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Malaysian automation allowance boosts transformation

As the world moves into the digital era, business leaders are being urged to be more proactive about digital transformation; providing incentives appears to be the most effective way to do this.

The Malaysian, Australian, Singaporean, and Hong Kong governments, in developing incentives in the form of tax write-offs, allowances, and financial assistance have shown that these work particularly well.

The Malaysian government’s Budget 2015 provision for automation capital allowance to strengthen economic growth and accelerate the journey of local manufacturers into the digital age, for example, seems to have really delivered on expectations.

Since its launch, applications for the automation capital allowance were to be jointly evaluated by the Malaysian Investment Development Authority (MIDA) and SIRIM, formerly known as Standard and Industrial Research Institute of Malaysia.

It was recently noted that 212 applications have been received and another 25 are pending approval.

MIDA, keen on bringing in more automation into the industry, aims to secure a total of 300 companies applying for the automation capital allowance by the end of this year. In addition, they aim to attract an additional 100 companies next year.

While the incentive was announced way back in Budget 2015, few applications were received as the need and urgency to go digital wasn’t clear.

Official documentation regarding the incentive noted that it was directed at labour-intensive industries such as rubber products, plastics, wood, furniture, and textiles and allowance was offered for 200 per cent of the first MYR4 million expenditure incurred within 5 years of assessment from 2015 to 2020.

The incentive was also offered to other industries although only on half the expenditure, indicating a focus on labour-intensive industries — which is where automation and all other digital projects are slowest to gain traction.

Given that the 2020 deadline is approaching, MIDA’s focus on getting more businesses to go digital and apply for the incentives seem reasonable.

It was noted that the government’s objective to introduce automation CA is to accelerate the adoption of automation and it will end in 2020 as extension can only be granted in the 2021 Budget.

This incentive not only urges manufacturing companies to engage in innovation and productive activities but to also spearhead quick adoption of automation to enhance productivity in the local manufacturing industry.

When viewing the incentives from a business perspective, it is imperative to note that the official documentation clearly states that the automation machine and equipment are to be used directly in the manufacturing activities. This means that investments in automating processes in the corporate office, although not discouraged in any way, will not be eligible for any incentives.

While this may appear to be fine print, it is an important factor for business leaders in the manufacturing space who focus much of their attention on small, haphazard, enterprise automation without digitizing their operations or infrastructure first.

On the other hand, larger enterprises focus on in the initial stages as gains in productivity, cost efficiency, and additional production capacity seem to deliver great returns and quantitatively demonstrate the benefits of going digital.

Thus, overall, MIDA reports that the automation capital allowance seems to have been quite a boon for the country’s labour-intensive industries, and with a little effort, their targets should be achieved quickly.

This is helping the country drive digital success for companies of all sizes.

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