On 16 June 2016, the Prime Minister announced the following incentives for the master developer of Bandar Malaysia (IWH CREC Sdn Bhd) and its subsidiaries:

• income tax exemption for 10 years

• exemption from stamp duty, real property gains tax and withholding tax for eight years, and

• exemption from import duty on selected construction materials which are currently not being manufactured in Malaysia.

Incentives are also being considered for investors other than the master developer and its subsidiaries as follows:

• tax incentives for top high-ranked global companies and financial institutions

• industrial building allowance

• accelerated capital allowance

• deduction of rental payments

• stamp duty exemption for services, and

• agreement or pre-packaged incentives for other investors and tourism operators.

Incentives were also provided for its sister development, Tun Razak Exchange (TRX) as follows:

• For developers — Incentives include 70% tax exemption on income from the sale or rental of properties in TRX for a period of five years.

• For investors —

– Industrial building allowances on the purchase or construction of property in TRX for use in their business (of providing financial services) at 10% per annum.

– Accelerated capital allowances (100% over two years for prescribed renovation costs).

– Deduction for prescribed relocation costs. – 150% deduction on rental of TRX premises for 10 years.

– Stamp duty remission for first TRX rental/purchase agreement.

– Stamp duty remission for first TRX property loan agreement.

– Stamp duty remission on all services agreements entered into for a given period of time.

However, developers, economists and tax experts are of the opinion that the incentives are overly generous, since the projects are in a strategic location in Kuala Lumpur and have strong advantages without needing the assistance of tax incentives. They have also noted that some of the incentives given are not common (eg deduction on rental of premises) and in the case of Bandar Malaysia, the incentives are granted for one development and tailored for a specific entity, which defeats the purpose of tax incentives in the first place.

According to the executive vice-chairman of Iskandar Waterfront Holdings Sdn Bhd (IWH), the incentives were granted to attract investors and stay ahead of other countries that are granting various incentives. It is hoped that these investors will be able to create job opportunities for the nation. The CEO of TRX City Sdn Bhd, which is the master developer of the TRX, stresses that the core attraction of the TRX is still the fundamental value propositions and not the tax incentives. The incentives granted in respect of the TRX is merely to provide a short-term financial relief to companies who are relocating there.

The executive vice-chairman of IWH informed that the developer’s incentives for Bandar Malaysia may not be limited to just the master developer. IWC CREC Sdn Bhd is currently seeking strategic partners to jointly develop the Bandar Malaysia and will submit a request for incentives tailored to their strategic partners’ needs. Economists disagree with this approach as it provides preferential treatment a few foreign developers at the expense of the local players. However, the executive vice-chairman of IWH remains steadfast in his opinion that specific incentives are necessary to develop specific economic zones and will eventually benefit Malaysia in the long run.

Source: The Edge Malaysia, 3 October 2016