Monday, July 2, 2018

Call for review of (IP) tax incentives

SMART Glove Corp Sdn Bhd, one of the pioneer manufacturers of nitrile medical gloves, says the government should review current tax incentives to protect their intellectual property (IP) rights.
“We urge the government to consider tax incentives for manufacturers to register patents because the process to protect IP rights can be time consuming and costly,” said Smart Glove executive chairman Foo Khon Pu.
“I believe this is one of the key reasons why a lot of research and innovation is not commercialised. There is no specific tax incentive in Malaysia for registering IP protection on a worldwide basis,” he said.
“There is also no government funding for commercialisation of research in pilot testings and clinical trials,” he told NSTP business in an interview recently.
Foo said at the moment the pioneer status for manufacturers is only for promoted products.
“It doesn’t incentivise manufacturers to invest in a new product if it is not classified as a promoted product. Currently, nitrile gloves are not considered as promoted products,” he said.
“It is a long and winding process to bring an idea to the drawing board and eventually commercialise it. It’s costly because experimentation involves heavy upfront investments,” he said.
“When glove manufacturers develop products such as gloves, specifically for chemotherapy sessions and anti-microbial gloves, they are not accorded tax incentives unless accepted as promoted products,” said Foo.
Smart Glove’s production capacity is at five billion pieces of nitrile medical gloves per year, and is set to hit 7.5 billion by next year.
“We ’re investing heavily, as much as RM150 million in autostripping and robotics packing that involves precision engineering to produce an additional 2.5 billion pieces per annum,” he said.
Foo said as the medical glove industry moves upthe value chain, manufacturers will have to “sell better and not just sell more”.
“We were able to survive against the big players because we differentiated ourselves as we produce specialty gloves.
“The premium-priced gloves are customised to clients’ needs. We have to constantly innovate to stay ahead of the competition,” he said.
In July 2007, United States firm Tillotson filed complaints, alleging that more than 200 companies were importing and selling nitrile gloves in the US that infringed on the company’s patent.
Smart Glove and US-based Henry Schein challenged Tillotson nitrile glove litigation in the US International Trade Commission (ITC) and subsequent appealed to the Court of Appeals for the Federal Circuit.
Since the dispute concerned nitrile glove exports, other glovemakers in Malaysia also participated to challenge Tillots on’s patent infringement allegation.
The administrative law judge in ITC concluded that when Tillotson amended the claims through a reissue application, filed more than two years after the grant of the original patent, it improperly enlarged the scope of the claims, rendering the patent invalid.
“Tillotson sought to overturn the decision. As the case went up to the Supreme Court, our anxiety levels went up, too. We pressed on because we had no other choice. We had come so far, we cannot turn back,” said Foo.
“It was just me, my lawyers from the US and Malaysia, slugging it out at the courts in Washington D.C. We studied the patent process thoroughly and spotted some discrepancies in Tillots on’s patent. Finally, the Supreme Court upheld ITC’s decision and justice was served,” he said.
Foo said if Smart Glove had lost its case against Tillotson, ITC would have been entitled to slap royalty fees on all nitrile medical gloves entering the US, including local sales.
“We estimated that if Tillotson had won its case, it would have had the right to collect a few hundred million US dollars from all nitrile medical glove manufacturers here.
“Manufacturers would not have been able to grow nitrile glove exports to the current RM10 billion a year,” said Foo.
This year, the Malaysian Rub ber Glove Manufacturers Association reportedly said its members, including Smart Glove, were hopeful of achieving more than 10 per cent export growth to RM18 billion, of which 60 per cent is that of the nitrile variant.

THE Malaysian Investment Development Authority states that eligibility for Pioneer Status and Investment Tax Allowance is based on high value-adding, technological usage and industrial linkages.
Pioneer Status A company granted Pioneer Status enjoys a five-year partial exemption from income tax payment. It pays tax on 30 per cent of its statutory income, with the exemption period commencing from its production day (defined as the day its production level reaches 30 per cent of its capacity).
Unabsorbed capital allowances and accumulated losses incurred during the pioneer period can be carried forward and deducted from the post pioneer income of the company.
Investment Tax Allowance As an alternative to Pioneer Status, a company may apply for Investment Tax Allowance ( ITA) .
A company granted ITA is entitled to an allowance of 60 per cent on its qualifying capital expenditure (factory, plant, machinery or other equipment used for the approved project) incurred within five years from the date the first qualifying capital expenditure is incurred.
The company can offset this allowance against 70 per cent of its statutory income for each year of assessment.
Any unutilised allowance can be carried forward to subsequent years until fully utilised. The remaining 30 per cent of its statutory income will be taxed at the prevailing company tax rate. - New Straits Times

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