Can a Pioneer Status (PS) taxpayer claim Reinvestment Allowance (RA) on non-promoted product concurrently?

Can a Pioneer Status (PS) taxpayer claim Reinvestment Allowance (RA) on non-promoted product concurrently?

Why are taxpayers unable to enjoy pioneer status and reinvestment allowance at the same time? What should we take note of?

Lesson from Tax Case : Syarikat Kion Hoong Cooking Oil Mills Sdn Bhd vs Ketua Pengarah Hasil Dalam Negeri

The Company has been granted a pioneer certificate for promoted activity/product. Besides that, the tax relief period has not ended and ceased. Therefore, the Company is not eligible to claim reinvestment allowance (RA).

Background information

The Company is involved in the manufacturing of promoted products (ie, margarine and shortening) and non-promoted products (eg, cooking oil, coconut oil, refined oil, soap, animal and poultry feed).

The Company is exempted 85% of its statutory income in respect of the promoted products in which the Company has been granted pioneer status.

Besides, the Company also claims RA on capital expenditure incurred on plant and machinery used in the manufacture of these non-promoted products.

Tax Issue

Whether incentives of pioneer status and reinvestment allowance are mutually exclusive?

The Company’s opinion

The pioneer certificate granted to the Company was in relation to the promoted product/activity, it is not attached to the Company's status as a pioneer company.

 According to the paragraph of interpretation of exclusion from reinvestment allowance, Schedule 7A para 7(a)(ii), it did not expressly exclude a company from claiming RA.

 IRB argument

Pioneer certificate does not refer to the status of the products manufactured, it is referring to the status of the Company.

Under the interpretation of exclusion from reinvestment allowance, taking the position that pioneer companies were excluded from qualifying for RA during the pioneer period.

 The decision by The Court (Court of Appeal)

The incentives of reinvestment allowance and pioneer relief are not mutually exclusive. The RA granted is to promote productivity through the use of new and efficient plants and machinery.

However, if the Company was granted pioneer status, regardless of whether it also had non-promoted activities/products, it was not entitled to claim RA. The exclusion from claiming RA does not apply to a company with a pioneer certificate that manufactures non-promoted goods.

Source: https://phl.hasil.gov.my/pdf/pdfam/Syarikat_Kion_Hoong_Cooking_Oil_Mills_Sdn_Bhd.pdf

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