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Tax breaks, incentives needed to boost adoption of clean energy

12/10/2021 04:19 PM

By Siti Radziah Hamzah

KUALA LUMPUR, Oct 12  -- The prolonged lockdown amid the COVID-19 pandemic has had an impact on the energy industry, particularly the small and medium enterprises (SMEs) that provide a major supporting role for the sector’s growth.

Plus Xnergy Holding Sdn Bhd group chief executive officer and co-founder Ko Chuan Zhen said the company, which provides clean energy solutions for homes and businesses, has experienced process and procurement supply challenges, which then impacted deliveries and timelines due to the Covid containment measures.

However, the company is still registering demand for solar energy as a result of the overwhelming response from its net energy metering (NEM) scheme, NEM NOVA, for the commercial and industrial sector which saw a 100 per cent uptake in just three months after its launch.

To chart recovery for the renewable energy sector, Ko has proposed that the government look into tax breaks or incentives similar to the existing RM2,500 tax relief for the purchase of books, journals, and personal tech devices, to encourage clean energy adoption for households in Budget 2022.

"I do see the government mulling over a rebate earlier this year and strongly advocate for it. I’m confident those same households are aware of solar power’s benefits, while equally hindered by its high cost barrier," he told Bernama.

Overall there are 3.2 million landed houses in Malaysia, which are potential solar energy users and can bring the country closer to sustainability goals.

Ko said the presence of affordable consumer solar solutions has improved the viability of households adopting renewable energy. A tax relief would help increase the rate of adoption.  


Slow Re-adoption

The upfront cost of installing solar or clean energy is often the main roadblock, whether for individuals or businesses, which is why renewable energy (RE) has been slow to spread.  

Ko suggests government-backed microfinancing schemes as a potential measure, aimed at providing easy installment loans to both businesses and households to adopt solar energy. 

"It would be most desirable to have such a scheme specifically for East Malaysians who face instability in electricity supply and voltage, resulting in unpredictable supply and damage to household appliances.

"One way to avoid this is to rely on renewable energy, and the poorer communities hard hit with access to electricity would most benefit from this," he said, adding that access to electricity at a lower-than-grid cost leads to long term business and personal savings.

Ko noted that microfinancing clean energy can be conducive not only for businesses relying heavily on electricity but also residential areas subsisting on conventional energy sources.

Microfinancing provides easy installment loans to low income households, therefore it will help improve their quality of life, he added.

In the Pre-Budget Statement released by the Finance Ministry at the end of August, the tax strategy will include tax incentives and exemptions for certain impacted business sectors, such as manufacturing. 

Ko said similar incentives ought to be given to RE firms, which play an important role in the greater global sustainability agenda.

"We would like to recommend that this tax exemption is extended to renewable energy industry players to spur the industry. Funds can be directed instead towards improving business continuity and driving adoption," he said.


Tax Waiver for Solar Panels and Inverters

One other measure that could really make a difference is the sales tax waiver for imported panels and inverters as solar setups rely heavily on imported panels and inverters.

As part of Malaysia’s import tariff, the import of taxable goods is subject to the sales and services tax (SST) at the rate of 10 per cent, depending on the nature of the product.

"Given the high upfront costs of solar setups, these taxes then burden potential adopters, as it is a cost for any solar player in the market. As a long-term strategy, the tax could be waived by the government for imported solar panels and inverters to encourage further adoption," said Ko. 

Meanwhile, the Green Investment Tax Allowance (GITA) and the Green Income Tax Exemption (GITE) are set to expire by 2023, while the Smart Automation Grant (SAG) is “on pause’’ according to a government website.

"We strongly call for extensions in the GITA and GITE, as they are proven to motivate greater adoption from businesses due to its apparent financial savings.

“A renewing of the SAG grant with fresh funds is desirable to continue the rate of automation and digitisation fuelled by this grant, which had been channelled to the manufacturing and services industry,” he said.


Petronas and Oil Price Recovery 

Asia School of Business assistant professor of business and society Renato Lima de Oliveira said the substantive oil price recovery in 2021, along with record high prices of gas, will help the Malaysian government collect more taxes from the sector in 2021 and likely in 2022 as well. 

However, it is important to avoid depleting the investment capacity of Petroliam Nasional Bhd (Petronas) with frequent requests for special dividends. 

"The national treasury needs to live within its means by way of raising taxes, or doing some cost-cutting, or accepting a higher debt level in special times like now," he told Bernama. 

Crude oil has rebounded from its eye-watering collapse last year amid record output curbs from the OPEC+ producer group and a global economic recovery that has boosted demand.

On Sept 28, Brent oil soared above US$80 a barrel, the latest milestone in a global energy crisis, on signs that demand is running ahead of supply and depleting inventories.

De Oliveira said Petronas competes internationally and so also needs to prepare for an energy transition, so it is important that its investment capacity be preserved in order to have sustainable dividends.

Zooming in on the oil and gas services and equipment (OGSE) industry, de Oliveira expects an allocation to implement the National OGSE Industry Blueprint 2021-2030 in next year's budget, such as the facilitation of seed financing and export as well as research and development grants. 

Government plans to develop the sector have already been unveiled back in April, which are coordinated by the Malaysian Petroleum Resources Corporation. 



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