Malaysia’s oil and gas production is depleting and sustaining production will be more challenging due to matured basins, technically challenging reserves and stranded marginal oil and gas fields. PETRONAS has sought the Economic Council’s endorsement of new tax incentives to be incorporated in Petroleum Income Tax Act (PITA) to promote development of new oil and gas resources, incentivise development of technically challenging resources and further stimulate domestic exploration activity. The new incentives are expected to lead to additional petroleum revenue of RM58.2 billion to the Government over the next 20 years. There will be a notional trade-off of RM8.1 billion in the form of revenue foregone from investment tax allowances, reduced tax and export duty waiver for marginal fields.
The five new incentives proposed to unlock and monetise stranded resources are:
•Investment tax allowance of between 60 - 100 percent of capital expenditure to be deducted against statutory income to encourage the development of capital-intensive projects.
(i.e. Enhanced Oil Recovery (EOR), High CO2 gas fields, High Pressure High Temperature (HPHT), Deepwater and Infrastructure projects for Petroleum Operations)
•Reduced tax rate from 38 percent to 25 percent for marginal oil field development to improve commerciality of the developments.
•Accelerated Capital Allowance to 5 years from 10 years for marginal oil field development where full utilisation of capital cost deducted could improve project viability.
•Qualifying Exploration Expenditure transfer between non-contiguous petroleum agreement with the same partnership or sole proprietor to enhance contractors’ risk taking attitude, which could encourage higher level of exploration activity.
•Waiver of export duty on oil produced and exported from marginal oil field development to improve project commerciality.
GNI
Approximately RM50 billion over 20 years
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