What is Tax Incentive?

Tax Incentive comes in the form of government grant or tax deduction when taxpayer company able to achieve the objective set by the government. Tax incentive also allow the taxpayer company to get the best tax rebate for its capital spent.

Tax incentive can come in the form of tax incentive for export, manufacturing, and also capital allowance for business owner to re-invest in huge capital machine or building.

Tax Incentive for Logistic Industry

Can maintenance of warehouse claim for tax incentive under Rule 2002? 

Case: Mettube International Sdn Bhd v KPHDN (2023) [High Court Court]

Court: High Court

Date: 18.07.2023

This case was related to the taxpayer company claiming for deduction of the cost of maintaining warehouse overseas under Income Tax (Deduction for Promotion of Exports) Rules 2022 (P.U.A (A) 115/2002)(the "2002 Rules").

The IRB had claimed that the taxpayer company only rented the services of receiving and storing and not renting a warehouse. As such, the taxpayer company did not fulfill the requirement under 2002 Rules.

The agreement shows that the rental payment is computed based on the number of pallets stored in the said warehouse. Thus, the purpose of agreements was to store pallets at the space rented in the warehouse.

The applicant contended that the expenses were allowable pursuant to rule 4 of the 2002 Rules. For convenience, the relevant parts of rule 4 of the 2002 Rules are now reproduced:

(1) Subject to these Rules, for the purpose of ascertaining under the Act the adjusted income of a company from its business for the basis period for a year of assessment, there shall be allowed as a deduction any outgoings and expenses of the kind described in subparagraph (2) which were incurred 

(a) by the company during that basis period with respect of the business; and

(b) primarily and principally for the purpose of promoting the exports.

(2) The outgoings and expenses referred to in subparagraph (1) are -

(a) expenses incurred in respect of participation in a virtual trade show;

(b) expenses incurred in respect of participation in a trade portal; and

(c) costs of maintaining warehouse overseas

(3) The deduction allowed under these Rules shall be in addition to any deduction allowable under Section 33 of the Act.

The issue for determination is whether the costs of maintaining warehouse overseas includes expenses incurred for "RECEIVING AND STORAGE SERVICES" in a warehouse overseas as an allowable deduction for outgoings and expenses under the 2002 Rules.

The Court has ordered the matter to be heard before the Special Commissioners of Income Tax as the issue of maintaining of a warehouse overseas primarily and principally for promoting exports is a question of fact.