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Reinvestment Allowance – Manufacturing Sector

28 March 2025

In today’s competitive business environment, every cost-saving strategy counts—especially when it comes to taxes. For manufacturing and approved agricultural companies in Malaysia, one of the most impactful government incentives is the Reinvestment Allowance (RA). This scheme encourages businesses to reinvest in their operations, driving industrial growth and boosting national productivity.

What is Reinvestment Allowance?

The RA, provided under Schedule 7A of the Income Tax Act 1967, is available to manufacturing and approved agricultural companies that reinvest in qualifying projects such as automation, expansion, diversification, or modernisation. Eligible companies can claim 60% of qualifying capital expenditure (QCE), which can be used to offset up to 70% of statutory income for that assessment year. Any unutilised RA can now be carried forward for up to 7 consecutive years (effective YA 2025) until fully utilised.

Who is eligible for RA?

To qualify, companies must:

Be incorporated and tax resident in Malaysia.
Not be enjoying other mutually exclusive tax incentives.
Have been in operation for at least 36 months in the qualifying activities.
Use the allowance only for eligible capital expenditure, with the condition that if assets purchased under RA are disposed of within five years, the allowance claimed may be clawed back.

Benefits of Reinvestment Allowance

RA offers several significant benefits:

Lowers the actual investment cost, making reinvestment more financially viable.
Can be claimed for 15 consecutive years from the first year of eligibility.
Provides tax savings of up to 70% of statutory income (and in some approved cases, up to 100%)

Example

For instance, if a glove manufacturing company invests RM2 million in new machinery, it may claim 100% Capital Allowance (CA) plus 60% RA on the qualifying expenditure. At a 17% tax rate, this could result in savings of RM544,000, effectively reducing the investment cost to RM1,456,000—bringing the effective tax rate down to just 4%.

With proper planning, RA remains a powerful tool for businesses to reinvest, innovate, and stay competitive while aligning with Malaysia’s long-term industrial growth goals.