By Malaysian Investment Development Authority (MIDA)

Though automation may be thought of as a fairly modern phenomenon, the concept itself can be traced back to as early as 762 B.C. The term first appeared in the western literature of Homer’s The Iliad. But it was not until the Industrial Revolution that automation began to take off.

When Ford Motor Company introduced the assembly line in 1913, it transformed the production function for making cars ever since. In 1946, D.S. Harder, Ford’s Executive Vice President, coined the term automation, which he defined as “the automatic transfer of auto parts from one metalworking machine to the next.”

In present days, automation is defined as “the automatically-controlled operation of an apparatus, process, or system by mechanical or electronic devices that take the place of human labour.”[1]

Regardless of its extensive history and definitions, automation has always known to lessen the burden on human workers, increase business efficiency and make our lives easier in terms of reducing manual labour. Automation is an essential factor that is driving business excellence for centuries and will continue to make its impact in the future.

Recognising this, MIDA is intensifying the promotion of its Automation Capital Allowance (Automation CA) incentive to encourage quick adoption of automation specifically for labour-intensive industries in the manufacturing sector as well as to enhance productivity and efficiency within the sector.

The Automation CA, which was introduced in Budget 2015, is divided into two categories. The first category is for labour-intensive industries, namely rubber products, plastic products, wood and wood products, furniture and fixtures and textiles and textile products. Under this category, an Automation CA of 200 percent will be provided on the first RM4 million expenditure incurred by companies within the assessment year from 2015 to 2023.

The second category caters for other industries in the manufacturing sector where an Automation CA of 200 percent will be provided on the first RM2 million expenditure incurred by companies within the assessment year from 2015 to 2023.

In the recent Budget 2020, the scope of the Automation Capital Allowances (Automation CA) has been extended to include the services sector.

Applications for the incentive are jointly evaluated by MIDA (non-technical) and SIRIM (technical). To qualify for the incentive, the automation equipment purchased must be used directly in the manufacturing activities and enhance the productivity level indicated through the reduction of working hours, reduction of workers and increase in the volume of output. SIRIM will undertake the verification process to confirm that these requirements are met. Automation machine/equipment must also adopts technology that is more advanced than the technology currently used by the company and which also will be verified by SIRIM.

As of 31 March 2020, MIDA has approved a total of 269 applications for the incentive. Category 1 i.e labour-intensive industries (textiles and textile products, wood and wood products, plastic produts, furniture and fixtures and rubber products) recorded 120 approvals, while Category 2 i.e other industries recorded 149 approvals. In terms of the individual industry, fabricated metal products recorded the highest approvals (44), followed by textiles and textile products (38), wood and wood products (34), plastic products (32), electrical and electronics (20), food manufacturing (17) and transport equipment (15).

Companies which have been approved with Automation CA were largely located in Selangor (81), followed by Johor (70), Penang (54), Perak (25) Negeri Sembilan (11) and Melaka (8).

Based on the impact analysis of 245 projects that was approved as of 31 December 2019, manufacturers that have benefited the Automation CA have invested more than RM430 million; all towards automating their manufacturing operations and processes. As a result of these investments, overall production volumes have increased by approximately 180 percent on average, with a quality improvement of 60 percent on average. This has also resulted in cost savings due to the reduction of 53 percent unskilled positions. Without investments in the automation activities, these manufacturers would have had to hire approximately more than 3,600 unskilled workers.

So let’s not waste any more time. Get your automation journey started today and see how the Automation CA incentive can fit into your business excellence equation.

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