UNIVERSITI TEKNOLOGI MARA
TAX517
TOPIC 2 : CORPORATE TAX
Tutorial 1 (PYQ Feb 2021)
Q-Pharma Sdn Bhd, a company with paid up capital of RM2.2 million is a manufacturer and
exporter of pharmaceutical and healthcare products in Malaysia. The company has been
resident in Malaysia since its incorporation in Johor Bahru, Johor in 2014. For the year
ended 31 December 2020, its Statement of Profit and Loss is as follows:
Q-Pharma Sdn Bhd Statement of Profit and Loss for the year
ended 31 December 2020
Note RM’000 RM’000
Sales 18,700
Less: Cost of sales 1 (11,874)
Gross Profit 6,826
Add: Other income 2 504
7,330
Less: Operating Expenses
Depreciation 350
Remuneration 3 900
Donations and contributions 4 680
Entertainment 5 700
Professional fees 6 575
Research and development 7 735
Lease rental 8 158
Promotion and marketing 9 420
Bad and doubtful debt 10 307
Miscellaneous 510
Business zakat 45
(5,380)
Profit before taxation 1,950
Notes:
RM’000
1. Included in the cost of sales are:
Provision for stock obsolescence
Export credit insurance premium taken from approved Takaful company
2. Other income comprises of:
Dividend from exempt income account of a pioneer status company
Gain on sale of a machine (the machine, which has the residual
expenditure of RM35,000 was sold at RM42,000) 45
Profit on sale of equity investment in Bursa Malaysia 40
Realized foreign exchange gain on payment to foreign suppliers
3. Remuneration comprises of:
Salary and bonuses for employees
Contribution to Employee Provident Fund (EPF) (13%) and
approved private retirement scheme (7%) 136
Internship allowances paid to two Bachelor of Pharmacy students under
TalentCorp structured internship program 15
Compensation paid to terminated staff 45
Provision for gratuity
4. Donations and contributions comprise of:
Cash donation to Majlis Kanser Nasional (approved)
Cash contribution to approved sports activity for disabled person
Cash endowment contribution to Universiti Teknologi MARA
Contribution of medical books and journals to National Public Library
[sec 34(6)(g)]
5. Included in the entertainment are:
Lunch treats for factory workers after achieving targeted
manufacturing quantities 100
Cash contribution for customer's annual dinner
Company's trip involving management, employees and immediate family
members to Lombok, Indonesia 45
6. Professional fees include:
Consultancy fees paid to a company in Singapore for automation
management system (no withholding tax has been deducted) 180
Professional fees for tax appeal
Secretarial and tax filing fees
7. Research and development:
This expenditure relates to a pharmaceutical research project undertaken by
the company, which is approved by the Minister of Finance.
8. Lease rental consists of:
Type of vehicle Commencement Monthly Lease Cost of Vehicle
of Lease Rental (RM) (New) (RM)
Van 1 March 2020 5,000 90,000
Car 1 January 2020 9,000 250,000
9. Promotion and marketing comprise of:
Initial registration of patent for new pharmaceutical product
Payment for product licensing overseas
Participation in an approved international medical trade fair in Putrajaya 200
Expenses incurred for obtaining halal certification for
company’s pharmaceutical product 50
420
10. Bad and doubtful debt:
There was a reduction in general provision for doubtful debts of RM85,000
during the year.
Advances to trade supplier written off of RM128,000.
Other additional information:
i. The capital allowances claimed for the year of assessment 2020 is
RM189,000.
ii. The unabsorbed loss brought forward from previous year is RM15,000.
Required:
a. Compute the income tax payable of Q-Pharma Sdn Bhd for the year of
assessment
2020. Indicate NIL where no adjustment is required.
(22 marks)
b. The new tax assistant of Q-Pharma Sdn Bhd seeks clarification on the tax
treatment of the above expenditure incurred by the company. Explain briefly the
treatment for the following items:
i. Profit on sale of equity investment in Bursa Malaysia.
ii. Cash endowment contribution to Universiti Teknologi MARA.
(4 marks)
(Total: 26 marks)
Tutorial 2 (PYQ July 2020)
A. SPV Base Sdn Bhd is a locally incorporated resident company located in Jelai, Negeri
Sembilan. The company, which has an issued share capital of RM3.2 million, is
carrying on the business of manufacturing electronic microchips for computer tablets.
The company closes its accounts to 31 December each year. For the financial year
ended 31 December 2019, the company’s statement of profit or loss is as follows:
SPV Base Sdn Bhd Statement of Profit or Loss for the year ended 31 December
2019
Note RM`000 RM`000
Sales 19,334
Less: Cost of sales 1 (7,758)
Gross profit 11,576
Add: Other income 2 168
11,744
Less: Expenses
Staffs remuneration 3 2,250
Promotion and marketing 4 200
Professional fees and charges 5 163
Repairs and maintenance 6 1,275
Bad and doubtful debts 7 400
Depreciation 800
Social responsibility and donation 8 890
Insurance 9 20
Lease payments 10 140 (6,138)
Net profit before taxation 5,606
Notes:
1. Included in the cost of sales:
RM
Provision for slow moving stock:
Balance brought forward 84,000
Add: Provision for slow moving stock for the year 294,000
378,000
Less: Stock written off
2. Other income comprises:
RM
Rental income from the company’s warehouse in Nilai, Negeri Sembilan 108,000
Interest on trade receivables settling their late account at 6% of the
outstanding balance 60,000
168,000
3. Remuneration includes:
RM
Salary for employees:
- Normal employees, including directors’ salary 1,746,000
- Disabled employee 48,000
- Senior citizen employees (Note i) 72,000
EPF for employees and directors 360,000
Internship allowances paid to two undergraduates of engineering and
technology students (approved by Ministry of Human Resource) 24,000
2,250,000
Note (i): Included in the account is salary paid to two senior citizens at RM3,000
per month for each employee. The senior citizens, aged 58 and 62
respectively, are hired on a full-time basis since beginning of the
financial year.
4. Promotion and marketing comprise:
RM
Registration of patents and product licensing overseas 150,000
Return tickets for overseas trip of the Marketing Director and his family 50,000
200,000
5. Professional fees and charges comprise:
RM
Secretarial fees 14,000
Tax filing fees 8,000
Income tax appeal 66,000
Consultancy fees paid to non-resident company for technical advice on
17 October 2019 (withholding tax was remitted to IRB on 13 January
2020). 75,000
163,000
6. Repairs and maintenance include: RM
Equipment to facilitate access for a disabled employee to washrooms 123,000
Renovation of company’s buildings 1,090,000
Repainting the office building 52,000
Installation of closed-circuit television (CCTV) at the company’s
warehouse in Nilai, Negeri Sembilan 10,000
1,275,000
7. Bad and doubtful debts include: RM
Provision for bad debts (from F-Tech Sdn Bhd, a long overdue
customer) 60,000
Provision for general trade debts 240,000
Bad debts written off from Mr Cheng, one of the company’s trade
receivables who died in a road accident during the year 100,000
400,000
8. Social responsibility and donation include: RM
Sponsorship of washrooms as part of a ‘public amenities for community’
programme approved by the relevant authorities 160,000 Sponsorship of
approved foreign cultural activities 330,000
Contribution to a public school library in Seremban, Negeri Sembilan
[the company elects for sec 34(6)(g)] 120,000
Cash donation to approved institutions 155,000
Business zakat 125,000
890,000
9. The company paid an insurance premium of RM20,000 to a local insurance
company in respect of life and accident policies of the employees.
10. Lease payments include: RM
Payment to a leasing company for a lease of a car (which cost
RM300,000 in 2019 when the car is new) 75,000
Payment for a leased machine to meet seasonal production demand 65,000
140,000
11. Other additional information:
i. The company had incurred RM800,000 for the development of website in the
current year. This transaction has been recorded in the company’s financial
statement.
ii. Current year and brought forward capital allowances amounted to
RM820,000 and RM69,000 respectively.
iii. Business loss brought forward from year of assessment 2018 amounted to
RM670,000.
Required:
Compute the income tax payable of SPV Base Sdn Bhd for the year of
assessment 2019. Indicate ‘NIL’ where no adjustment is required.
(22 marks)
B. Explain briefly, with appropriate tax treatment, whether the following expenses should
be treated as revenue or capital expenditure for tax purposes for Alef Sdn Bhd, a
resident company in Malaysia for the year of assessment 2019:
i. Purchase of a second-hand machine at a cost of RM12,000 from a bankrupt
company. The machine can only be used after a significant repair which the
company had incurred RM7,000 for the repair.
ii. Legal fees paid on a renewal of a loan agreement with BIDB Sdn Bhd
amounted to RM20,000 and settling a dispute on collection of overdue
account receivables amounted to RM15,000.
(4 marks)
(Total: 26 marks)