Investment Tax Incentive Package

Focused execution of the initiatives will make Sabah more competitive and attractive in
relation to competitors as a place to do business, for leisure, and to live in. These initiatives are
expected to create economic opportunities and improve the quality of life for all Sabahans.
The key outcomes targeted for each economic focus area under the SDC initiative are as
follows:

i) Tourism

The tourism strategy is to target high-yield and long stay visitors. It aims toenhance Sabah’s position as a premier eco-adventure destination, as well as a high-endsecond home destination with luxury holiday villas and lifestyle activities. Investors willbe courted to anchor new signature tourism products here.

Sustainability is a strong theme for tourism development under the SDC initiative.Involvement of local communities in tourism will be encouraged and supported,especially traditional handicraft development and village homestay.

The targets for the tourism sector by 2025 are to:

• Increase average tourist spending from RM2,517 in 2006 to RM3,383 by 2012 andRM5,364 by 2025• Increase tourism receipts from RM2.88 billion in 2006 to RM8 billion by 2012 andRM48.5 billion by 2025• Increase rural community tourism receipts (handicrafts and homestay) fromRM1.5 million in 2006 to RM4.5 million by 2012 and RM48 million by 2025

ii) Logistics

The logistics strategy is designed to address the current high cost of doing business in Sabah vis-à-vis other states in Malaysia. The strategies for reducing cost are three-fold:

• Lower freight and logistical costs by progressive review of the Cabotage Policy for shipping, while enhancing the cost competitiveness of ports in Sabah via alliances with other global port operators and shipping liners
• Establish Sapangar Free Zone (SFZ) annexed to Sapangar Bay Container Port (SBCP) by providing attractive incentives to potential investors to set up their manufacturing facilities and distribution centres in SFZ
• Position Sandakan as the regional trading hub in Borneo by expanding the role of Sandakan Integrated Trade Exchange Terminal (SITExT) to leverage the impending AFTA

The target for the logistics sector is to increase TEUs handled at Sabah Ports from 226,721 in 2006 to 551,100 in 2012 and 1.5 million by 2025.

iii) Agriculture

The agriculture sector in Sabah will focus on increasing overall food selfsufficiency, planting high-value crops for export and assisting in poverty eradication.

Programmes to be launched will increase participation from rural communities and agropreneurs in the global supply chain, where productivity is driven via better agronomy practices, application of ICT and biotechnology, and state-sponsored R&D.

Organised planting presently occurs only for key industrial crops such as oil palm, rubber and cocoa while other agricultural activities remain largely fragmented. Therefore, the immediate imperative is to enhance the scale and productivity of other crops, namely commercial and food crops.

Promoted agriculture sub-sectors include aquaculture, deep sea fishing, livestock and horticulture. Collection centres with professional management will be formed to enable the distribution and flow of agricultural produce to end customers and processing centres. Anchor projects include Sabah Agro-Industrial Precinct (SAIP), National Marine Aquaculture Centre, Keningau Integrated Livestock Centre, Seafood Terminal, Permanent Food Production Parks, and upgrading of fish landing sites.

Palm oil will remain as the key commercial crop for Sabah and sustainable practices will be further encouraged and enforcement strengthened, while research and development is intensified to enhance its yield, efficiency and marketability. The Palm Biotech R&D Centre is to be based at the Sandakan Education Hub. New industrial crops such as jatropha will be promoted.

The current balance of trade for food in Sabah in 2005 is a deficit of RM955 million. Thus within the SDC, emphasis will be placed on food production, especially crops suitable for local conditions, to reduce the reliance of Sabah on foreign food import.

The targets for the agriculture sector by 2025 are to:

• Multiply GDP contribution by 4.1 times from RM4.1 billion to RM17 billion • Increase total value of exports from RM9.1 billion to RM60 billion • Reduce negative balance of trade of food by 60% from RM955 million to RM353 million

iv) Manufacturing

The strategy for the manufacturing sector is to attract world-class companies to anchor and accelerate the growth of downstream manufacturing activities, leveraging on Sabah’s rich natural resources such as palm oil, oil and gas, minerals and timber as feedstock. The initial focus will be on enhancing enablers such as infrastructure and human capital.

A critical mass of SMEs which will serve not only to support the larger multinationals companies (MNCs) but also to provide an avenue of future growth for Sabah. Through the SME Manufacturing Leaders Programme, companies at different stages of development (from early stage through to expansion stage) will have access to BusinessLink centres established to deliver business advisory services to local SMEs.

Advisory services would cover areas such as operational improvements, match-making with potential buyers, marketing and design for exports and so forth.

Within the manufacturing sector, detailed sub-sectoral studies will be carried out in the following identified high impact areas:

• Oil and gas: to ascertain the viability of generating high-value employment and spin-off activities from the establishment of an integrated gas-based petrochemical complex in Sabah • Biomass recovery: market feasibility study on trading by-products from agriculture plantations such as palm oil, rubber, and cocoa to provide access to users of these byproducts and at the same time ensure pricing transparency to plantation owners • Minerals: a detailed study leading to the formulation of a policy which will ensure that minerals are extracted without damaging the flora and fauna and the surrounding environment It is envisaged that with the successful implementation of these initiatives, Sabah will emerge as one of the leading locations of choice for resource-based manufacturing activities in Asia.

The targets for the manufacturing sector by 2025 are to: • Increase capital investments from RM208 million (2006) to RM2.96 billion by 2025 • Enhance employment in the manufacturing sector from 135,000 to 228,704 by 2025 • Increase proportion of manufacturing workforce with tertiary education from under 10% (2005) to 45% by 2025

Strategies and Intended Outcomes
The strategy for the SDC initiative is to leverage Sabah’s inherent strengths, namely its
strategic location, rich resources, as well as cultural and biological diversity to expand
and grow high potential economic activities. In line with the HalaTuju, the promoted
sectors under the SDC initiative are agriculture, tourism and logistic services, and
manufacturing. Detailed sectoral studies will be commissioned after the launch of this
Blueprint to update the existing masterplans.

In terms of location, Sabah is strategically located between the affluent markets of North
Asia and the fast developing regions of Southern Philippines, Kalimantan and Brunei. Within
a flying radius of 3-6 hours, there is a population base of around 139.4 million. The state
could capitalise on the impending market liberalisation driven by the ASEAN Free Trade
Area (AFTA) for transhipment and add value to cargo between the developing countries in
South East Asia and affluent North Asia.
Sabah is also very rich in natural resources including oil and gas, fertile agriculture land,
minerals and forestry. As such, it is well-poised to capture higher value from downstream
processing of these commodities by enabling investments in oleo-chemicals, gas processing
plants, agro-industry and downstream timber-based manufacturing.
There are 32 ethnic groups with diverse cultural backgrounds, flora and fauna from one of
the world’s oldest rainforests and widest genera of marine life from Darvel Bay, the ‘Cradle
of Coral Evolution’ which is a description derived from scientific study proving the location
to be the genesis of coral reefs running through to the Great Barrier Reef in Australia. This
bodes well for the attraction of tourists and foreign scientists with interests in conservation,
ecology and biotechnology. The Danum Valley Field Research Centre for instance has been
constantly hosting world-class scientists. Rich biodiversity is a position of strength which
Sabah will build on to enhance biotechnology activities in the state.

To ensure these strengths are fully harnessed, a competitive package of incentives will be
provided to attract private sector investment in the promoted sectors. This will be
supported by a boost in government investment in infrastructure development, which
includes better roads and utilities coverage, as well as public service delivery system.
Emphasis will also be placed on human capital development to support the growth of the
targeted sectors.
A comprehensive set of strategies has been identified to spur growth in the promoted
economic areas. Overall strategies for each promoted sector, including detailed description
of the programmes, are provided in subsequent chapters. Implementation will be over three
phases to reflect priority and sequencing of programmes

Phase 1 (2008-2010) is focused on catalysing future growth via infrastructure as well as high
economic impact and poverty eradication projects. Phase 2 (2011-2015) will see Sabah
moving towards greater and higher order value-add activities, with the presence of global
sabah development corridor _18
companies and emergence of a strong base of local small and medium scale enterprises
(SMEs). Towards the end of Phase 3 (2016-2025), Sabah will be recognised as an
attractive destination for foreign direct investments (FDIs) with strong supporting
infrastructure, global companies and a ready pool of knowledge workforce.

Phase 1: 9MP 2008-2010	Phase 2: 10MP 2011-2015	Phase 3: 11-12MP 2016-2025
• Boot Up: Articulate new vision, lay foundation for growth, invest in talent • Clarify and communicate the vision and strategy of Sabah • Focus on aligning SDC for growth: quick wins and medium term º Economic initiatives º Plug gaps in infrastructure º Social and environmental initiatives • Implementation agency fully functional • Key measure of success: all vital flagship projects kick-started with clear results • Hardcore poverty eradicated and poverty halved	• Accelerate: Sustaining growth through first-class human capital and infrastructure • Tourism to surpass 10% share of GDP • Agri businesses spawned in high potential non-timber forest products, horticulture, livestock, aquaculture and fisheries • Critical mass of SMEs serving downstream manufacturing companies created • Key measure: 2x increase in GDP by 2015	• Expand: Emerging as a leading economic region in Malaysia first, and Asia in the longer term • Kota Kinabalu becomes one of the most liveable cities in Asia • Emerging metropolis which draws talent, capital and companies • People living in harmony regardless of race, language or religion • Key measure: #1 or #2 (Liveability Index) in home market and Top 5 in the region • By 2025, a leading economic region in Asia

Location	Flagship and Qualifying Activities	Tax Incentives
KINABALU GOLD COAST ENCLAVE (KGCE) - KOTA KINABALU	A. Tourism Project Hotel Resort	A. Tourism Project Full tax exemption on statutory income for 10 years; or Investment Tax Allowance of 100% on qualifying capital expenditure for 5 years - can be offset against 100% of statutory income. Exemption on import duty and sales tax subject to current policy; and Stamp duty exemption on land acquired for development.
KINABALU GOLD COAST ENCLAVE (KGCE) - KOTA KINABALU	B. Creative Cluster Design Academy - Product design - Fashion/accessories design Academy of Art - Arts and crafts - Drawing - Sculpture School of Arts - Dance - Drama - Music	B. Creative Cluster Full tax exemption on statutory income for 5 years; or Investment Tax Allowance of 100% on qualifying capital expenditure for 5 years - can be offset against 100% of statutory income; and Full exemption on import duty and sales tax exemption subject to current policy.
INTEGRATED LIVESTOCK VALLEY (ILV) - KENINGAU	Downstream Activities Manufacturing of cattle feed Manufacturing of dairy-based products Manufacturing of meat-based products	Full tax exemption on statutory income for 10 years; or Investment Tax Allowance of 100% on qualifying capital expenditure for 5 years - can be offset against 100% of statutory income, subject to qualifying activities/ products under the Promotion of Investment Act 1986.
SABAH AGRO-INDUSTRIAL PRECINCT (SAIP) - KIMANIS, PAPAR	Production of Halal Food Downstream Activities Processing of agricultural produce for: - Pharmaceuticals or biopharmaceuticals - Biodiagnostics - Food or feed supplements - Horticultural products - Nutraceuticals - Microbials & probiotics Development & Production of: - Cell/ tissue cultures - Biopolymers - Biomaterials - Biotechnology process of waste treatment	A. Projects located within the Halal Hub Investment Tax Allowance of 100% for 10 years - can be offset 100% against statutory income.
SABAH AGRO-INDUSTRIAL PRECINCT (SAIP) - KIMANIS, PAPAR		B. Projects located outside the Halal Hub Investment Tax Allowance of 100% for 10 years – can be offset 100% against statutory income. Exemption on import duty and sales tax, subject to current policy; Qualifying products/ activities will be determined.
PALM OIL INDUSTRY CLUSTER (POIC) - LAHAD DATU	Downstream Activities - Manufacturing Oleochemical Biofuel Transfree Food Products	Full tax exemption on statutory income for 10 years; or Investment Tax Allowance of 100% on qualifying capital expenditure for 5 years - can be offset against 100% of statutory income, subject to qualifying activities/ products under the Promotion of Investment Act 1986.
SABAH OIL & GAS INDUTRIAL PARK (SOGIP) - SIPITANG	Downstream Activities – Manufacturing Medium & Heavy Industries - Urea and ammonia production - Solar glass - Ship building and repairs - Marine supply base and fabrication yard - Iron ore palletising - Hot briquette iron - Combined cycle power plant	Full tax exemption on statutory income for 10 years; or Investment Tax Allowance of 100% on qualifying capital expenditure for 5 years - can be offset against 100% of statutory income, subject to qualifying activities/ products under the Promotion of Investment Act 1986. For ship building and repairs industry, incentives are offered under Income Tax Act 1967 as follows: Full tax exemption on statutory income for 5 years; or Investment Tax Allowance of 100% on qualifying capital expenditure for 5 years - can be offset against 100% of statutory income.
SANDAKAN EDUCATION HUB - SANDAKAN	Private Universities Private Colleges Training Centres Skill Training Centres	Full tax exemption on statutory income for 10 years; or Investment Tax Allowance of 100% on qualifying capital expenditure for 5 years - can be offset against 100% of statutory income. Exemption on import duty and sales tax exemption on equipments and machineries used, subject to current policy.
MARINE INTEGRATED CLUSTER (MIC) - SEMPORNA	Downstream Activities: Production of aquaculture products Seafood Fresh and dried export Cosmetics material Pharmaceutical products	Full tax exemption on statutory income for 10 years; or Investment Tax Allowance of 100% on qualifying capital expenditure for 5 years - can be offset against 100% of statutory income. Exemption on import duty and sales tax exemption on equipments and machineries used, subject to current policy.
Applications received by 31 December 2020 are eligible for these incentives. All applications should be submitted to SEDIA.