 
Gross income
 
The gross income of a chargeable person from his petroleum operations in respect of a qualifying project (“qualifying project operations”) shall be treated separately from his gross income in respect of projects which are not qualifying projects. Where a chargeable person carries on his qualifying project operations in the Gumusut Kakap area, the gross income from that area shall be treated as one gross income.
 
Adjusted income
 
The adjusted income of a chargeable person for the basis period for a year of assessment from his qualifying project operations shall be the amount ascertained in accordance with Chapter 3 of Part III⁴ of the Petroleum Income Tax Act 1967 (“the Act”).
 
Adjusted loss
 
Where an insufficiency of gross income of a chargeable person occurs for the basis period for a year of assessment from his qualifying project operations, the amount by which the total of all such deductions as would then have been allowed under Chapter 3 of Part III⁵ of the Act in ascertaining the adjusted income of that chargeable person exceeds his gross income for that period from his qualifying project operations shall be the amount of his adjusted loss for that period from the qualifying project operations, and be allowed as a deduction against the statutory income of the chargeable person from the qualifying project operations.
 
Capital allowance
 
Where a chargeable person has, for the purpose of carrying on his qualifying project operations incurred in relation to an asset, qualifying capital expenditure as specified in paragraphs 27 and 35 of the Second Schedule⁶ to the Act, there shall be made to him allowances to the qualifying project operations under the Second Schedule to the Act. Where such asset is also used for projects which are not qualifying projects, then the allowances which fall to be made under the Second Schedule to the Act on that asset shall be apportioned based on the gross income of each project.
 
Where, by reason of the absence or insufficiency of the adjusted income of a chargeable person from his qualifying project operations for the basis period for a year of assessment, effect cannot be given or cannot be given in full to the capital allowance to which the chargeable person is entitled as aforesaid, then the amount of that allowance which cannot be made shall be made in the first subsequent year for the basis period for which there is adjusted income from the qualifying project operations and for subsequent years of assessment until the whole of the allowance to which the chargeable person is so entitled is made.
 
Statutory income
 
The statutory income of a chargeable person for a year of assessment from his qualifying project operations shall be the amount of his adjusted income from the qualifying project operations for the basis period for that year less the amount of any capital allowance or the aggregate amount of the capital allowances allowed to be made under the Regulations for that year from his qualifying project operations.
 
Investment allowance
 
Where a chargeable person has incurred qualifying capital expenditure in respect of a qualifying project ⁷ in the basis period for a year of assessment, there shall be given to that chargeable person for that year of assessment an investment allowance equal to 60% of the qualifying capital expenditure incurred in the basis period for a year of assessment. The investment allowance as aforesaid shall be given for a period of ten years as determined by the Minister (“qualifying period”).
 
The qualifying period of a qualifying project shall commence on the date the qualifying capital expenditure is incurred by a chargeable person which shall not be earlier than 30 November 2010.
 
Where a chargeable person incurs qualifying capital expenditure within the qualifying period in respect of his qualifying project operations, such expenditure shall be deemed to be incurred on the day of first sale or disposal of chargeable petroleum⁸ in the basis period for a year of assessment by that chargeable person.
 
Where an investment allowance is given to a chargeable person under the Regulations for a year of assessment, so much of the statutory income of the qualifying project operations of the chargeable person for that year of assessment as is equal to the amount of the allowance shall be exempt from tax provided that the amount so exempt shall not exceed 70% of the statutory income of that qualifying project of the chargeable person for that year of assessment and for the next year of assessment, and so on.
 
Where, by reason of an absence or insufficiency of statutory income of a chargeable person from his qualifying project operations for the basis period for a year of assessment, effect cannot be given in full to any investment allowance which the chargeable person is entitled to under the Regulations for that year of assessment in respect of that qualifying project, the amount of the investment allowance that cannot be given for that year of assessment shall be deemed to be an allowance to be given to the chargeable person for the first subsequent year of assessment for the basis period for which there is statutory income from the qualifying project, and so on for subsequent years of assessment until the chargeable person has received the whole of the investment allowance to which he is so entitled in respect of that qualifying project.
 
Assessable income
 
The assessable income of a chargeable person from his qualifying project for a year of assessment (“relevant year”) shall consist of the amount of statutory income of that chargeable person in respect of his qualifying project operations reduced by, first, the amount of any adjusted loss for the basis period from the year of assessment preceding the relevant year of assessment, and, second, the amount of any investment allowance or the aggregate amount of investment allowance which has not been deducted from his statutory income under the Regulations.
 
The assessable income ascertained in the manner set out in the preceding paragraph shall be treated as part of the chargeable income of a chargeable person for a year of assessment for the purposes of the Act.
 
Disposal
 
Where an asset which qualifies for investment allowance under the Regulations is disposed of within two years from the date of its acquisition, the allowances which have been allowed to the chargeable person under the Regulations shall be treated as gross income of that chargeable person in the basis period for the year of assessment in which the asset is disposed of.
 
Alert by Fariz Abdul Aziz (Head of Oil & Gas and Energy Practice) and Kok Chee Kheong (Partner) of Skrine.
 

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