(d) spares and consumables used by non-manufacturing industries such as the film and agriculture industries, and companies operating in LMW / FIZ which are not produced in the PCA;

(e) spares and consumables imported for expansion and modernisation projects including upgrading are given tax exemptions as in the case for new operations. For this purpose modernisation and upgrading must result in the improvement in quality or increased capacity or in compliance of legal requirements such environmental laws;

(f) spares and consumables used by SMIs that are participating in the Entrepreneur Development Programme under the Ministry of Finance, the ILP under MITI and the Vendor Development Programme under the Ministry of Entrepreneur Development.

(g) Spares and consumables that attract import duty more than 5% and have no potential to be produced locally. The exemption is from 18 April 1998 till 31 October 1999;

(h) Export oriented companies which export at least 80% of their products. The exemption is from 18 April 1998 till 31 October 1999; and

(i) Spares and consumables which have too small and limited domestic demand. The exemption is from 18 April 1998 till 31 October 1999.

Replacement parts and consumables include the following goods/material:
(a) replacement parts for machinery/equipment used directly in the production process such as screws and bolts, filters, valves, gaskets and refractory bricks; and
(b) organic and inorganic consumables used directly or indirectly in the process but not embodied in the finished product such as grinding stones, sandpaper and catalysts.

Moulds and dies are not considered as spare parts and consumables, as such they are still eligible for tax exemption.

(ii) Tax Exemption on Raw Materials / Components

Companies in the manufacturing sector are eligible for import duty exemption on imports of raw materials/components which are directly used in the production process land are not produced locally. Nevertheless, for the export market, tax exemption may still be considered if the locally produced materials is not competitive in terms of its quality or price.

The level of import duty exemption on raw materials/components depends on the market for the respective product. For the export market full exemption will be given. For the domestic market, full exemption will only be given under the following conditions:

(a) the finished products (made from the dutiable raw materials/components) are not subject to import duties:

(b) the company concerned has complied fully the Government's policy guidelines in relation to the ownership of shares, management and employment structure in all categories;

(c) companies located in the 'Eastern Corridor' or Peninsular Malaysia, Sabah and Sarawak. For projects in Sabah and Sarawak, exemption will also be given if the raw materials/components are not produced in the respective states; and

(d) SMI companies participating in the Entrepreneur Development Programme under the Ministry of Finance, the ILP Programme under MITI and the Vendor Development Programme under the Ministry of Entrepreneur Development even if the goods can be sourced locally.

Under other circumstances, raw material / components used in production for the domestic market will only be given partial exemption where the company is normally required to pay 2% or 3% of import duty. Where the raw material / components are subjected to 3% import duty or less, no tax exemption will be considered.

Effective from 26 October 1996, the level of import tax exemption on components for the assembly-based industries geared for the domestic market will be gradually reduced. Initially, for imported components with a 5% a.v. imported duty. For imported components with an import duty of less than 5% a.v. the company will continue to pay duty according to prevailing rates. At present the policy is only applicable to distinctly assembly-based industries, such as the automotive, the electronic and electrical industries.

Nevertheless exemption of import duty on components for assembly-based industry may still be considered for the following:

(a) companies operating in the 'Eastern Corridor' of Peninsular Malaysia, Sabah and Sarawak. However, the companies will not be given exemption if the components is produced locally;

(b) the finished products are not subject to import duties;

(c) SMI companies that are participating in the Entrepreneur Development Programme under the Ministry of Finance, the ILP Programme under MITI and the Vendor Development Programme under the Ministry of Entrepreneur Development even if the goods can be obtained from local producers:

(d) Indirect exports where the company sells to local manufacturers who export their finished products. However, the company will not be given exemption if the relevant component is produced locally; and

(e) Components not manufactured in Principal Customs Area and which are purchased from companies operating in LMW/FIZ.

(iii) Abolition or Exemption of Indirect Tax for the Tourism Sector

(a) Abolition or import duty and sales tax for tourist items such as pewterware, cameras, watches, lighters, fountain pens, transistor radios, perfumes and cosmetic products:

(b) Service tax exemption is given to budget class hotels that have less than 25 rooms;

(c) Service tax is abolished in Labuan and Langkawi;

(d) Import duty and excise duty on completely-knocked-down (CKD) components for locally assembled tourist buses are abolished; and

(e) Import duties and sales tax exemption on machinery and equipment produced locally or imported (specified items) for use by hotels and other related accommodation as well as approved tourism related projects. However, effective from Budget Day 1997, tax exemption on certain imposed hotel equipment is withdrawn. Equipment such as those, which are essential for security, and those required for the hygienic preparation of food will continue to be eligible for import duty and sales tax exemption if there are not produced locally. The equipment are as follows:

(j) Electronic security system:
(ii) generator sets;
(iii) high/medium speed lifts;
(iv) boilers;
(v) laundry equipment;
(vi) dish washing machines;
(vii) centralised air conditioning system equipment; and
(viii) freezers and cold room equipment.

Sales tax and excise duties exemption will be given on the following items if they are sourced locally:
(i) marble, tiles sandstones, granite (lobby only);
(ii) sanitary ware and fittings;
(iii) locks;
(iv) laundry equipment;
(v) restaurant and kitchen equipment;
(vi) air conditioning equipment;
(vii) generator sets;
(viii) audio visual equipment;
(ix) telephone and PABX systems;
(x) boilers;
(xi) safes;
(xii) refrigerators (for rooms);
(xiii) carpets (lobby only);
(xiv) linen;
(xv) lifts; and
(xvi) chandeliers.

(iv) Tax Exemption To Encourage The Use Of Natural Gas For Vehicles (NGV)

To encourage the use of natural gas for vehicles (NGV) the following indirect tax incentives are given:
(a) the retail price of NGV has been fixed at half the retail price of petrol, determined through the automatic price mechanism for petroleum products;
(b) import duty exemption on equipment for the conversion of petrol/diesel vehicles to NGV;
(c) import duty and sales tax exemption for the conversion of vehicles to use natural gas.
This exemption is given to local vehicle assemblers/manufacturers;
(d) a 50% reduction in road tax from the prevailing rates for monogas vehicles (solely powered by gas);
(e) a 25% reduction in road tax from the prevailing rates for bi-fuel vehicles (petrol vehicles modified to use NGV); and
(f) a 25% reduction of road tax from the prevailing rates for dual-fuel vehicles (diesel vehicles modified to use NGV).

(v) Exemption of Service Tax

Effective from 1 January 1997, service tax exemption is given to:
(a) export of professional services;
(b) services rendered by approved research and development companies;
(c) services rendered by private hospitals except in the provision of accommodation and food; and
(d) services rendered in Federal Territory of Labuan and Langkawi.

Non-Tax Incentives

A number of other non-tax incentives are also provided to spur the private sector to take advantage of investment opportunities that will assist the development of the Malaysian economy. These incentives include:
1. Export Credit Refinancing Facilities;
2. Export Credit Insurance and Guarantee Schemes; and
3. Industrial Technical Assistance Fund.