COMPANY TAXATION

TAXATION COMPANY

COMPANY TAXATION

COMPANY TAXATION

MUHAMMAD ZAMRIN BIN MALIKI Writer & Designer

Published by:

Politeknik Sultan Haji Ahmad Shah Semambu

25350 Kuantan, Pahang

Copyright © 2022, Politeknik Sultan Haji Ahmad Shah

All rights reserved. No part of this publication may be reproduced, stored for reproduction or converted into any form or by any means, whether by electronic means, photographs and recording etc. without the written permission of the copyright holder.

ACKNOWLEDGEMENT

Appreciation is given to Politeknik Sultan Haji Ahmad Shah (POLISAS) for the trust and responsibility given to me in producing the Company Taxation e-book. I would like to extend our gratitude to the Head of Commerce Department POLISAS, Head of Diploma Accountancy Program, fellow lecturers and the POLISAS e Learning Committee for all their support and guidance.

To my family, your sacrifice of time and moral support is greatly appreciated. The ebook would not have come together without all the efforts from all of you.

I would like any constructive suggestions and comments from lecturers and students on this e-book. Such feedback is given careful consideration and very helpful for future improvement.

Muhammad Zamrin bin Maliki Politekniik Sultan Haji Ahmad Shah October 2022

PREFACE

The Company Taxation e book is to provide sources of information and knowledge especially for students who enrolled for Diploma in Accountancy of Malaysian Polytechnic or any students who may require to refer for any topic relevant to them.

It is based on the Malaysian Taxation 2 course syllabus for Diploma in Accountancy. As it is one main topic in the course, students need to have comprehensive understanding on it. This will help them to understand concepts and relevant knowledge of company taxation. It discuss on the resident status and tax rate of company, tax treatment on company incomes and expenses; and calculation on tax liability for companies.

It is hoped that this handbook can help students understanding the course and bring benefit for them gaining excellent results and knowledge.

1.0 INTRODUCTION

• There are many types of business entities operating in Malaysia. Among of them are:

• Sole proprietorship (known as sole proprietor)

• Partnership

• Company (Private limited company or public company)

• Limited Liability Partnership (LLP)

• Each business has their own structure, liability, continuity and profit sharing.

• Each of business entities have their own tax treatment based on the business criteria.

• The discussion is focused on the company tax which consist of:

• Residence status of company

• Tax rate of company

• Company’s incomes and expenses

• Tax treatment on allowable, non-allowable, double deduction and special deductions for company

• Simple steps on calculating tax for company

• Tax liabilities for company

2.0 OVERVIEW ON COMPANY TAX

• Company is one of the most recognizable business structures and has a separate identity from the owners of the company. One or more owners may participate as shareholders of a corporation.

• According to the Companies Act 2016, every company must prepare financial statements audited by certified auditors Profit and loss statement and balance sheet should be set according to the position in the accounting period for the company.

• Computation of corporate tax on audited financial statements.

• Every company has to must submit the form C along with the audited report for the purposes of evaluation starting year of assessment 2002. Company is required to undertake self assessment system (STS) through the e filing system.

• While the audit reports and all accounting information is stored by the company for audit purposes by the IRB

• Basically, company needs the service of external auditor to provide audited financial statements for the purpose of tax calculation. Company’s have seven (7) months after the closing of accounting to submit their tax assessment form; the Form C based on the audited financial statement.

• The purposes of corporate tax are for the sources of income for the country, advance resources, medium for economic growth, price stability and distribution of income and wealth.

What you should know abaout company …. COMPANY

Item Explanation

Definition

• Company is one of the most recognizable business structures and has a separate identity from the owners of the company.

• One or more owners may participate as shareholders of a corporation.

Establishment of business process & documents

• Registered with Suruhanjaya Sayrikat Malaysia (SSM)

• Registration documents: Search Name Form (13A), Memorandum & Article, Secretarial Forms (Form 6, 48A, 8/9)

Structure of business

• Shareholders between 2 50 for private limited (Sdn Bhd) or 2 – ∞ for limited (Bhd)

• Business structure consisting of shareholders, directors, officers and employees

Liability of business

Limited liability protection against business losses and obligations. Owners of a company are liable for company debts and obligations up to the extent of their investment in the company.

Profit sharing

Continuity of business

Based on contribution of shares

• Ownership transferable to spouse and second generation or saleable to any parties for a price.

• Even the major shareholder has passed away, the business will not be affected legally.

Professional services needed

• Company Secretary & External Auditors (compulsory)

• Accountant, Tax Agent, Financial Consultant (option)

Taxable Person Company

Tax Return & Assessment

• C Form (e-filing)

• Audited financial statement & supporting document should be kept for seven (7) years by the company on tax audit purpose

Table 1 : Quick facts on Company

3.0 RESIDENT STATUS OF COMPANY

• Company have to clarify their resident status for the purpose of tax treatment for resident or non resident company.

• According to Section 8(1)(b) Income Tax Act 1967, a company is resident in Malaysia if, it is carrying on a business or businesses, at any time in the basis year for the year of assessment, and the management and control of its business or any one of the business, carried out in Malaysia.

• Management and control of business means the place for the registration of the company, the place of board of director held meetings and annual general meetings and the location of board of director itself; which should be located in Malaysia.

• Even the company that does not run a business or businesses in Malaysia, they are still considered resident in Malaysia if the management and control were carried out in Malaysia (Section 8(1)(c) ITA 1967)

• For residence company, their tax liability is on incomes accrued or derived in Malaysia while for non-residence, only its Malaysian source of income will be taxable.

4.0 TAX RATE FOR COMPANY

Example 1 | Tax Rate

Kasturi Sdn Bhd incorporated in Malaysia at year 2019 with the initial paid-up capital of RM 300,000. The company closed its account on 31 December every year.

Calculate income tax payable for the year of assessment 2021 if the: (a) Chargeable income is RM545,000 and paid up capital as per 31 December 2021 is RM750,000

Kasturi Sdn Bhd – YA 2021

RM

Chargeable Income 545,000 x tax rate 17%

Income Tax Payable 92,650.00

(b) Chargeable income is RM756,000 and paid up capital as per 31 December 2021 is RM1,250,000.

Kasturi Sdn Bhd – YA 2021

RM

Chargeable Income 756,000

First RM600,000 @ 17% 102,000

Next RM156,000 @ 24% 37,440 Income Tax Payable 139,440

(c) Chargeable income is RM1,275,000 and paid up capital as per 31 December 2021 is RM2,750,000.

Kasturi Sdn Bhd YA 2021

RM

Chargeable Income 1,275,000 x tax rate 24% Income Tax Payable 306,000.00

5.0 BUSINESS INCOMES

• Business income is an ordinary income received from business activities which comes from gross sales or gross income or other incomes.

• However, gains on the realization of long term from investment would be excluded from income.

• Long term investment includes shares, residental properties and motor vehicles and should be separately assessed. It should being exclude from the adjusted income.

6.0 COMPANY EXPENSES

• Generally, company expenses are expenses wholly and exclusively for business purposes. Expenses that are made can divided into three (3) categories:

(a) Allowable expenses

(b) Non-allowable expenses

(c) Double deduction

The expenses generally for companies according to Income Tax Act 1967:

(i) Section 33 & 34, Income Tax Act 1967

- Expenses are allowed as a deduction from income is totally and must be specifically included in a period for the purpose of obtaining income

(ii) Section 39, Income Tax Act 1967

- Expenses that are not allowed for the calculation of adjusted business income.

(iii) Pre commencement business & establishment expenses

- Deducted as operating expenses if the company have an authorized capital not exceeding RM250,000 (SME companies).

- The expenses include cost of preparing Memorandum & Articles and the prospectus, cost of circulating and advertising the prospectus, cost of business registration and statutory documents, company seal costs & other expenses related to the establishment

(iv) Pre commencement of business training expenditure

- Refer to pre commencement of business training expenditure such as training that impact basic skills to enable company to commence its business.

(v) Double Deduction

- Expenses given to companies for specific expenses as tax incentive and as company’s relief under Income Tax Act 1967.

6.1 Allowable Expenses

• Expenses that are deducted in the profit and loss statement and it is also allowed as a deduction in the calculation of income tax

• allowable expenses mean expenses that generate income wholly and exclusively for the business

• Conditions to allowable expenses:

(a) Expenses has been budgeted

(b) Expenses incurred to produce income

(c) Expenses that are not prohibited by the Act

(d) Expenses must be valid in the current financial year only

• Section 34, Income Tax Act 1967 specifically allows tax deduction against the business income as:

• Specific provision for bad debts on trade debts arising from sales [S34(2)]

• EPF contribution which limit to 19% from employees’ remuneration (salary & bonus) [S34(4)]

• Provision of equipment and renovation expenses to disabled person, necessary to assist in the performance of employees’ duties [S34(6)(e)]

• Translation/publication of cultural, literary, professional, scientific or technical books into Bahasa Malaysia approved by Dewan Bahasa dan Pustaka (DBP) [S34(6)(f)]

• Provision of library facilities to public library and provision of contribution to public libraries, libraries of schools and higher institution with maximum amount of RM100,000 [S34(6)(g)]

• Provision of services, public amenities and provision of contribution to charity, community project pertaining to education, health, housing, conversation or preservation of environment, enhancement of income of the poor, infrastructure and ICT [S34(6)(h)]

• Infrastructure expenses for public use in relation to business [S34(6)(ha)]

• Provision of childcare maintenance of child care center for the benefit of employees [S34(6)(i)]

• Establishing and managing musical or cultural group [S34(6)(j)]

• Sponsoring any local (max: RM 1,000,000), foreign (max: RM 300,000), arts and cultural or heritage activity approved by Ministry of Arts, Culture & Heritage [S34(6)(k)]

• Provision of scholarship to students [S34(6)(l)]

• Revenue expenditure, incurred by a company in the relevant period for the purpose of obtaining accreditation for a laboratory or as a certification body, as evidenced by a certified issued by the Department of Standards Malaysia [S34(6)(m)]

• Practical training in Malaysia to non employee’s resident [S34(6)(n)]

• Participating in ISO activities approved by the Department of Standards Malaysia [S34(6)(o)]

6.2 Non- Allowable Expenses

• Expenses that are deducted in the profit and loss statement but not allowed as a deduction in the calculation of income tax

• Non allowable expenses can be categorized into:

(a) Expenses that are not incurred

• General provisions for doubtful and bad debts;

• provision for gratuity / retirement benefits;

• provision for warranty cost, stock obsolescence;

• depreciation;

• amortization for the renovation of the premises, lease amortization;

• unrealized exchange loss in relation to acquisition of raw materials;

• provisions for repair and maintenance;

• Preliminary expenses written off

(b) Capital Expenditure

• cost of printing and distribution of annual reports;

• stamp duty and secretarial fees for increased share capital;

• stock listing expenses;

• pre commencement business expenses;

• entrance fee to club;

• legal and professional fees related to violation of law, capital structure of company, acquisitions of loan or assets;

• donations (irrespective of whether approved or unapproved donations);

• lump sum for early termination of lease;

• loan written off in relation to that of employees’ of suppliers’;

• fine imposed for violation of law;

• penalty on withholding tax;

• foreign exchange gain / loss on acquisition of plant and machinery, repayment of foreign loan;

• registration of trademark;

• fees for designing company logo;

• compensation to competitor to restrict competition (restrictive covenant);

• loss on disposal of long term investments;

• renovation / modification of factory & office premises;

• improvement for repairs;

• small value capital items such as chairs, calculators etc.;

• installation cost of machines charged in repair and maintenance account;

• cost of stand used in advertising such as billboards;

• Telephone or utility deposits;

• Replacement of security alarm systems

• Some capital expenditure can be treated as allowable expenses.

Among capital expenditure that are allowable:

• Proprietary rights mean expenses related to patents, industrial designs or trademarks. It consists purchase consideration of the proprietary rights, consultancy fees, legal fees and stamp duties. The deduction will be given 20% of the total cost by the companies (manufacturing) which 70% owned by the Malaysian.

• Cost of developing website

• Acquisition of foreign owned companies

• Invitation to potential importers to promote exports of its product

(c) Expenses related to investment income

• The Act requires adjusted income of each source of income to be calculated separately Therefore, any expenses related to investment income will not be deducted from business income It must be added back These expenses will be set off against individual investment source of income.

(d) Expenses related to Section 39, ITA 1967

• Personal and domestic expenses;

• expenses that are not wholly and exclusively for the purpose of producing gross income;

• capital employed or money withdrawn as capital;

• contributions to the unapproved pension/provident/saving scheme;

• withholding tax and penalty on late payment on withholding tax imposed on interest, royalty, contract payment;

• leave passage (other than yearly leave passage provided to employees three (3) times in local and one in oversea);

• license or permit to extract timber to persons other than State Government, statutory authority or body approved by Minister;

• Lease rental exceeding RM 50,000 (or RM 100,000 in special circumstances) in aggregate on passenger vehicle.

Example 2 | Lease Rental Expenses

Pandora Sdn Bhd, lease the following vehicles in 2021: Vehicles

Accumulated lease rental on 31.12.2021

Cost of Vehicles (RM)

Car (non commercial) 75,000 175,000

Lorry 100,000 120,000 Van (commercial) 30,000 50,000

Answer Vehicles

Accumulated lease rental on 31.12.2021

Cost of Car (RM) QE (Alllowable) RM50k@RM100k

NonAllowable Expenses

Car (non commercial) 75,000 175,000 50,000 25,000

Lorry 100,000 120,000 120,000 Van (commercial) 30,000 50,000 50,000 -

• Restrictive deductions (75% or 3%) on payment to Labuan entities.

• Entertainment to non employees (including reimbursement to staff in relation to entertainment of client or entertainment allowance to employees) is given 50% deduction. However, entertainment which is related wholly to sales will be fully deductible.

- Entertainment related wholly to sales – entertainment expenses directly related to sales provided to customers, dealers and distributors but excluding suppliers.

For entertainment expenses it can be divided into three (3):

• Allowed for deduction 100%

- Entertainment given to potential or existing customers during the launching of company’s new product - Annual dinner to employees - Gift with business logo for customer’s annual dinner

- Free trip as an incentive to sales agent for achieving the sales target

- Provision of entertainment (e.g. food and beverage for employees

- Entertainment relates to provide entertainment for customers (caterer, hotel operator, airlines & transportation business

- Promotional samples relate to product

- Promotional gift during trade fair

- Provision of entertainment in cultural and sporting events or related wholly to sales arising from business

• Allowed for deduction 50% and not allowed for deduction 50%

- Gift without business logo for customer’s annual dinner

- Gift of flower for customer’s opening new outlet - Entertainment to suppliers - Hampers for customers during festive seasons

• Not Allowed for deduction 100%

- Entertainment for potential customer in closed transaction

- Gift to customer on wedding

- Entertainment to employees of related companies

- Entertainment for annual general meeting of company - Cash contribution for customer’s annual dinner

Example 3 | Entertainment Expenses

Min Sdn Bhd spent the following expenses in year 2021: (a) RM3,300 lunch for entertaining potential customers (b) RM5,900 for client’s entertainment (c) RM7,800 for annual dinner with employees and clients (d) Meals for employees cost RM6,200

Answer Expenses Allowable / Non- Allowable Reason

RM3,300 lunch for entertaining potential customers Non Allowable

RM5,900 for client’s entertainment Non Allowable (50%)

• Expenses for unconfirmed clients

• Only allowed 50% for current clients

RM7,800 for annual dinner with employees and clients Non Allowable (50%)

• 100% involve with employee

• Allowed 50% as it is also involve clients Meals for employees cost RM6,200 Allowable

6.3 Double Deduction Expenses

• Double deduction is a special deduction given for certain expenses according to the Income Tax Act 1967.

• Double deduction means the expenses deducted through expenses in the profit and loss statement and deducted again in the calculation of company tax.

• Among the expenses are:

(a) Remuneration of handicapped employees [(PU(A) 73/1982 & PU(A) 204/2019)] Disabled employees refer to physically & mentally disabled and not able to perform the work of a normal person

(b) Remuneration paid to senior citizen (above 60 years), ex convict, parolee, supervised person and ex drug dependant [PU(A) 164/2019; PU(A) for YA 2019 to YA2020; nd PU(A) 47/2021]

(c) Provision of approved internship programme to students [PU(A) 398/2019] - approved by the Talent Corporation Malaysia Berhad (TalentCorp) in conducting approved intership programme

(d) Approved outgoings and expenses incurred for the promotion of exports from Malaysia [S41 of PIA 1986]

(e) Outgoings and expenses incurred for the promotion of exports of services [(PU (A)193/1999; PU(A) 114/2002; PU(A) 124/2003]

(f) Outgoings and expenses incurred for the promotion of exports of professional services [PU(A) 124/2003 & PU(A) 270/2005]

Professional services include legal; accounting; architectural; engineering and integrated engineering; and medical and dental.

(g) Overseas expenses incurred by hotel and tour operators for the promotion of tourism [PU(A) 412/1991 & PU(A) 263/2003]

Hotel and tour operating business must be registered with the Malaysian Tourism Promotion Board

(h) Expenses for participating in a virtual trade show/trade portal and cost of maintaining warehouse oversea [PU(A) 115/2002]

(i) Expenditure incurred by companies carrying on the business providing higher education in Malaysia for the purpose of promoting the export of higher education [PU(A) 185/2001 & PU(A) 261/2003]

- The institution must be registered and have approval from the Ministry of Higher Education (MOHE)

(j) Expenditure incurred on approved training

• Manufacturing Company

Approved training by MIDA or conducted by approved training institutes such as Malaysian Productivity Centre (MPC) & the purpose of training is to upgrade and developing employee’s skills & knowledge)

• Non Manufacturing Company

Approved training or conducted by approved training institutes appointed by the Ministry of Finance

• Company carrying on a hotel or tour operating business

- Approved training or conducted by approved training institutes appointed by the Malaysian Tourism Promotion Board

• Handicapped person

The handicapped person must be registered with Ministry of National Unity and Social Development and is not an employee of the company

Involved in approved training or conducted by approved training institutes under supervision of Ministry of Finance

(k) Premium paid on export credit insurance taken with a company approved by the Minister of Finance

• Conventional Insurance

• Takaful (Islamic)

(l) Freight charges for shipping goods from Sabah and Sarawak to Peninsular Malaysia

• To be claimed by the manufacturers and use ports in Peninsular Malaysia)

(m) Research expenditure

• The research must be approved research projects by the Minister

• The expenses not include qualify control of products or routine testing materials, devices, products or produce; research in the social sciences; routine data collection; efficiency surveys or management studies; and market research or sales promotion

(n) Cash contribution to approved research institutes; service fee to approved research institutes or companies; or service fee to an R&D company or a contract R&D company (S34B of the ITA 1967)

• Approved research institutes / company must fulfill the definition under S34B (4)(a) or S34B(4)(b) of the ITA 1967; and

• R&D company and Contract R&D company must fulfill the definition in S2 of PIA 1986

(o) Approved R & D expenditure incurred during the Pioneer period (S34A of ITA 1967: Effective Y/A 2003)

(p) Expenditure incurred on R & D activities undertaken overseas.

(q) Expenses incurred on international trade fairs held in Malaysia for the promotion of exports (PU(A) 361/1991: Effective YA 1992)

The trade fair must be an international trade fair approved by Ministry of International Trade and Industry (MITI);

The company must be approved by the MITI to participate the international trade fair; and

- All expenses incurred under S33 of ITA 1967 excluding the cost of exhibits

(r) Expenditure incurred on advertising Malaysian brand name goods within Malaysia by:

(e) Registered proprietor (PU(A) 62/002: Effective YA 2002)

The company must register in Malaysia and owned 70% by the Malaysian

The goods must achieve export quality standard

(f) Company owned by the registered proprietor (PU(A) 171/2007: Effective YA 2007)

- The company must be owned more than 50% by the registered proprietor

(s) Expenditure incurred in obtaining certification for recognized quality systems and halal certification (S34(6) of ITA, 1967 w.e.f YA 2015)

(t) Expenses for the registration of patent, trademarks and product licensing overseas (PU(A) 14/2007: Effective Y/A 2006)

(g) Must be Malaysian resident company

(u) Overseas promotional expenditure incurred by profit oriented private schools and international schools (PU(A) 110/2012: Effective Y/A 2012)

(v) Expenditure incurred for the provision and maintenance of child care Centre and payment of child care allowance to the employees (PU(A) 15/2013: Effective Y/A 2013)

(w) 50% of the rental payment incurred by a Tun Razak Exchange (TRX) Marquee Status Company (PU(A) 31/2013: Effective Y/A 2014 to Y/A 2020)

6.4 Qualifying Pre Operational Business Expenditure

- Eligible to resident company in Malaysia to undertake investment in business venture approved by MITI in a country outside Malaysia.

Qualifying pre operational expenditure are:

(a) Expenses directly attributable to the conduct of feasibility studied; (b) Expenses directly attributable to the conduct of market research or the obtaining of marketing information; or (c) Expenses on fares to travel to the country outside Malaysia, accommodation and substance (maximum RM 400 per day) for the period of commencing to the visit

6.5 Secretarial and Tax Filing Fee

Both expenses are eligible under special allowable deduction with combined amount of RM15,000 effective from YA 2020 [Income tax (Deduction for Expenses in realtion to Secretearial Fee and Tax Filing Fee) Rules 2020 [P.U. (A) 336/2014]

The secretarial fees are the expenses related with statutory compliance such as submission of forms and preparation of resolution while SSM filing fee and administrative expenses are not included

The tax filing fee are allowable which include income tax filing fee and SST filing fee.

6.6 Specific Expenses for Companies

(a) Repairs and Maintenance Expenses

• Allowable expenses on repair and maintenance consist of regular repair; delayed repair; or repair that involved certain part of the whole asset

• While initial repair before the assets are being used; early repair on leased assets; or shadow expenses are nor allowed

(b) Travelling Expenses

• Any travelling expenses relate to the business are alloweable while travel expenses that are not closely related to the business, are not allowed

(c) Legal Fees

• Among allowable legal fees are expenses on defending the rights, the prosecution of the business (litigation) and collecting customers debt

• While expenses that relates on acquire rights; loan agreement; additional capital; tax appeals; or expenses against the law are not allowed.

(d) Entertainment Expenses

• Allowable expenses consist of entertainment for employees such as annual dinner; expenses with the nature of business is to provide entertainment; promotional gifts or sampels with company logo; entertainment expenses for sports or cultural events that are open to the public and to promote the business entirely.

• While if company spend entertainment on clients, only 50% are alloweable and for potential client, it is not allowable 100%.

Exercise 1 | Company Expenses

State whether each of these expenses given below is ‘ Allowable’ or ‘Non Allowable’ and give suitable reason.

No. Types of expenses Allowable/ Non-Allowable Reason

a. Unrealized loss on settlement of trade debts

b. Installment cost of new generator

c. Practical training in relation to the business was given to nonemployees who resident in Malaysia

d. Cost of printing and distribution of annual report

e. Remunerating for managers

f. Provision and maintenance of child care Centre for the benefit of employees

g. Fees for designing the company’s logo

h. Entertainment given to potential customers during the launching of company’s new product

i. Cost of developing company’s website

j. Purchase new car (non commercial) for managing director

7.0 APPROVED DONATIONS [S 44(6)]

• In general, any donations can be deducted from the aggregate income as long as it is approved. However, for the taxation of the company, not all donations can be deducted from aggregate income. Below are donation expenses that are allowed for tax deduction:

Types of Donation Amount (RM)

(a) Gift of money to the Government, state government or local authority [S 44(6)]

(b) Gift of money to approved institutions, organizations or funds [S 44(6)]

(c) Gift of money to any sport activity approved by the Minister of Finance [S 44(11B)]

(d) Gift of money to any kind for project of national interest approved by the Minister of Finance [44(11C)]

(e) Cash wakaf contribution to state religious authority or Cash wakaf contribution to public university [44(11D)]

(f) Gift of money for the provision library facilities or to libraries [S 44(8)]

(g) Gift of artifact, manuscript or painting [S 44(6A)]

Full exemption given

Restricted to 10% of the aggregate income

Limited to RM 20,000

Based on the valuation by the Director General of Department of Museum and Antiquities or Director General of National Archives

(h) Donation of painting to National or State Art Gallery [S 44(11)]

(i) Zakat perniagaan [S 44(11A)]

Based on the valuation by the National Art Gallery or State Art Gallery

Limited to 2.5% of Aggregate Income

Example 4 | Approved donation

Teras Kuasa Sdn. Bhd., a SME company with paid up capital of RM250,000. Below is the information of the company’s expenses and incomes for year 2021:

RM

Adjusted Income 184,000

Balancing Charge 5,800 Capital Allowance 15,500

Rental Income 12,500

Donation to approved institutions 13,900 Donation to public library 5,000

Cash wakaf to state religious authority 4,430 Business zakat 6,230

Calculate Income Tax Payable for Teras Kuasa Sdn. Bhd. for the year of ssessment 2021

Answer Example 4

Teras Kuasa Sdn. Bhd. YA 2021 RM Adjusted Income 184,000

Add: Balancing Charge 5,800 Less: Capital Allowance (15,500) Statutory Income 174,300

Add: Rental Income 12,500 Aggregate Income 186,800

Less: Donations

• Approved institutions 13,900

• Cash wakaf 4,430 (limit to 10% of aggregate income) (18,330)

• Donation to public library (5,000)

• Business zakat (RM6,230 @ 2.5% of Agg. Inc : RM4,670) (4,670)

Chargeable Income 158,800

X tax rate 17% Tax Payable 26,996

RM RM

Net profit / (net losses) as per SOCI

Less : Non-business Income

royalty, rental, interest & other income)

Non allowable loss

Chargeable income not incude in SOCI

Gross Income from Business

Add : Non Allowable Expenses

Expenses that are not incurred

Expenses related to investment income

Capital Expenditure

(Limit to 19% from Salary & Bonus)

Donation, Depreciation, Zakat

Secretary & Taxation Fees

Loss on disposal of assets

Less : Allowable expenses not include in SOCI

Double deduction

Profit on disposal of assets

Add : Balancing Charge

(xxx) (xxx) (xxx) (xxx)

Adjusted Income xxx

Less : Capital Allowance – unabsorbed & current

Balancing Allowance

Industrial Building Allowance

(xxx) (xxx) (xxx)

xxx (xxx)

Statutory Income xxx

Less : Unabsorbed losses [Sec 43(2)]

Add : Non business income (xxx)

Aggregate Income

Less : Current year loss [S44(2)]

Prospecting expenditure – Schedule 4

Approved agricultural projects Sch 4A

Approved donations [S

44(6)]

Government/State (full exemption)

Public library (limit to RM20,000)

Approved istitutions, approved sports activity, approved service project; and cash wakaf (limit 10% from aggregate income)

Zakat (limit to 2.5% of aggregate income)

Chargeable Income

(xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx) (xxx)

STEP 4

STEP 5 CALCULATION OF CAPITAL ALLOWANCE

STEP 5

Tax Payable

OF DONATION AND ZAKAT

STEP 6

STEP 7 CALCULATION OF INCOME TAX PAYABLE

STEP 7

Example 5 | Tax Payable for Company

Mercy Engineering Sdn. Bhd. Statement of Comprehensive Income for the year ended 31 December 2021

Notes RM RM

Gross Income 1,008,500

Add: Other Income (1) 59,800 1,068,300

Less: Salary, Bonus & EPF (2) 459,000

Administration 17,650

Utilities (3) 28,900 Donation (4) 28,000

Interest & Bank Charges (5) 38,500

Repair & Maintenance (6) 34,300

Depreciation 16,400 Entertainment (7) 30,700

Rental (8) 18,000

Sundry Expenses (9) 43,700 715,150

Net Income 353,150

Less: Company Tax (24%) (84,756)

Net Income after Tax 268,394

Notes to the account:

(1) Other incomes include RM10,000 of gross rental (machine) from Faz Engineering Sdn Bhd., RM10,000 dividends from unit trust investment (local bank) RM15,800 interest income from CIMB Bank and RM24,000 from net rental of building

(2) Include in salary, bonus and EPF are: (i) Salary & bonus RM270,000 (ii) EPF RM60,000 (iii) Director’s allowance RM93,000 (iv) Salary for disable worker RM36,000

(3) Utilities include RM3,000 for deposit for booth at Kuala Lumpur Entrepreneur Trade Fair 2021

(4) Donations include:

(i) Donation to Pahang State Public Library (approved) for RM15,000

(ii) 10 set of typewriter for polytechnic (receipt included) cost RM3,000 (iii) Donation to Yayasan Budi Bestari (approved institutions) for RM8,500 (iv) Sundry donation amount RM1,500

STEP 3

Other Income:

28,000

STEP 2

Income

STEP 4 Other Income

Rental

Add

after statutory income)

Interest (exempted)

Salary (disabled)

double

from salary

Utilities (deposit)

expenses

STEP 5

Add

( ) as donation after aggregate income:

to Polytechnics (library) Yayasan Budi Penyayang

Non allowable: Braille

cash) Sundry

(multiple

(5) Interest and bank charges is for the interest on loan to build company’s factory building cost RM20,000 and interest on loan of company’s director cost RM18,500.

(6) Repair & maintenance include repairing directors’ car cost RM2,000 and upgrade machine cost RM6,250.

(7) Entertainment include:

(i) Annual dinner to staff RM24,300

(ii) Entertainment for suppliers RM4,800 (iii) Sundry entertainment RM1,600

(8) Rental expenses include RM16,000 for rental of machines and RM2,500 for rental of booth rental at Malacca International Trade Fair 2021

(9) General expenses include:

(i) General bad debts RM7,500

(ii) Specific bad debts RM2,000 (iii) Stationery & Printing RM2,200

(iv) Research & development of new products RM32,000

Additional information:

(i) Mercy Engineering Sdn. Bhd. is a SME company financed with paid up capital of RM 500,000 for the year ended 31 December 2021 (ii) List of assets own by company:

Required:

Calculate income

Mercy Engineering Sdn.

Answer Example 5

Mercy Engineering Sdn. Bhd. – YA 2021 RM RM

Net Income 353,150

(-) Other Income (59,800)

(-) Double Deduction : Disable worker 36,000 : Research & Development 32,000 (68,000)

(+) Non Allowable Expenses

: Depreciation 16,400 : Donation 28,000 : EPF 1,860 : Utilities 3,000 : Interest 18,500 : Repair & Maintenance 8,250 : Entertainment 4,000 : General Expenses 7,500 87,510

Adjusted Income 312,860

(-) Capital Allowance (202,200)

Statutory Income 110,660

(+) Other Income : Rental (gross) – Faza Makmur 10,000 : Dividend (single tier) – Megajaya exempt : Interest (CIMB Bank) exempt : Rental 24,000 34,000

Aggregate Income 144,660

(-) Donation : Library 15,000 : Approved Institution 8,500 ( 23,500)

Chargeable Income 121,160

x Tax Rate 17%

Income Tax Payable 20,597.20

PRACTICAL EXERCISE

Question 1 | Tax Rate

Jejak Gemilang Industries Sdn Bhd established in Malaysia on 2017 with the initial paid up capital of RM 265,000. The company core business is producing electrical components. The company closed its account on 31 December every year.

Calculate income tax payable for the year of assessment 2021 if the:

(a) Chargeable income is RM575,000 and paid up capital as per 31 December 2021 is RM600,000.

(b) Chargeable income is RM725,000 and paid up capital as per 31 December 2021 is RM1,150,000.

(c) Chargeable income is RM965,000 and paid up capital as per 31 December 2021 is RM2,650,000.

Question 2 | Rates & Expenses

(a) Calculate income tax payable for the year of assessment 2021 if the: (i) Alam Jaya Sdn Bhd

Statutory Income

RM675,800

Chargeable Income RM25,800 Paid up Capital RM320,000

Accounting year end 30 June 2021

• Biena Sana Sdn Bhd

Aggregate Income

RM378,900

Donation (approved) RM12,400

Paid-up Capital RM100,000 Accounting year end 30 September 2021

(b) Determine each of these expenses given below wheter it is Allowable / NonAllowable / Double Deduction expenses by giving amount and suitable reason.

(i) Fine of RM1,000 imposed on the company’s van carrying overloading goods.

(ii) Spent RM10,000 applying certification of halal from JAKIM.

(iii) Legal fee cost RM6,200 in collecting trade debts from debtors.

(iv) Spent RM4,500 on Iftar for employees and RM2,000 for Hari Raya hampers for suppliers.

(v) Product routine testing and quality control cost RM12,000.

(vi) Insurance premium paid for export cargo to Australia and insured with local insurance company.

(vii) Renovation of factory building to increase production cost RM175,000

(viii) Research expenses on approved serviced project cost RM65,000

(ix) A Nissan X Trail which cost RM105,000 was leased at a monthly rate of RM4,000 since January 2019. The vehicles not licensed for commercial purpose. The company closed account on 30 June 2021.

(x) Annual dinner for suppliers and vendors cost RM4,200.

Question 3 | Donation

Synergy Engineering Sdn. Bhd., a SME company in mechanical engineering for industries located at Temerloh, Pahang established in 2014 with paid up capital of RM500,000. Below is the information of the company’s expenses and incomes for year 2021: RM

Adjusted Income 270,000

Balancing Allowance 5,000

Capital Allowance : unabsorbed 10,000 : current 20,000

Unabsorbed loss 15,000

Other Sources of Income : Rental (net) 12,500 : Interest (local bank) 3,700

Donation : Approved institutions 8,800 : Library (State Library) 3,500 : Liga Bolasepak Rakyat (approved) 5,000 : Zakat perniagaan 6,500

Calculate Income Tax Payable for Synergy Engineering Sdn. Bhd. for the year of assessment 2021

Question 4 | Tax Payable

DRZ Hardware Sdn. Bhd. reports the following statement for the year ended 31 December 2021:

DRZ Hardware Sdn. Bhd Statement of Comprehensive Income for the year ended 31 December 2021

Notes RM RM

Sales 1,820,500

Less : Cost of good sold (1) (1,204,40)

Gross profit 616,060

Less :

Expenses :

Salary & Wages (2) 65,900

Water & Electricity 25,000

Telephone & Internet (3) 26,780 Transport 15,340

Motor vehicle expenses (4) 33,000 EPF 13,400

Bad debts (5) 33,500

Legal & profesional (6) 18,000 Miscellaneous (7) 17,750

Repair & Maintenance (8) 12,700

Advertisement 5,800

Printing & Stationeries 3,650 Depreciation (9) 43,900 Research (10) 20,000

Rental 6,000 Donation (11) Insurance (12) 3,500 34,200 (378,420)

Net Profit 237,640

Notes to the account :

(1) Cost of goods sold includes purchase of a cutting machine valued at RM12,500 and a brand new computer valued RM5,700 for office use. The annual allowance rate is 14% for cutting machine and 20% for computer.

(2) Salary and wages includes RM13,600 for two (2) disable workers.

(3) 25% from telephone & intenet is telephone bills is for the personal usage of directors.

(4) Motor vehicles expenses included : (a) RM2,400 loss from sale of a van that cost RM48,000. The van was purchased in year 2017. and was licensed for commercial purposes. The sales proceeds of the van were RM9,000. Annual allowance rate is 20%.

(b) RM2,200 was used to upgrade the hydraulic system of the company’s lorry

(5) Bad debts includes RM12,000 for general debtors and RM21,500 for specific debtors.

(6) Legal & professional expenses are as follows :

(a) Collection of trade debts RM4,600

(b) Renew rental agreement RM6,900

(c) Income tax appeal RM5,500

(d) Traffic summons RM1,000

(e) Traders Club (annual fee) RM250

(7) Miscellaneous expenses included RM10,000 entertainment for clients, a RM3,000 donates to local NGO and RM4,750 to the Yayasan Tawakal (an approved instituton)

(8) Repair expenses included renovation of the manager office amounts RM3,700; repair the office boy private motocycles cost RM1,000 and RM5,500 for building maintenance

(9) List of the asset are as follows :

Motor Vehicles Fixtures & Fittings Industrial Building

Cost (RM) 110,000 27,000 250,000

Annual Allowance (%) 20% 10% 3%

(10) Company was involved in approved research under Section 34A., Income Tax Allowance 1967.

(11) The company has made donation to approved institution (receipt attached) for RM3,500 in year 2021.

(12) RM4,200 from insurance expenses is for insurance of manager private motor vehicle.

Compute the income tax tax payable by DRZ Hardware Sdn. Bhd. For the year asssesment 2021.

Question 5 | Tax Payable

PDC Spare Parts Sdn. Bhd., an established automotive spare parts company, had paid up capital of RM750,000. Below is the Statement of Comprehensive Income for year 2021.

PDC Spare Parts Sdn. Bhd. Statement of Comprehensive Income for the year ended 31 December 2021 Notes

RM RM Sales 3,275,000

Less: Cost of Goods Sold (1) (2,170,000)

Gross Income 1,105,000

Add: Other Income (2) 20,000 1,125,000

Less:Salary, wages & bonus (3) 335,000

EPF 62,550 Depreciation 14,000 Donations (4) 12,500 Bad Debts (5) 15,000

Travelling (6) 25,000 Insurance (7) 22,000

Sundry expenses (8) 12,000 Repairs & Renovation (9) 34,000 Commission 13,500

Advertising 5,500 Transportation (10) 23,000 General expenses (11) 25,000 (599,050)

Net Income 525,950

Notes to the account:

(1) Cost of good sold include a purchase of a new Toyota Hilux (non comercial) on 1 June 2021 cost RM107,570. Capital allowance rate is 20%.

(2) Other income include:

(a) Dividend (net)(single tier company) RM5,000

(b) Interest (gross) from ABS Sdn. Bhd. RM4,000 (c) Rental (equipment) RM11,000

(3) Salary, wages & bonus include:

(a) Salary for disable staff cost RM2,500 per month

(b) Salary for management staff cost RM135,000

(c) Salary for operational staff cost RM115,000

(d) Bonus for 2021 cost RM43,000

(e) Accrued salary for 2020 cost RM12,000

(4) Donations include RM7,000 to approved institutions (receipt attached), RM5,000 to Perpustakaan Awam Negeri Pahang and RM500 for sundry donation.

(5) Bad debts include:

(a) Specific bad debts RM10,000

(b) General bad debts

RM3,000

(c) Bad debts written off RM2,000

(6) Fifty percent (50%) of travelling expenses is for salesperson while the balance is for directors personal travelling.

(7) Insurance are for the company’s stock cost RM26,000.

(8) Sundry expenses include RM2,500 for entertaining clients, RM1,500 for entertaining potential investors, RM6,000 for staff annual dinner and RM2,000 for petrol

(9) Repairs & Renovation:

(a) Extend storage space for stock RM16,000

(b) Repairs roof leaks of premises RM5,500

(c) Pest control for premises RM2,500 (d) Asset maintenance RM10,000

(10) Transportation includes RM5,000 to repair director’s car, RM5,000 for petrol and the remaining is for motor vehicles maintenance

(11) General expenses include zakat perniagaan for 2020 (RM5,500) and for 2021 (RM 7,500). The zakat has been paid on 28 December 2021 to Pusat Zakat Pahang (receipt attached).

Additional Information:

Below is the

(a)

Question 6 | Tax Payable

Crystal Clear Industries, the tiles and ceramic manufacturer closed its account on 31 December each year. With paid up capital of RM1.9 million, the company owns factory in Pahang. Below are the statement of financial income statement of the company for the year ended 31 December 2021.

Crystal Clear Industries

Statement of Comprehensive Income for The Year Ended 31 December 2021

Notes RM RM Sales 6,357,557

Less : Cost of Good Sold (4,197,557)

Gross Income 2,160,000

Add : Other Income (a) 52,200

Less : Research & Development (b) 51,000 : Commission (c) 52,000

: Insurance (d) 77,000

: Advertising (e) 157,000

: Director allowance (f) 168,000

: Salary, Bonus & EPF (g) 681,650

: Repairs & Renovation (h) 94,000

: Legal & Professional fee (i) 22,900

: Provision for doubtful debts (j) 25,700

: Loss on disposal of van (k) 22,000 : General expenses (l) 23,500 : Depreciation 33,000

: Travelling & Transportation (m) 12,000

: Audit & Accounting fee (n) 15,000 : Donation (o) 75,000 (1,509,750)

Net income 702,450

Notes:

(a) Other income include dividend income from Malaysian based company amount RM15,000, interest income from Indonesia amount RM14,200 and rental income (gross) RM23,000.

(b) Research and development include: (i) R&D expenses to develop new products RM31,000 (ii) Donation to research institute (approved) RM10,000 (iii) Promotions of new products RM10,000

(c) Commission includes RM2,500 for advanced commission for salesman.

(d) Insurance includes life insurance premium for director amount RM4,000, RM25,000 for company’s assets and RM44,000 for insurance premium from local insurance company for imported stocks.

(e) Advertising expenses includes RM20,000 for renovation of an existing showroom, RM45,000 for advertising in newspapers, internet and television.

(f) Director allowance include advance allowance for director amount RM8,000.

(g) Salary & bonus for employees are as follows:

Employee Salary (RM) Bonus (RM) EPF (RM)

Manager 60,000 5,000 12,500

Assistant Manager 48,000 4,000 10,500

Supervisor 42,000 3,500 8,600

Team Leader 36,000 3,000 7,050

Administration staff 126,000 35,000 30,000

Operational staff 175,500 34,500 40,500 487,500 85,000 109,150

• Two (2) of the operational staff are disable. They received allowance RM3,000 yearly from Jabatan Kebajikan Masyarakat and salary paid by the company RM13,200 per annum each.

(h) Repairs & renovation include:

(i) Vehicles repairs RM26,000 (ii) Upgrade old machines RM18,000 (iii) Plant & machinery repairs RM50,000

(i) Legal & Profesional fees include:

(i) Legal fee to collect business debts RM4,800 (ii) Secretarial fee RM5,200 (iii) To defend company from civil charges RM7,600 (iv) Renew lease RM5,300

(j) Provision for doubtful debts include:

(i) Bad debts written off are for debtors cost RM9,200 and ex director for RM2,400

(ii) General provision for doubtful debts cost RM9,000 and for specific provision for doubtful debts cost RM4,100

(k) Loss on disposal on van is differentiation between book value and market value. (l) General expenses include a fine of RM300 for the traffic offenses committed by company director and fine for issuing earlier cheque cost RM100.

(m) Travelling and transportation includes RM2,500 for flight ticket for director (personal) and RM7,500 for official duties.

(n) Audit, accounting & secretarial fee include RM7,000 for audit services, RM5,000 for new accounting software and RM12,200 for secrectarial fee for increasing new shares.

(o) Donations includes:

(i) Donation to Yayasan Insan (approved) RM15,000

(ii) Zakat Perniagaan RM12,500

(iii) Donation to public university library (approved) RM12,500

(iv) Miscellaneous donation

RM10,000 (v) Donation to sports activity (approved) RM25,000

Additional information:

(1) Non Current Assets in 2021: Non current Assets Cost (RM) Purchase Date Capital Allowance (%)

Computer 45,000 1.8.2021

Car 1 (non commercial) 165,000 1.5.2019

Machines 250,000 1.1.2019 20 %

Car 2 (non commercial) 125,000 1.8.2019

Lorry 80,000 1.1.2018

Van 1 50,000 1.9.2018

Office Equipment 40,000 1.3.2017 10 %

• Van 1 has been sold on 30/6/2021 with cost RM 14,000.

Calculate income tax payable of Crystal Clear Industries for the year of assessment 2021

QUESTION 7 | Tax Payable

Ukhwah Foods Sdn Bhd has been in frozen food business since 2017. The company has a paid up capital of RM500,000 The income statement for the year ended 31 December 2021 is as follows:

Ukhwah Foods Sdn Bhd Statement of Comprehensive Income for the year ended 31 December 2021

Notes RM RM

Sales 4,350,500

Less : Cost of goods sold (1) (2,744,000)

Gross profit 1,606,500

Add : Other Income - Dividend from Malaysia (gross) 10,200 - Profit on disposal of asset 12,000 - Dividend from Singapore (remitted) 8,000 30,200

Less : Rental (2) 75,000 : Salaries, wages & EPF (3) 908,860 : Insurance (4) 7,500 : Water and electricity (5) 133,000 : Repairs and renewals (6) 17,600 : Advertising (7) 12,400 : Bad debts (8) 16,400 : Legal (9) 12,080 : General (10) 10,600 : Administration (11) 12,360 : Travelling (12) 4,780 : Marketing & entertainment (13) 20,200 : Finance charges (14) 8,500 : Provision for taxation 9,000 : Depreciation (15) 8,000 (1,256,280)

Net profit 380,420

Notes to the accounts:

(1) Included in the cost of goods sold are:

(a) Insurance premium amounting to RM12,000 paid to a local insurance company for export of its goods. (b) Provision for stock obsolescence amounting to RM16,000

(2) 25% of rental paid is in respect of a house rented for director’s living accommodation, 25% for advanced rental and 50% for employee living accommodation.

(3) Salaries & EPF are paid out in the basis year:

staff (disabled employees)

staff

staff

staff

(4) Insurance expenses included RM1,500 insurance on shop premises, RM3,300 insurance on stock in trade and a RM2,700 life insurance policy for managing director.

(5) Water and electricity include 15% for deposit of new premises.

(6) Repairs and renewals are as follows:

(a) Purchase of new cash register RM3,800 (b) Repair to office furniture RM2,500 (c) Repair machinery RM8,900 (d) Repair of broken door RM2,400

(7) Advertising expenses included RM3,800 for change of new sign board and RM8,600 for advertising new products.

(8) Bad debts account shows: Bad Debts a/c RM RM

Bad debts w/off 11,200 Bal b/d : General 11,000 : Specific 13,000 Balance c/f General 12,500 Bad debts recovered 4,000 Specific 20,700 Profit & loss account 16,400 44,400 44,400

(9) Legal expenses were incurred on the following:

(a) Professional fees for trade debts collection RM2,000 (b) Recovery from ex director RM1,200 (c) Sale of assets to customers RM3,600 (d) Legal fees obtaining overdraft facilities RM5,280

(10) General expenses included RM1,800 new cabinets for director’s office, RM1,300 lunch for entertaining potential customers, RM3,900 for client’s entertainment and RM3,600 for staff meals.

(11) Office expenses:

(a) Cleaning services RM2,360 (b) Miscellanoeus (foods & drinks) RM1,200 (c) Renovation of pantry and meeting room RM9,000

(12) Travelling expenses:

(a) Compound paid for traffic & illegal parking RM1,300 (b) Repair to General Manager vehicles RM2,700 (c) Travelling allowance for directors

RM3,000 (d) Petrol, road tax for commercial vehicles RM3,000

(13) Marketing and entertainment expenses of RM31,200 include:

(a) Promotion on company’s product at trade fair RM5,500 (b) Cost of Halal certificate application (JAKIM) RM5,500 (c) Expenses incurred for staff family day RM12,000 (d) Travelling allowances for marketing staff RM3,700 (e) Sponsoring Florial Fest (approved) RM4,500

(14) Finance charges include RM2,700 for penalty of early payment of loans.

(15) Ukhwah Foods Sdn Bhd claimed capital allowance amount RM68,400 and balancing charge of RM18,800 for year 2021.

You are required to compute the tax payable by Ukhwah Foods Sdn Bhd for the year assessment 2021.

QUESTION 8 | Tax Payable

FullTech Construction Sdn Bhd, a construction company has paid up capital of RM1,230,000. The business started since 2017 and the company's accounting date ended on 31 March each year. The following is the Statement of Comprehensive Income of FullTech Construction Sdn. Bhd. for the year ended 31 March 2021

FullTech Construction Sdn. Bhd. Statement of Comprehensive Income For the year ended 31 March 2021

Notes RM RM Income 1,653,000

Construction Cost (1) ( 492,000)

Gross Income 1,161,000

Add: Other Income (2) 42,900 1,203,900

Less: Salary, bonus & EPF (3) 329,500 Rental (4) 72,000

Legal fee (5) 10,000 Utilities (6) 36,000

Foreign exchange loss (7) 12,000 Donation (8) 24,000

Repair & Maintenance (9) 25,800 Drawings (10) 7,000

Entertainment (11) 19,900

Insurance (12) 8,800

Advertising (13) 4,200

Depreciation 17,000

General Expenses (14) 4,000

Profesional fees (15) 24,500 (594,700)

Net Income 609,200

Notes to the account:

(1) Cost of goods sold include purchase of a new set of computer cost RM5,200 for the managing director.

(2) Other incomes include a net dividend of RM 7,000 received from a registered cooperative, gross dividend from single-tier companies for RM4,000, interest of fixed deposit from Maybank for 12 months for RM4,500 and net rental cost RM27,400.

(3) Salary and EPF (employer) :

Salary Bonus EPF Total

Administrative staff RM90,000 RM9,000 RM19,500 RM118,500

Construction staff RM150,000 RM26,000 RM35,000 RM211,000

• Include in administrative staff are salary for two (2) disable workers. They receive RM3,600 per annum each.

(4) Rental includes RM24,000 for rental of machinery, RM36,000 for premises and RM12,000 for directors personal.

(5) Legal fees include:

(a) A fine of not tagging discount sign during year-end sale RM4,000 (b) Collect customer debts RM3,000 (c) Fees for purchasing land to build a new warehouse RM3,000

(6) Utilities include advance payment for utilities bill for April & May 2021 for RM3,000, RM8,900 for maintenance and RM2,000 for deposit of electricity.

(7) Foreign exchange loss includes:

(a) Foreign exchange loss on repayments of foreign loan RM2,200 (b) Foreign exchange loss on imported stocks RM9,800

(8) Donation was made for:

(a) Yayasan Autisim Malaysia (approved) RM4,000 (b) Perpustakaan Tun Abdul Razak (approved) RM8,000 (c) NGO & political party RM6,000 (d) Program 1 Sukan 1 Komuniti (approved by KBS) RM6,000

(9) Repair and maintenance include:

(a) Built in partition RM10,000 (b) Repairs roofs, rack & cabinet RM15,800

(10) Drawings are for the life insurance of the managing director.

(11) Include in entertainment was:

(a) Annual dinner for worker

RM9,000 (b) Entertainment for clients & supplier

RM3,500 (c) Telematch open to public RM2,400 (d) Entertainment allowance to employees RM5,000

(12) Insurance include insurance for imported stocks for RM5,000 and insurance for company’s motor vehicles for RM3,800.

(13) Advertising include:

(a) Re painting office RM1,400 (b) Replace signboard (new)-(equipment) RM2,800

(14) General expenses including RM1,000 for admission fee and RM500 for annual fee of Persatuan Kontraktor Wilayah Timur.

(15) Professional fee includes RM5,400 for the accounting and tax filing services; lawyer fees to collect debts cost RM5,000; secretarial fees cost RM6,000; and RM8,000 for lawyer fees to purchase land

(16) Fixed Assets of the company are as follows:

Date Annual Allowance

10%

20%

20%

10%

40%

3%

Calculate Income tax payable

Sdn. Bhd. for year

QUESTION 9 | Tax Payable

Comfort Tires Sdn. Bhd., a company resident in Malaysia, involved in tires manufacturing and in investment activities as part of its principal businesses. This company is a company with paid up capital RM1.8 million. Below is the Statement of Comprehensive Income for the company for the year ended 31 December 2021

Comfort Tires Sdn. Bhd. Statement of Comprehensive Income for the year ending 31 December 2021

Notes RM RM Sales 3,576,050

Less : Cost of Goods Manufactured (1) (1,756,075)

Gross Profit 1,819,975

Add : Other Income

Dividend Income (2) 156,560

Profit on Investment 129,885

Profit on sale of fixed assets 45,000 331,445 2,151,420

Less: Expenses

Advertising & Entertainment (3) 275,850

Travelling Expenses (4) 20,000

Salaries, wages & EPF (5) 578,500

Depreciation 98,500

Profesional fees (6) 65,300

Repair and maintenance (7) 226,450 General expenses (8) 132,560 Interest expenses 45,000

Foreign Exchange Loss (9) 35,260

Donations (10) 83,500 Provosion for doubtful debts (11) 40,350 (1,601,270)

Profit before taxation 550,150

Notes:

(1) Cost of goods manufactured includes: (a) New machine RM100,000 (b) Installation of new machine RM20,000 (c) Insurance premium paid to Malaysian insurance RM7,500 company (insured on imported raw material)

(2) Dividend income include:

(a) Dividend from PASF Bhd. (gross) RM60,000 (b) Dividend from Public Mutual Bhd (mutual fund) RM30,000 (c) Dividend from Mutual Fund (gross) (CIMB Bank) RM50,000 (d) Gross dividend from other company (single-tier) RM16,560

(3) Advertising and entertainment include:

(a) Annual fees paid to manufacturing association RM24,000 (b) Director’s entertainment allowance RM48,000 (c) Family day for staff RM13,500 (d) Participation in trade fair in Singapore (approved) RM25,750

(4) Travelling expenses include RM7,000 for petrol, RM1,000 for toll, RM6,000 for extra time allowance and RM6,000 for director personal petrol card.

(5) Salaries and wages include:

(a) Salary for disable workers RM43,000 (b) Salary for manufacturing staff RM193,000 (c) Salary for administrative & marketing staff RM117,500 (d) Provision for retirement gratuity RM150,000 (e) EPF RM75,000

(6) Professional fees include:

(a) Audit fees RM11,400 (b) Secretarial fee (annual) RM3,600 (c) Secretarial fee for increasing share RM3,000 (d) Legal fees incurred on trade debt recovery RM36,000 (e) Legal fees on registration new patent RM11,300

(7) Repair and maintenance include:

(a) Repair manufacturing equipment RM66,000 (b) Cost of director’s new vehicles (non-commercial) RM155,000 (c) Purchase office boy’s motorcycle (assets) RM5,450

(8) General expenses include:

(a) Stationaries and postal RM4,600 (b) Cash contribution (approved research institute) RM65,000 (c) Annual general meeting RM10,000

(9) Foreign exchange loss includes:

(a) Loss from payments buying imported spare parts RM12,560 (b) Provision for foreign exchange loss RM22,700

(10) In year assessment 2021, ComfortTires Sdn. Bhd. donates RM 20,000 to the National Public Library and RM 63,500 to other approved institutions (receipt included)

(11) Provision for doubtful debts (trade) :

(a) General Provision RM20,500 (b) Specific Provision RM15,000 (c) Bad debts written off RM4,850

are required to calculate:

Capital allowance

QUESTION 10 | Tax Payable

Reliance Industries Sdn. Bhd., is a company engaged in the manufacture of food products. The company made up its Statement of Comprehensive Income for the year ended 31 December 2021 as follows:

Notes RM RM Sales 1,920,000

Less: Cost of sales (1) ( 765,000) Gross Income 1,155,000

Less: Salaries and wages 267,000

EPF Contributions 052,000

Travelling and entertainment (2) 025,000

Bad and doubtful debts (3) 041,000

Freight and insurance 0 57,000 Repair and maintenance (4) 051,000 Depreciation 093,000

Rental (5) 045,000 Training and professional fees (6) 79,000 Advertising 062,000 Miscellaneous expenses (7) 44,000 (816,000)

Net Profit 339,000

Notes to the accounts:

(1) Included in this amount is the provision of stock obsolescence of RM34,000 and payment for use of services of an approved research company of RM25,000. (2) Travelling and entertainment includes: (a) Lunches and dinners of RM14,000 provided to the bankers, lawyers and auditors.

(b) A sum of RM9,000 paid to the canteen operator for the employee meals and refreshments.

(3) Bad and doubtful debts are in respect of trade debts made up as follows:

(a) Bad debts written off RM9,000 (b) Bad debts recovered RM1,000 (c) Decrease in specific provision of doubtful debts RM5,000 (d) Increase in general provision of doubtful debts RM38,000

(4) Included in this figure is an estimated cost of RM 15,000 to repair the company’s van.

(5) This item is in respect of an office rental from 1 January 2021 to 31 March 2022.

(6) Training and professional fees include:

(a) Payment of RM 30,000 for the training program of its employees (approved by MIDA)

(b) Statutory audit and accounts services of RM 12,000 (c) Secretarial fees of RM 10,000 (inclusive of RM 8,000 as registration fee to increase the share capital of the company)

(7) Miscellaneous expenses consist of:

(a) Cash donation to an approved institution RM20,000

(b) Interest charges by trade creditors on overdue acc RM3,000 (c) Printing and stationery RM4,200 (d) Telephone, water and electricity RM16,800

Additional information:

(i) Reliance Industries Sdn. Bhd., was incorporated on 1st January 2019 with an authorized ordinary share capital of RM 1 million. It authorized share capital was increased to RM 1,300,000 on 1st January 2021

(ii) The qualifying expenditure (QE), residual expenditure (RE) and the capital allowances rates of the company’s assets are as follows:

Non Current Assets

(iii) The unabsorbed business losses and unabsorbed capital allowances brought forward from basis year 2019 amounted to RM30,000 and RM12,000 respectively.

Compute:

(a) Capital allowance (b) Tax liability of the company for the year of assessment 2021. (Show your calculation)

QUESTION 11 | Tax Payable

Ambuja Industries Sdn. Bhd., a company which supplies foods products for industries. The following is financial information for 2021

Ambuja Industries Sdn. Bhd. Statement of Comprehensive Income

For the year end 31 December 2021

Notes RM RM Sales 3,112,000

Less: Cost of sales (1) (1,669,500) Gross Profit 1,442,500

Less: Salaries, wages and bonus (2) 227,000

EPF & SOCSO 45,000

Travelling & entertainment (3) 49,000 Donation (4) 28,000

Repair and maintenance (5) 35,000

Bad and doubtful debts (6) 41,000 Freight charges (7) 57,000 Depreciation 93,000

Rental (8) 26,000

Training & professional fees (9) 43,300

Research & Development (10) 48,000 Advertising (11) 62,000 Miscellaneous expenses 64,200 (818,500)

Net Profit 624,000

Notes to the accounts:

(1) Cost of sales includes RM20,000 for new machine (asset), RM14,000 for of stock obsolescence and insurance premium from Malaysian’s insurance company for imported goods cost RM12,500.

(2) Including in salaries, wages & bonus are the salaries for disable workers cost RM48,000 in 2021.

(3) Travelling and entertainment includes company’s annual dinner of RM12,500, RM24,000 for the employee meals and refreshments and RM20,000 for customer entertainment.

(4) Donations are as follows:

(a) Cash donations (National Heart Foundation approved) RM10,500

(b) Books donation to Taska Permata (approved) RM3,000

(c) Donations to employee incurred in accident. RM9,000 (d) Miscellaneous donations RM5,500

(5) Repair and maintenance include RM12,000 for repairing machine, RM13,000 for provision cost of repairing cars and RM10,000 to replace new furniture (asset) for the general manager’s office.

(6) Bad and doubtful debt includes RM6,000 bad debts from one of the directors.

(7) Freight charges include freight charges to bring supply from Sarawak to Peninsular Malaysia cost RM17,000.

(8) Includes in rental are office rental cost RM12,000 and deposit for machine rental cost RM6,000.

(9) Training and professional fees include:

(a) Audit and accounts services of RM8,500.

(b) Secretarial fees of RM9,800 (inclusive of registration fee for increasing shares with cost of RM5,000)

(c) Payment of RM25,000 for the training of new employees by a consultant approved by MIDA.

(10) Research and development consist of:

(a) Cash donation to an approved research institutionRM20,000

(b) Expense for halal certification and quality systems RM13,300

(c) Development of ISO and 5’s Standard Quality RM14,700

Additional information:

(i) Ambuja Industries Sdn. Bhd. was incorporated on 1st January 2019 with an authorized ordinary share capital of RM2,700,000. Until 31 December 2021, the paid-up share capital amounted to RM1,300,000.

(ii) Capital allowance for the company asset is at 20%. In 2021, capital allowance for the assets is RM 54,300 excluding new assets.

(iii) Below was the information carried forward from 2020: (a) Business losses RM49,000

(b) Capital allowances RM16,900

You are required to:

(a) Calculate capital allowance for year of assessment 2021.

(b) Calculate income tax payable for Ambuja Industries Sdn. Bhd. for the year of assessment 2021

REFERENCES

Choong Kwai Fatt (2021), Malaysian Taxation Principles and Practice, 27th Edition, Infoworld

Choong Kwai Fatt (2021), Advanced Malaysian Taxation Principles and Practice, 22th Edition, Infoworld

Budget Commentary and Tax Information, MIA, MICPA, CTIM

Income Tax Act 1967

www.hasil.gov.my