Automation / Transformation of Labour Intensive Industries

Malaysia is moving towards achieving its goals of becoming an advanced nation by 2020, however the nations has set its eyes on a greater goal. It also focuses on becoming a high income nation with greater level of public well-being. The nationís reliance on low-skilled foreign workers of certain industries in manufacturing sector has proven to be one of the impending factors that prevents this industries from moving up the value chain.

In its effort to facilitate growth in labor intensive industries, Malaysian government has introduced a new incentive to encourage manufacturers to adopt automation in their respective industries.

Automation Capital Allowance (ACA) was introduced via Budget 2015. Through this incentive, additional allowance will be provided to manufacturers on investment in automation. This initiative is in line with 11MP which aims to promote automation to reduce reliance on low-skilled foreign workers in labor intensive industries.

This strategic initiatives aims to encourage innovation, quick adoption of automation in labor intensive industries. Any manufacturing organisation operating in Malaysia for at least 36 months are eligible for this incentive.

Category 1 of ACA is offered to high labor intensive industries (rubber products, plastics, wood, furniture and textiles), which allocates an automation capital allowance of 200% on the first RM4 million expenditure incurred within three years of assessment from 2015 to 2017.

Category 2 of the ACA is an option that is made available for other industries. Under Category 2, manufacturers will be provided with automation capital allowance of 200% on first RM2 million expenditure incurred within 5 years of assessment from 2015 to 2020.

Standards and Industrial Research Institute of Malaysia (SIRIM), will be the governing body to ensure the expected results are delivered, while MIDA will remain as the approving body for ACA application.

As of December 2016, MIDA has received 50 applications for ACA, 35 has been approved. Of the 35 approved, 23 applications were approved under Category 1 and the rest were approved under Category 2. Collectively they were able to reduce dependence on foreign workers by 20 per cent while increasing average production volume by 200 to 300 per cent.

Source: Excerpts from MIDA 2016 Investment Performance Report


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