Sustainable Energy Development Authority (SEDA) Malaysia has put in a proposal to the Treasury for income derived from the feed-in tariff (FiT) programme for solar photovoltaic installation to be made taxable under the country’s Budget 2014, scheduled to be tabled on Oct 25.
While this might appear to dampen efforts to promote the use of renewable energy and FiT, SEDA said the proposed tax will not be imposed on individuals with low internal rate of return (IRR) of 10% and below. It will apply to personal income tax.
For the individual FiT account holders, the IRR can be very low while companies enjoy additional compensation such as investment tax allowance (ITA), which is not available for individuals.
“That is why under Budget 2014, SEDA is proposing to the ministry (Energy, Green Technology and Water) that individuals with low IRR be tax exempt for income derived from the FiT payment,” chief corporate officer Chen Wei Nee told The Malaysian Reserve (TMR) during the daily’s recent Managing Malaysia Series: Green Growth Roundtable.
Currently, the IRR for non-individuals, she said, can go as high as 15%. On whether the proposed tax will dampen take-up rate of quota for individuals under FiT programme, Chen expressed confidence that the programme will receive good response.
“The returns from FiT rates are better than fixed deposit rates and offers secured income over a long period of time (21 years),” she added.
Chen said the ministry is also proposing for additional funds under Budget 2014 for the continuance of the current rebate programme SAFE — a joint initiative by Ministry of Energy, Green Technology and Water, Malaysia and Performance and Management Delivery Unit.
Earlier, responding to question posed by the roundtable moderator, TMR advisor Abdul Halim Abdul Wahab, on whether the country will resort to drastic measures, such as in some countries where carbon tax is imposed and with those taxes channeled to RE Fund to grow the fund, she said: “Malaysia decided not to confuse her people on the matter”.
“We actually decided to go with the carrot approach rather than the cane,” Chen said. She emphasised that consumers and industries alike must not only be looking at renewable energy (RE) in order to achieve energy security but also on energy efficiency (EE).
“Energy security is dependent highly on people’s habit — how they use their electricity,” she added. “So it’s always a dual approach — not just RE but also EE."
Since last year, the ministry had been working on the SAFE programme offering rebates for energy efficient refrigerators, air-conditioners and chillers for the companies (manufacturers) and this programme, she said, “has gone down very well”.
PricewaterhouseCoopers ED for advisory services Jack Cunningham when commenting on the possibility of carbon tax as an option, said there are not many examples in other countries that do so though Europe does adopt a carbon trade approach across which was plagued with its own set of problems.
Carbon tax, he said, encourages everybody to price carbon into future projections, adding that it is feasible.
“It could work but there are not many examples where carbon tax have been introduced yet. It is still being debated in Australia but as we can see with the recent elections, that has been tabled but they are not convinced that carbon tax may help towards economic growth,” he said.
Cunningham pointed out that in Europe, consumers were given a choice to pay more or less tax based on their lifestyle. If you want to drive a higher emission vehicle, you have to pay more tax. “That is actually a progressive way in looking at the environmental issue,” he added.
Meanwhile, Volkswagen Group Malaysia MD Dr Zeno Kerschbaumer said while policies are important, behaviour and mindset play a crucial part.
“In Malaysia, the government is talking to the industry about the National Automotive Policy, and they were engaging the industry in formulating the policy, and we at Volkswagen formulated a clear direction that the government could take which has been proven in Europe to be very efficient and important.
“It is not only about subsidising technologies, but also to subsidise carbon footprint.” he said, adding that while the levels may vary between Europe and Malaysia, the targets can be clearly defined.
Note: Look out for extensive coverage on Managing Malaysia Series: Green Growth Roundtable tomorrow.