Automation capital allowance will digitize local businesses. Source: Shutterstock

Automation capital allowance will digitize local businesses. Source: Shutterstock

Malaysia’s automation capital allowance stimulates transformation

INCENTIVES often help push business leaders sitting on the fence about digital transformation to the other side.

In Australia, Singapore, Malaysia, and Hong Kong, government incentives in the form of tax write-offs, allowances, and financial assistance seem to have worked 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 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.

According to recent dialogue between MIDA Strategic Planning and Development Senior Executive Director Ahmad Kahiruddin Abdul Rahim and local media, 212 applications have been received and another 25 are pending approval.

MIDA, keen on bringing in more automation into the industry, is targeting to have a total of 300 companies apply for the automation capital allowance by the end of this year and 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.

According to official documentation on the incentive, it was directed at labor-intensive industries such as rubber products, plastics, wood, furniture, and textiles and allowance was offered for 200 percent of the first MYR4 million (US$0.96 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 labor-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.

“The government’s objective to introduce automation CA is to accelerate the adoption of automation and it will end in 2020. We can only get an extension in the 2021 Budget,” Rahim told media.

“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.”

From a business perspective, it’s important to note that the official documentation clearly states that the automation machine and equipment are to be used directly in the manufacturing activities — meaning, investments in automating processes in the corporate office, although not discouraged in any way, will not be eligible for any incentives.

Although it seems buried in the fine print, it is quite an important factor for business leaders in the manufacturing space who focus much of their attention on small, haphazard, enterprise automations without digitizing their operations or infrastructure first.

Larger enterprises, on the other hand, 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.

Overall, the automation capital allowance, as reported by MIDA seems to have been quite a boon for the country’s labor-intensive industries, and with a little effort, their targets should be achieved quickly — helping the country drive digital success for companies of all sizes.