Malaysia announces big tax incentives for shipyard industry

Malaysia has unveiled a generous new tax incentive scheme to help boost its shipbuilding industry, local reports said.

The Ministry of International Trade and Industry (Miti) has introduced an incentive scheme giving tax exemptions to existing and new shipbuilding and ship repair companies in Malaysia.

According to Miti, new companies will be able to enjoy either pioneer status with a 70% income tax exemption on their statutory income for a period of five years, or an investment tax allowance of 60% on the qualifying capital expenditure (capex) incurred within five years from the date the first qualifying capex is incurred.

Existing shipbuilding and ship repair companies will be given an investment tax allowance of 60% on the additional qualifying capex incurred within a period of five years. All applications will be evaluated by the Malaysian Investment Development Authority.

Although there are 100 registered shipyards in Malaysia, currently only six large shipyards have repair yard capacity of more than 600 tonnes. These are Malaysia Marine and Heavy Engineering Holdings Bhd, Boustead Naval Shipyard, Sabah Shipyard, SapuraKencana Petroleum Bhd, Nam Cheong and Muhibbah Marine Engineering.

Previously, incentive schemes for the shipbuilding and ship repair industry were for projects located in the Eastern Corridor, and the states of Sabah, Sarawak, Perlis, Kelantan, Terengganu, Pahang as well as the district of Mersing in Johor, to boost industry in these areas.

Companies were eligible for Pioneer Status with an income tax exemption of 100% of their statutory income for a period of five years, or an investment tax allowance of 100% on the qualifying capex incurred within a period of five years. All these schemes ended in 2010 however.

The new incentives are applicable to all areas in Malaysia, with the objective of boosting the overall growth of the industry in line with the Malaysian Shipbuilding and Ship Repair Industry Strategic Plan 2020 and the 11th Malaysia Plan.

“I strongly urge both local and foreign investors to capitalise on these new incentives. Despite the sluggish momentum in the offshore oil and gas industry, which has suppressed demand for ships and offshore structures, Malaysia has the pull factor to become the leading nation in the shipbuilding and ship repair industry,” said minister for trade and industry Mustapa Mohamed.

“We want to encourage the industry players to further build their capabilities and capacities to meet the challenges in the competitive global landscape. Local players, especially, should enhance their value-add offering by strengthening their innovation capacity in developing new products and production methods. This includes employing local design engineering capability either in-house or outsourcing from the available design house providers,” the minister was quoted saying.

Miti said the shipbuilding and ship repair industry has been identified as one of the sectors to support Malaysia’s economic growth. Focus areas include the production of small vessels for recreation, sports and leisure boats, the production of vessels of 30,000 deadweight tonnes and below for coastal shipping, the fabrication of offshore structures and the production of tugs and pusher craft for export.

Under the 6th entry point project of the Economic Transformation Programme, the government aims to develop in-country design capabilities for offshore support vessels by training up to 160 engineers and technicians in shipbuilding and ship repair through Boustead Heavy Industries Corp and Boustead Naval Shipyard.

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