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Tax Incentives for Private Education Institutions

by StudyMalaysia.com on February 24, 2015 | Useful Topics

Introduction

Various tax incentives are already available for the private education institutions. Tax incentives offer relief from payment of direct or indirect tax partially or fully. The rationale for giving the tax incentives is to promote the development of training in a specific sector. The tax incentives are being provided for under the following legislations:

(i) Promotion of Investment Act 1986
(ii) Income Tax Act 1967
(iii) Customs Act 1967
(iv) Sales Tax Act 1972

Promotion of Investment Act 1986

Investment Tax Allowance (ITA)

  1. ITA for Technical or Vocational Training
    Applicable to:
    New technical or vocational training institution catering for the manufacturing, services and tourism sectors; or
    Existing technical or vocational training institutions (catering for the above sectors) incurring additional investment to upgrade their training facilities, or to expand their operations.

    The eligibility criteria
    The establishment of the institution must be approved by the Minister of Education and must be registered with the relevant State Registrar of Schools
    At least 70% of the students enrolled must be registered in the field of technical or vocational training and at least 70% of the students sitting for examinations are in the technical or vocational fields of studies.

    Incentive
    The institution will be granted an allowance of 100% in respect of qualifying capital expenditure* incurred within 10 years from the date on which the first qualifying capital is incurred. The allowance can be utilised to set off up to 70% of the statutory income in the assessment year. The balance of that statutory income will be taxed at the prevailing company tax rate. Any unutilised allowance can be carried forward to subsequent years until it is fully utilised.
    (Note: *capital expenditure means capital expenditure incurred on a building or on any plant and machinery used in Malaysia in connection with and for the purposes of an activity relating to training).
     

  2. Pioneer Status / ITA to multimedia faculties
    Applicable to:
    Multimedia faculties in institutions of higher learning. A multimedia faculty is a centre of learning which provides courses in media, computer and information technology, telecommunications, communication and contents relating to data, voice graphics and image.

    Incentive
    The institution will be granted an allowance of 100% in respect of qualifying capital expenditure incurred within 5 years from the date on which the first qualifying capital expenditure is incurred. The allowance can be utilised to set off against 85% of statutory income in the year of assessment. The balance of that statutory income will be taxed at the prevailing company tax rate. Any unutilised allowance can be carried forward to subsequent years until it is fully utilised.
     
  3. Infrastructure Allowance
    Applicable to:
    Any company that incurred capital expenditure on infrastructure for its operation in a promoted area. Promoted areas are Sabah, Sarawak, Pahang, Kelantan, Terengganu and Mersing in Johor.
    (Note: infrastructure means any construction, reconstruction, extension or improvement of any permanent structure including a bridge, jetty, port or road)

    Incentive
    The institution will be granted an allowance of 100% in respect of capital expenditure on infrastructure incurred within 10 years from the date on which the first qualifying capital is incurred. The allowance can be utilised to set off up to 85% of the statutory income in the assessment year. The balance of that statutory income will be taxed at the prevailing company tax rate. Any unutilised allowance can be carried forward to subsequent years until it is fully utilised.

Income Tax Act 1967

  1. Incentive for training
    Double deduction for Training expenses
    Effective from 1.7.1993 double deduction for expenses on training will be considered only for companies which do not contribute to the Human Resource Development Fund (HRDF) and the trainees must be full-time employees who are Malaysian citizens.
    Companies under the services sector not covered by the Human Resources Development Fund (HRDF) are eligible for double deductions on training expenses if such training were to be undertaken in approved training institution or government training institutions. (See Appendix 1)
     
  2. Single deduction on training expenses
    Single deduction for purposes of tax computation is granted to pre-commencement of business training expenses, provided the training is within the period of one year prior to commencement of business.

    Special tax treatment for donation of used machinery or equipment
    Applicable to:
    Donation to a technical or vocational training institute established and maintained by the Government or statutory body or technical or vocational training institute approved by the Minister of Finance.

    Incentive
    The disposal value of such machinery or equipment is deemed as zero. Any unutilised capital allowance (residual expenditure) in respect of the machinery or equipment will be given full deduction in the year of assessment in which the machinery/equipment are donated.
    (Prior to this, the disposal value of such gifts is taken to be market value and if the value is higher than the utilised capital allowance, the donor is subject to tax on the balancing charge).
     

  3. Industrial Building Allowance
    Applicable to:
    (i) buildings used for approved industrial, technical or vocational training
    (ii) buildings used for education i.e. schools or an education institution approved by the Minister of Education

    Incentive
    Special IBA which is 1/10 of the expenditure incurred on construction/purchase of building
     

  4. Double deduction on promotion of services export
    Applicable to:
    All companies in the services sector

    Incentive
    The expenses eligible for double deduction for purposes of tax computation are as follows:

    • export market research
    • preparation of tenders for the supply of services overseas
    • supply of technical information abroad
    • fares in respect of travel overseas by employees of companies for business
    • accommodation and sustenance expenses incurred by Malaysian businessmen going overseas for business, subject to RM200 per day for lodging and RM100 per day for food
    • cost of maintaining office overseas for purpose of promotion of services

    Note : Double deduction on promotion of export of services for companies eligible for tax incentives under Section 127 or Schedule 7B of the Income Tax Act 1967, is allowed to be accumulated and offset against their post exemption income.
     

  5. Tax exemption on Value of Increased Exports
    Applicable to: Selected services sector including private education

    Incentive
    Tax exemption on statutory income equivalent to 10% of the value of increased exports is given to companies engaged in education.

    Special Capital Allowance on Information Technology Assets
    Special Capital Allowance consisting of initial allowance 20% and annual allowance 40% is granted to computer and information technology assets.

Customs Act 1967 & Sales Tax Act 1972

Duty exemption on machinery/equipment/material/raw material/sample
Applicable to Approved training programme, approved training institution and technical or vocational training company.

Machinery/equipment, materials, raw materials and samples
Full exemption from :

  1. Import duty and sales tax on imported items irrespective whether it is available locally.
  2. Sales tax and excise duties on locally purchased items

Appendix 1

Approved Training Institutions
Double deduction on expenses billed by the respective approved training institutions. (No other expenses are allowed for double deduction).
The approved training institutions are as follows:
  1. National Productivity Corporation (NPC)
  2. Standard and Industrial Research Institute of Malaysia (SIRIM)
  3. Institut Teknologi Mara (ITM)
  4. Malaysian Agricultural Research and Development Institute (MARDI)
  5. Forest Research Institute of Malaysia (FRIM)
  6. The Centre For Instructor and Advanced Skill Training (CIAST)
  7. Penang Skills Development Centre (PSDC)
  8. Institut Kemahiran Mara (IKM)
  9. Industrial Training Institute (ITI)
  10. German-Malaysia Institute (GMI)
  11. Malaysia Timber Industry Board (MTIB)
  12. Federation of Malaysian Manufacturer - Entrepreneur and Skills development Centre (FMM-ESDC) (certain programmes only)
  13. Perak Entrepreneur and Skills development Centre (PESDC)
  14. Tuas Polytech
  15. ASEAN Timber Technology Centre (ATTC)
  16. Sarawak Timber Industry Development Corporation (STIDC)
  17. Sarawak Skills Development Centre
  18. Kedah Industrial Skills & Management Development Centre (KISMEC)
  19. Malaysia France Institute (MFI)
  20. Selangor Human Resource Development Centre (SHRDC)
  21. Pusat Pembangunan Tenaga Industri Johor (PUSPATRI)
  22. Malaysian Institute of Nuclear Technology (MINT)

Private Training Institution (certain programmes)

  1. Institut Bank-Bank Malaysia (IBBM)
  2. Malaysian Insurance Institute (MII)
  3. Persekutuan Penghantar Fret Malaysia
  4. Association of Consulting Engineer Malaysia (ACEM)
  5. Persatuan Elektrik & Elektronik
  6. AFCM Training Services Sdn. Bhd.
  7. Institut Pengurusan Malaysia (MIM)
Source: Studymalaysia Research Team

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