3 CHAPTER 3 : COMPANY TAXATION

OBJECTIVES
 Explain the residence status of a company
 Ascertain the adjustments from the company’s financial statement
 Ascertain the total income and tax liability of a company

PRE QUIZ 3 : COMPANY TAXATION

Retro Guava Sdn. Bhd., a manufacturing company that involved in producing instant food.
The extracted profit and loss account of the company for the year ended 31st August 2021
as follows:

Retro Guava Sdn. Bhd.

Statement of Comprehensive Income for the year ended 31st August 2021
Notes RM RM
Gross profit 705,000
(+) Others incomes 1 24,000
Gain on disposal of machine 2 1,000
730,000
(-) Expenditures :
Salaries 3 93,100
EPF Contributions 3 17,400
Entertainment 4 7,100
Renovation 5 30,000
Repairs 6 9,600
Depreciation 5,600
Legal fees 7 4,000
Rental 1,440
Water & electricity 2,592
Directors fee 62,400
Bad debts 8 2,080
Provision of retirement gratuity 30,800
Donations 9 3,200
Taxation 10 14,160 283,742
Net Profit 446,258

Notes to the account:

1. Other incomes consist of interest on overdue trade accounts, RM8,000 and rental of
warehouse RM16,000

2. Gain on disposal of machine

Sold old machine on 1st February 2021 at RM12,000. The book value on 1st September
2020 is RM11,000. Annual capital allowance is 14%. The residual balance for the
machine on 1st September 2020 is RM12,500.

64 | P a g e
3. Salaries and EPF contributions are as below:

Name of Employee Salary (RM) EPF Contributions (RM)

Redha 21,300 4,200
Firdaus 20,900 4,100
Sofea 15,500 3,000
Alya (special needs person) 17,400 3,000
Aryan 18,000 3,100

4. Entertainment:

Cash contribution for customer’s annual dinner RM1,200

Hampers for customers during Ramadhan month RM2,000
Free trip to Pulau Perhentian for TOP 3 Sales Agent RM3,900
RM7,100

5. Renovation comprises:
Renovation of kitchen and sanitary fittings in business premise on February 2021 had
been approved by external auditor.

6. Repairs include:

Replace the roof of warehouse with similar roof because badly RM8,240
damaged during recent storm
Repair the leaks in drainage systems RM1,360

7. Legal fee comprise :

Process to apply HALAL logo RM1,600

Taxation filing fee RM2,400
RM4,000

8. Bad debts account :

RM RM
Bad debt written off 3,840 Specific provision b/f 4,000
Specific provision c/f 2,560 General provision b/f 4,800
General provision c/f 4,480 Profit and loss 2,080
10,800, 10,800

9. The donation arises:

Give 100 children’s storybooks to the public library RM1,200

Cash wakaf contribution to a public university approved by the RM2,000
state religious authority
RM3,200

65 | P a g e
10. Taxation comprises :

Tax assessment of the business building RM2,400

Import duty (goods sold) RM8,000
Tax provision RM3,760

11. Other information :

Industrial building allowance for the year of assessment 2021 RM6,080

Capital allowance for the year of assessment 2021 RM7,280
Business loss b/f 2020 RM27,000

You are required to:

(a) Show the computation on balancing allowance or balancing charge for disposal of the
machine and calculation of non-allowable expenditure for EPF. (5 Marks)

(b) Calculate tax payable by Retro Guava Sdn. Bhd. for the year of assessment 2021.
(20 Marks)

3.1 INTRODUCTION

Tax computation of a company would then be constructed based on the audited accounts
and additional schedules provided by the company. Prior to YA 2001, the tax authorities
would require the return Form C, tax computation together with the audited accounts to
be submitted for raising an assessment.

Under Self-Assessment, a company is required to submit the tax return (Form C) within
7 months after closing the company’s year-end. The company keeps the tax computation
and audited accounts for the inspection of IRB tax audit in future years.

It is a mandatory requirement for the company to maintain and complete the following
worksheets for every YA to facilitate the IRB inspection during a tax audit:

a) Computation of statutory income for :

i. Business
ii. Dividends (w.e.f. 1.1.2014, Malaysia derived dividend are exempted from income tax)
iii. Interests
iv. Royalties
v. Rents (with details of properties)

b) Current year business loss

c) Withholding tax payment to non-resident
d) Information on 5 directors and 5 shareholders who are controlling the company.

Liability to tax:
 Resident company = income accrued or derived in Malaysia only
 Non-resident company = only its Malaysian source income
*** Offshore income (income from outside Malaysia) is not exposed to tax***
66 | P a g e
3.2 RESIDENTIAL STATUS OF THE COMPANY

A company carrying on a business or businesses is resident in Malaysia if, at any time in

the basis year for a year of assessment, the management and control of its business or
any of its businesses is exercised in Malaysia [Section 8 (1) (b)]. Some of the more
important aspects of a company’s position, in relation to its residence, considered by the
Revenue are:

 The place of registration and whether the place of residence is indicated in the
memorandum and articles.
 The place where the annual general meetings are held and what transpires at these
meetings.
 Director’s board minutes and the decisions taken relevant to management and
control.
 The location where the board meetings are held.

3.3 RESIDENT COMPANIES TAX RATE

Table 3.1
With effect from
YA 2020
(Rate)
A. Company or Non-SMEs 24%
 Paid up capital > RM2.5m
 Paid up capital > RM2.5m, but Gross
Income of all business > RM50m
B. Small and Medium Enterprises
 1st RM600,000 of chargeable income 17%
 Next (> RM600,000) 24%

Needs to fulfill the following conditions:

 Paid up capital ≤ RM2.5m
 Gross income of all business ≤ RM50m
C. Non-resident company 24%
Correction : Paid up capital < RM2.5m, but
Gross Income of all business > RM50m Rate for
YA 2019
Company (paid-up capital > RM2.5 million) 24%
Small and Medium Scale Company
(paid up capital ≤ RM2.5m)
 1st RM500,000 of chargeable income 17%
 Next (chargeable income – RM500,000) 24%

67 | P a g e
3.4 FORMAT TAX COMPUTATION FOR COMPANY

Syarikat TAX II Sdn. Bhd.

Computation of Tax Payable for the YA 2021
RM RM
Net Profit before taxation/(Loss) xxx
(-) Non Business Income (which recorded in Income Statement):
- Dividend x
- Rental x
- Royalty x
- Real Property Gains x
- Profit (gain) on Sales of Fixed Asset x
- Interest from Overdue Trade Debts x
- Investment Income x (xx)
GROSS INCOME FROM BUSINESS xxx
(+) Non Allowable Expenses / Any Restricted Items :
 Expenses that are not incurred x
 Capital Expenditure x
 Expenses related to investment income x
 Section 39 prohibited expenses x
 Donation/Cash Wakaf (both: approved and non-approved x
institutions)
 Business Zakat x
 Capital assets expensed off to SOCI x
 Illegal expenses such as traffic penalty (employer or employees) x
 Loss on disposal / sales of the assets x
 Secretarial fee and tax filing fee (if > RM15,000) x
 Etc (refer notes) x xx
xx
(-) Double Deductions:
 Expenditure on training the employees x
 Remuneration of disabled employees x
 R&D x
 Etc (refer double deduction notes) x (xx)
ADJUSTED INCOME FROM BUSINESS XXX
(+) Balancing Charge (BC) x
(-) Balancing Allowance (BA) (x)
(-) Unabsorbed Capital Allowance (previous year - YA 2020 and below) (x)
(-) Capital Allowance (current year – YA 2021) (x)
(-) Industrial Building Allowance (IBA) (x) (x)
STATUTORY INCOME FROM BUSINESS xxx
(-) Previous years’ business losses (not need the same business) (xx)
XXX
(+) Statutory income from others :
- Interest and Discount X
- Rental, Royalty and Premium X
- Interest from Overdue Trade Debts X
- Dividend ex xx

68 | P a g e
 Syarikat TAX II Sdn. Bhd.
Computation of Tax Payable for the YA 2021
AGGREGATE INCOME XXX
(-) Current Year Business Loss (x)
(-) Donation for the approved institution under Sec 44(6)
- Government, State government (full donation’s amount) x
- Public Library (restricted to RM20,000) x
- Other institutions (restricted to 10% of aggregate income) x
- Cash Wakaf (restricted to 10% of aggregate income)
(-) Zakat Business
- (restricted to 2.5% of aggregate income @ zakat paid: which is lower) x (xx)
CHARGEABLE INCOME (CI) XXX

TAX PAYABLE
** A. If paid-up capital >RM2.5 million
TAX PAYABLE ( CI x 24%) xxx
or

B. If paid-up capital ≤ RM2.5 million & Gross Income ≤ RM50 million (SME’s)
Tax payable : (First RM600,000 of CI x 17%) xx
Next (>RM600,000) of CI x 24% xx
TAX PAYABLE XXX

** Choose either A or B based on company’s paid-up capital

Example 3-1

Syarikat An-Nahl Sdn. Bhd. is corporate in Malaysia on 2006. The paid-up capital is
RM3,500,000. The chargeable income for year assessment 2021 is RM820,000.

Solution for Example 3-1

Paid up capital = RM3,500,000 so more than RM2.5 million

Solution: Use Situation A (refer to the format of tax computation).

Syarikat An-Nahl Sdn Bhd

Computation of Tax Payable for the YA 2021

TAX PAYABLE RM

RM___________________
8,200,000 (CI) x ______%
24 196,800

69 | P a g e
Example 3-2

Syarikat An-Nahl Sdn. Bhd. is corporate in Malaysia on 2005. The paid-up capital is
RM2,000,000. The chargeable income for year assessment 2021 is RM820,000.

Solution for Example 3-2

Paid up capital = RM2,000,000  less than RM2.5 million

Income = RM820,000  less than RM50 million

Thus, SME Company

Solution: Use Situation B (refer to the format of tax computation).

Syarikat An-Nahl Sdn Bhd

Computation of Tax Payable for the YA 2021

TAX PAYABLE RM
First RM600,000 (CI) x _________%
17 102,000
Next CI RM________________
220,000 [RM820k – RM600k] x ______%
24 52,800
Tax payable net 154,800

3.5 BUSINESS INCOME

Business income includes:

 Insurance compensation for loss of trading stock
 Compensation from trade creditors for defective goods
The above income not need to add back or deduct in tax payable computation.

Gains on realization of long term investment such as shares, residential properties,

motor vehicles are capital gains and would be excluded from income tax.

Investment income such as rental income, dividend income and interest income are
separately assessed and thus should be excluded in arriving at the adjusted income of
the business.

3.6 NON-ALLOWABLE EXPENSES

Non-allowable expenses can be categorized into four groups:

1) Expenses that are not incurred
2) Capital Expenditure
3) Expenses related to the investment income
4) Section 39 prohibited expenses

3.6.1 Expenses that are not incurred:

 General provision for bad and doubtful debts
 Provision for gratuity/retirement benefits
 Provision for warranty cost, stock obsolescence

70 | P a g e
  Depreciation
 Amortization for the renovation of premises, lease amortization
 Unrealized exchange loss in relation to acquisition of raw materials
 Provision for repair and maintenance
 Preliminary expenses written off

3.6.2 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 (please refer 3.4.2.2 for further
explanation)
 Entrance fees to club
 Legal and professional fees relating to violation of laws, capital structure of
company, acquisition of loan or assets
 Donations (irrespective of whether approved or unapproved donations)
 Business Zakat
 Lump sum payment for early termination of lease
 Loan written off in relation to that of employees’ or suppliers’
 Fine imposed for violation of law (example: traffic illegal, summons)
 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

3.6.2.1 Capital Asset Expensed off to Statement of Comprehensive Income (SOCI)

Capital asset should be recorded in Statement of Financial Position. Thus, if this capital
expenditure are recorded in the Statement of Comprehensive Income, all the expenses
incurred has to be excluded to add back in the tax computation. Some of the examples
are:
a) Renovation of factory, office premises
b) Improvements for repairs
c) Small value capital items e.g. chairs, calculators etc.
d) Installation cost of machines charged in repair and maintenance account
e) Cost of stand used in advertising
f) Deposits paid for telephone or utilities
g) Replacement of electrical alarm system

71 | P a g e
3.6.2.2 Pre-Operational and Pre-commencement business is categorized as non-
allowable expenses.
But there is exemption for some situation whereby the expenses can be allowed:-

Allowable Pre-Operational business expenses

a) Pre-operational business expenditure (Sch. 4B, ITA) can be claimed by a

company if:
 The expenditure relation to a proposal to undertake investment in a business
venture in a country outside Malaysia
 The company must be resident in Malaysia
 The business venture has been approved by the Minister of Finance

b) The pre-operational business expenses which qualify are:

 Conduction of feasibility studies, including the cost of employing consultants
 Market research or survey or the obtaining of market information, including
the cost of employing consultants
 Fares for travel to a country outside Malaysia by a representative of the
company for purposes of conducting feasibility study or market survey
 Actual expenses not exceeding RM400 per day for accommodation and
sustenance for the world period commencing with the representative’s
departure from Malaysia and ending with his return to Malaysia

c) Allowable Pre-commencement of business training expenses

Training to its employees prior to the commencement of its business and its
allowable if:-

 the training is to impart basic skills to enable the company to commence its
business
 the training expenses are incurred within one year prior to the commencement
of the business
 the training expenses are of the kind that is allowable under section 33 of the
ITA.
 expenses on the recruitment of employees to enable the person to commence
his business
 expenses of the kind allowable under section 33 of the ITA relating to the
recruitment of employees
 expenses incurred within the period of 1 year prior to the commencement of
his business.

3.6.3 Expenses related to investment income

Any expenses relating to the investment income is not deductible against business
income. It has to be added back. These expenses will be set off against individual
investment source of income.

72 | P a g e
3.6.4 Section 39 prohibited expenses:

 Private and domestic expenses (dual purpose).

 Expenses that are not wholly and exclusively laid out or expended for the purpose
of producing gross income, for e.g. excessive remuneration paid to family members.
 Capital employed or money withdrawn as capital
 Contribution to unapproved pension / provident / saving scheme.
 Withholding tax and penalty on late payment on withholding tax imposed on
interest, royalty, contract payment, Sec. 4A payment, public entertainers,
remuneration, Sec. 4(f) payment (to non-resident) not paid to the tax authorities.
 Leave passage (other than yearly leave passage provided to employees – 3 times in
local and one in oversea; limit max RM3,000).
 License or permit fees to extract timber to persons other than State Government,
statutory authority or body approved by Minister
 Lease rental exceeding RM50,000 (or RM100,000 in special circumstances) in
aggregate on passenger vehicle
 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” means entertainment directly related to
sales provided to customers, dealers and distributors but excluding suppliers.

The tax treatment for several examples of entertainment expenses:

Entertainment is defined in the Income Tax Act as;

a) the provision of food, drink, recreation or hospitality of any kind and

b) the provision of accommodation or travel in connection with or for the purpose of
facilitating entertainment of the kind mentioned in (a); by a person or an employee in
connection with a trade or business carried out by that person.

Allowed a Not allowed a

Types of deduction of deduction of
No ITA Provision
entertainment 100% 50% 100% 50%
1 Entertainment given to a Not wholly and exclusively
potential customer in a √ incurred under subsection
closed transaction 33(1) of the ITA
2 Entertainment given to Proviso (vii) to paragraph
potential or existing 39(1)(I) of the ITA
customers during the √
launching of company’s
new product
3 Wedding gift to customer Not wholly and exclusively
√ incurred under subsection
33(1) of the ITA
4 Entertainment to Not wholly and exclusively
employees of related √ incurred under subsection
companies 33(1) of the ITA

73 | P a g e
 Allowed a Not allowed a
Types of deduction of deduction of
No ITA Provision
entertainment 100% 50% 100% 50%
5 Entertainment for annual Not wholly and exclusively
general meeting of √ incurred under subsection
company 33(1) of the ITA
6 Cash contribution for Not wholly and exclusively
customer’s annual √ incurred under subsection
dinner 33(1) of the ITA
7 Annual dinner to Proviso (i) to paragraph
√
employees 39(1)(I) of the ITA
8 Gift with business logo Not included under provisos
for customer’s annual √ (i) to (viii) to paragraph
dinner 39(1)(I) of the ITA
9 Gift without business Not included under provisos
logo for customer’s √ √ (i) to (viii) to paragraph
annual dinner 39(1)(I) of the ITA
10 Free trip as an incentive Provisos (vii) to paragraph
to sales agent for √ 39(1)(I) of the ITA
achieving the sales target
11 Gift of flower for Not included under provisos
customer’s opening of √ √ (i) to (viii) to paragraph
new outlet 39(1)(I) of the ITA
12 Entertainment to Not included under provisos
suppliers √ √ (i) to (viii) to paragraph
39(1)(I) of the ITA
13 Hampers for customers Not included under provisos
during festive seasons √ √ (i) to (viii) to paragraph
39(1)(I) of the ITA
Taxpayers are required to keep records in respect of entertainment expense incurred.

Other examples of Entertainment Expenses:

Entertainment expense 100%
deductible
1. Provision of entertainment such as food, drink and recreation to employees. Yes
Examples – Free meals and refreshments for staff, annual dinners and family
day.
2. A taxpayer whose business consist of providing entertainment to paying Yes
customers such as restaurant or cinema.
Examples – Meals provided by airlines or other transportation business to
passengers and cultural shows provided by hotels or restaurants.
3. Promotional gifts at trade fairs, trade exhibitions or industrial exhibitions held Yes
outside Malaysia for the purpose of promoting exports.
Examples – Souvenirs, bags and travel ticket to visitors at trade fairs.
4. Promotional samples of tax payers’ products Yes
Examples – Free samples to guests at launching of product and giving away of
health drink samples to school children.
5. Provision of entertainment for cultural or sporting events which are open to Yes
the members of public for the purpose of promoting the business.
6. Promotional gifts within Malaysia consisting of articles incorporating a Yes
conspicuous advertisement or logo of the business. The promotional gifts
need not be the product of the business as long as the business logo is affixed
74 | P a g e
 Entertainment expense 100%
deductible
on those articles. The promotional gift should be given to the public on a non-
discriminatory basis.
7. Provision of entertainment which is related wholly to sales arising from that Yes
business.
Examples:
- Expenses incurred on food and drink during launching of a new housing
project –
- Redemption vouchers and lucky draw prizes given for purchases made
- Free gifts for purchases exceeding a certain amount
- Redemption gifts based on a scheme of accumulated points
- Free service charges or contribution to sinking fund by property developers
- Expenditure on trips given as an incentive to dealers for achieving sales
target
- Expenditure incurred on refreshments given to its customers while waiting
for their cars to be serviced.
8. Provision of benefit to an employee consisting of leave passage Yes
Examples – Costs of travel to facilitate yearly event within Malaysia which
involves employer, employee and immediate family members of the employee

3.7 CAPITAL EXPENDITURE BUT SPECIAL DEDUCTION (Allowable Expenses)

Capital expenditure incurred in the production of business income is non-allowable

expenses as it is prohibited by sec. 39 of the Act. Therefore, the Government has to
legislate gazette orders to grant special deduction (allowable expenses) to relief the
business person. It is deductible (allowable) to arrive at adjusted income of the business.

3.7.1 Proprietary Rights

(available to manufacturing company) it means patents, industrial designs or
trademarks. The cost includes purchase consideration of the:

 proprietary rights (patents, industrial design or trademarks)

 consultancy fees
 legal fees
 stamp duties.

The deduction will be given 20% each year (total 5 years) of the total cost incurred by
manufacturing company (70% Malaysian owned).

3.7.2 Listing in the ACE Market or the LEAP market

Tax deduction of up to RM1.5 million be given to technology-based companies and SMEs
seeking to raise additional capital through listing in the ACE Market or the LEAP market.
The tax deduction is on the following listing costs:

 fees to authorities;
 professional fees; and
 underwriting, placement and brokerage fees.

75 | P a g e
3.8 DOUBLE DEDUCTION

Double deduction refers to revenue expenses incurred that are given twice the amount as
deduction in arriving at the adjusted income of a business. This is a tax incentive provided
by the government to provide tax relief to business persons and to encourage the use
of promoted activities such as research, local facilities, etc. To qualify for double
deduction, such expenses must be:

a) Revenue Expense and

b) Not prohibited by Sec. 39 of the Act

Expenses qualified for double deduction are normally gazette, legislated in the Act or in
Promotion of Investments Act 1986.

Below are the expenses qualify for DOUBLE DEDUCTION:

a) Revenue expenses for approved training. The double deduction for training is
available to:

 Manufacturing company
The objective of the training provided to employees must be for the purpose of
upgrading and developing the employees’ craft, supervisory and technical skills or
increasing the productivity or quality of its product under:
i. a training program approved by the Malaysian Industrial Development
Authority or
ii. a training program conducted by training institution – Malaysian Productivity
Centre (formerly known as National Productivity Centre).

 Non-manufacturing company
The approved training on its employees must be under :
i. a training programme approved by the Minister of Finance or any agency
appointed by the Minister of Finance or
ii. a training programme conducted by a training institution

 Company carrying on a hotel or tour operating business

This is available to company carrying on a hotel registered with the Tourist
Development Corporation of Malaysia or a company carrying on a tour operating
business registered with the Tourist Development Corporation of Malaysia. There
shall be allowed on any expenditure incurred in training its employees under :
i. a training programme approved by the Minister of Culture, Arts and Tourism
or
ii. a training programme conducted by a training institution
iii. the hotel of tour operating business must be registered with the Malaysian
Tourism, Promotion Board

 Training of handicapped persons

Where a company incurred training expenditures, there shall be allowed as double
deduction of any expenditure incurred in training any handicapped person

76 | P a g e
 registered with the Ministry of National Unity and Social Development, who is
not an employee of the company under :
i. a training programme approved by the Minister of Finance, which is conducted
in Malaysia or
ii. a training programme conducted by a training institution and the training
programme is for the purpose of enhancing his employment prospect.

 Training by all companies

i. a training programme conducted by agencies appointed by the Minister of
Finance,
ii. the training programme is for the purpose of obtaining industry-recognized
certifications and professional qualifications (e.g. accounting, finance and
project management)

b) Research expenditure – an approved research projects/companies/institution

 Cash contributions to approved research institutes
 Service fee to approved research institutes
 Service fee to an R&D company or a contract R&D company

c) Remuneration (salary, allowance, bonus etc.) of disabled employees – physically

or mentally disabled and is not able to perform the work of a normal person.

d) Export credit insurance premium (conventional) and it is paid to the conventional

insurance companies approved by the Minister of Finance (notes : Payment from
purchaser to avoid default)

e) Export credit insurance contribution based on takaful (Islamic) concept and it is

paid to a company approved by the Ministry of Finance.

f) Approved outgoings and expenses incurred for the promotion of exports from
Malaysia

 the products must qualify for an export allowance or abatement of statutory

income for exports
 the company must resident in Malaysia

g) Approved international trade fair – expenses incurred for participation in an

approved international trade fair held in Malaysia for the promotion of exports and
the trade fair must be approved by Minister of International Trade and Industry.
The expenses must be a kind allowable under Sec. 33 of the ITA 1967 but excludes
the cost of exhibits.

h) Interest payable on loans to small-scale business

i) Outgoings and expenses incurred for the promotion of export of services by service
sectors such as transportation, communication and utility sector.

77 | P a g e
j) Outgoings and expenses incurred for the promotion of export of professional
services – legal, accounting, architectural, engineering and integrated engineering
services, medical and dental.

k) Advertising on Malaysian brand name goods within Malaysia (locally):

 the company is at least 70% Malaysian owned
 the brand name is owned by the company or its related company and is
registered in Malaysia or outside Malaysia and
 company’s product must achieve export quality standard

l) Advertising on Malaysian brand names overseas. The qualify expenses are:

 expenses on advertising of Malaysian brand names registered overseas
 professional fees paid to companies promoting Malaysian brand names

m) Registration of patent, trademarks and product licensing in overseas – for the

purpose of promoting the exports of goods, agricultural products manufactured,
produced, processed, graded or sorted and assembled in Malaysia.

n) Expenses incurred in obtaining certification for recognized quality systems, standards

and halal certification. This incentive is further extended to include private
healthcare company that provides dental an ambulatory healthcare services.

o) Expenditure incurred by companies in conducting the structured internship

programme approved by the Talent Corporation Malaysia Berhad in collaboration
with the Ministry of Higher Education for: (YA 2017 to YA 2021).

 students are Malaysian citizen pursuing full-time programme in higher

education institution.
 minimum period is 10 weeks internship programme
 monthly allowance minimum RM500.
 the expenses is restricted to RM5,000 per students for each year or assessment
(excluding the internship allowance)
 the student’s academic level include Bachelor’s degree, diploma, vocational
(DKM Level 4&5), SKM Level 3, students in all academic fields.
 to claim double deduction, a company need an approval letter from TalentCorp

p) Tax incentives for Industry4WRD for the manufacturing and manufacturing-related

services sector:

 Expenditure up to RM1 million per annum to be claimed for 3 consecutive Y/As

incurred by anchor companies in implementing the Industry4WRD Vendor
Development Program to develop local vendors.
 Scholarships awarded to students pursuing full time studies at technical and
vocational levels, diplomas and degrees in the fields of engineering and
technology.
 Expenses for conducting internship programme for undergraduate students in
fields of engineering and technology approved by the Ministry of Human
Resources

78 | P a g e
  Expenditure incurred on approved training
i. a training programme approved by MIDA
ii. training for the purpose of upgrading and developing the employees’
technical; skills in Industry 4WRD Technology
 Expenses incurred for participating in the National Dual Training System
Training Scheme for Industry4WRD programmes approved by the Ministry of
Human Resources (MOHR)

q) Remuneration paid to senior citizens and ex-convicts provided:

 senior citizens who are above 60 years old or
 ex-convicts
 employment must be on full-time basis
 monthly remuneration does not exceed RM4,000
 the employer is not a relative of the employee
This takes effect from YA2019-2020. It is further extended to YA2025.

r) Expenses incurred by companies carrying on the business of providing higher

education in Malaysia for the purpose of promoting the export of higher education.
The company must be:-
 resident in Malaysia
 registered with the Ministry of Education Malaysia (MOE)

s) Ship freight charges incurred for shipping goods from Sabah and Sarawak to
Peninsular Malaysia – provided it was claimed by manufacturer and used ports in
Peninsular Malaysia.

t) (i) Expenditure incurred for the provision and maintenance of child care centre (must
be registered with the Department of Social Welfare) and (ii) payment of child care
allowance to the employees.

u) Expenses incurred in the issuance of retail debenture and retail sukuk issued under
the principle of Wakalah.

v) Expenses for implementing Flexible work arrangement (FWA) which relating to

(i) consultation fees;
(ii) training to employees on work practices to facilitate FWA;
(iii) software development to support virtual working environment.

The amount incurred on implementing FWA is allowed for 3 continuous YAs, taking
effect from 1.7.2020-31.12.2022. The threshold of deduction in each YA would be
restricted RM500,000. Company has to obtained FWA status from TalentCorp. The
expenses must also be approved and certified by TalentCorp to be eligible for double
deduction.

79 | P a g e
3.9 STATUTORY DEDUCTION (allowable expenses)

Section 34 of the Act specifically allows tax deduction against the business income:

Section Particulars
34(2) Specific provision for bad debts on trade debtors arising from sales.
34(4) EPF – maximum allowable deduction is 19% of employees’ remuneration
34(6)(e) Provision of equipment and renovation expense to special needs person,
necessary to assist in the performance of employees’ duties.
34(6)(f) Translation/publication of cultural, literary, professional, scientific or
technical books into Bahasa Malaysia approved by Dewan Bahasa dan
Pustaka. Given full deduction.
34(6)(g) Provision of library facilities to public library and contribution to public
libraries, libraries of schools and institutions of higher education
(maximum RM100,000). This section allows in kind and cash
contribution. Section 34(6)(g) and 44(8) are mutually exclusive.
34(6)(h) Provision of services, public amenities and contribution to charity,
community project pertaining to education, health, housing, conservation
or preservation of environment, enhancement of income of the poor,
infrastructure, ICT. 34(6)(ha) Furthermore infrastructure expenses for
public use in relation to business.
34(6)(i) Provision and maintenance of childcare centre for the benefit of
employees.
34(6)(j) Establishing and managing the musical or cultural group.
34(6)(k) Sponsoring any (i) local, (ii) foreign (restricted to RM300,000), arts,
cultural or heritage activity approved by the Minister [maximum to
RM1,000,000 for (i) + (ii)],
34(6)(l) Provision of scholarship to students.
34(6)(m) 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.
34(6)(n) Practical training in Malaysia to resident non-employees. To facilitate the
training of unemployed graduates on English, computer, financial and
industrial courses.
34(6)(o) Participating in ISO activities approved by the Department of Standards
Malaysia.

80 | P a g e
3.9.1 PTPTN loan repayment

Repayment of PTPTN loan by the employer on behalf of its full time Malaysian
employee as gift would be accorded a business deduction in arriving at adjusted
income of the business. This payment has to be on its own free will without imposing any
condition on its employee, and to be incurred during 1.1.2019-31.12.2021.

The Malaysian employee has to be independent from the employer, without any relative
relationship, being:

(a) spouse
(b) parent, including a step parent or a parent in law
(c) a child, including a step child or a child adopted in accordance with any law
(d) a brother or a sister, including a step brother or a step sister; or
(e) a grandparent or a grandchild, including a step grandparent or a step grandchild.

It takes effect from YAs 2019-2022.

3.9.2 Working from home (WFH)

The provision of the following IT gadgets by resident employer to its employees would
be deductible in arriving at adjusted income of the business:

(a) Smartphone
(b) Tablet
(c) Personal computer

This is to facilitate the flexible working arrangement of its employees who are severely
affected by the COVID-19 pandemic. This takes effect from YA 2020.

3.9.1 Renovation and refurbishment

The cost of renovation and refurbishment on business premises incurred during

1.3.2020 to 31.12.2021 would be deductible in arriving at adjusted income of the
business. This is a special deduction and is limited to RM300,000.

The cost of renovation and refurbishment excludes designer fee, professional fee and the
purchase of antique. The deduction requires a confirmation from the external auditor that
the amount incurred is for the purpose of renovation and refurbishment on business
premises. This takes effect from YA 2020.

3.9.2 Qualifying expenditure

Antique, fine art items including painting, prints, calligraphy, sculptures and porcelain art,
mirror, aquariums designed to provide atmosphere or ambience for business purposes are
qualifying expenditure. It performs definite function in the course of carrying on the
business. Capital allowance is available at:
(a) Initial allowance @ 20%
(b) Annual allowance @ 10%

81 | P a g e
Exercise 3.1

Classify all the expenditure below accordingly and please indicate the amount:
DD – Double Deduction: NA – Non Allowable expenses: A – Allowable expenses

No Item DD/NA /A
1 A Proton Inspira which cost RM95,000 was leased at a monthly rate
of RM1,500 since November 2020. It was not licensed for
commercial transportation. The company prepares accounts
annually to 31st July every year (compute until YA 2021)
2 Fine of RM1,000 imposed on the company for overloading a van.
3 RM5,000 was incurred on obtaining HALAL certification.
4 RM47,000 was incurred on legal action taken to recover trading
debts from various dealers.
5 Company sponsored a gift without business logo for customer’s
annual dinner, RM5,000
6 During the month of Ramadhan, the company shows the
appreciation by giving hampers for customers amounted RM35,000
7 Renovation cost to the factory building to increase the production
RM240,000. The renovation approved by external auditor.
8 Research expenses incurred on an approved project RM75,000.
9 Routine product testing and quality control expenses RM200,000.
10 Export credit insurance premium based on Takaful concept,
RM5,000.
11 Insurance premium paid for export of cargo to China and insured
with a China insurance company
12 A service director of a company Mr Fau had embezzled cash
collections of RM10,000
13 Linda, a cashier had been stealing money from daily collection,
RM2,800. The company terminated the services of Linda.
14 General provision for bad and doubtful debts RM35,000
15 Syarikat Sedaya Upaya Bhd has sponsored performances by local
artists of RM270,000 and performances by foreign artists of
RM350,000
16 Salary and bonuses for special needs employees – RM6,700
17 Entertainment allowances to employees – RM30,000
18 Depreciation of plant and machinery – RM56,000
19 Entertainment expenses to suppliers – RM25,000
20 Specific provision for bad and doubtful debts RM25,000
21 Private loan to employee – RM2,500

82 | P a g e
3.10 CAPITAL ALLOWANCE (CA) /INDUSTRIAL BUILDING ALLOWANCE (IBA)

Fixed Asset / Non-Current Asset Initial Annual

Allowance Allowance
Plant and machinery (P&M) – heavy [example : Crane etc.] 20% 20%
Plant and machinery – general [Air-Cond, lift, lab and 20% 14%
medical equipment etc.]
Office equipment, furniture, fitting 20% 10%
Motor vehicles 20% 20%
Imported heavy machine for building and construction, 10% 10%
mining, plantation and timber
Environmental protecting equipment 40% 20%
Reinvestment in qualifying projects, agricultural projects 40% 20%
Power quality equipment 20% 40%
Buses using natural gas 40% 20%
P&M (non-imported heavy machinery) for building 30% 14 or 20%
construction
P&M (non-imported heavy machinery) for extraction of 60% 14 or 20%
timber & tin mining
P&M of a manufacturing company used exclusively for 40% 20%
recycling waste or further processing of wastes into a
finished product
P&M of agriculture/plantation companies 20% 40%
Moulds used in the production of industrialised building 40% 20%
system component
Small value asset (each asset ≤ RM2,000) (max RM20,000) 100% -
Petroleum operations in marginal field 25% 15%
Automation equipment 20% 80%
ICT equipment 20% 20%
Development cost on customized computer software 20% 20%
Machinery and equipment, including ICT equipment 20% 40%
(PENJANA incentive)(1.3.2020-31.12.2021)
Industrial Building (Factory) 10% 3%
 New vehicles purchased on or after 28.10.2000:
o where on-the-road price is RM150,000 or less; Maximum QE is RM100,000.
o vehicles other than the above (more than RM150,000); Maximum QE is RM50,000
 Commercial vehicles (such as lorry, truck, bus, minibus, van, station wagon or taxi used in
the business); no limit.
 Expenditure on assets with lifespan of not more than 2 years is allowed on a replacement
basis.
* w.e.f YA2020, the value of each small value assets and the maximum Qualifying Expenditure
that can be claim by SME’s and non SME’s can be summarized as follows:

Tax Treatment w.e.f YA 2020

The value of each small value asset can be claimed by SMEs and Not exceeding
non SMEs RM2,000
The total maximum QPE of special allowance can be claimed by Unlimited
SMEs for each YA
83 | P a g e
 Tax Treatment w.e.f YA 2020
The total maximum QPE of special allowance can be claimed by Limited to RM20,000
non-SMEs for each year
Source: Special Allowance for Small Value Assets: Public Ruling No. 3/2021

Example 3.3

Ayudia Sdn. Bhd. manufactures biscuits for the local and overseas demand. For the year
ended 31 December 2021, the company has made lease rentals for the following vehicles:

Accumulated lease rental on Cost of car

31.12.2021 RM
RM
Car (Aruz 1.5AV) 60,000 74,000
Car (Proton X70 Premium) 105,000 123,000
Car (Honda Odyssey) 120,000 220,000
Lorry 75,000 140,000

You are required to determine Qualifying Expenditure for the above lease rental vehicle
for the YA 2021.

Solution Example 3.3

Accumulated Maximum
Cost of Non
lease rental (allowable) QE
car Allowable
on 31.12.2021 (RM100k /
RM Expenses
RM RM50k / Cost)
Car (Aruz 1.5AV) 60,000 74,000 -
Car (Proton X70 Premium) 105,000 123,000 100,000
Car (Honda Odyssey) 120,000 220,000 70,000
Lorry 75,000 140,000 -
 Lorry is commercial vehicle and for business used = no limit

Exercise 3.2

Tiptop Sdn. Bhd. involved in bag manufacturing for the local and overseas demand. For
the year ended 31 December 2021, the company has made lease rentals for the following
vehicles:

Accumulated lease rental on Cost of car

31.12.2021 RM
RM
Cargo Van 30,000 109,300
Car (Honda Accord 2.0 Vti-L) 120,000 149,000
BMW 85,000 210,000

You are required to : Determine total non-allowable expenses for the above lease rental
vehicle for the year assessment 2021.

84 | P a g e
3.11 APPROVED DONATIONS UNDER INCOME TAX ACT 1967

Types of Donation Approved amount

 Gift of money to the Government, state government or Full Amount of Donation
local authority [subsection 44(6)] (RM)
 Gift of money to approved institutions, organizations or
funds [proviso to subsection 44(6)]
 Gift of money for any sports activity approved by the
Minister of Finance [Subsection 44(11B)]
 Gift of money or cost of contribution in kind for any
project of national interest approved by the Minister of
Finance [Subsection 44(11C)] Restricted to 10% of the
 Cash wakaf contribution to a state religious authority or aggregate income
body established by the state religious authority to
administer wakaf;
 Cash wakaf contribution to a public university approved
by the state religious authority to receive wakaf; and
 Cash endowment contribution to a public university.
[Subsection 44(11D)]
 Gift of artefacts, manuscripts or paintings [Subsection Based on the valuation by
44(6A)] the Department of
Museums and Antiquities
or National Archives
 Gift of money for the provision of library facilities or to ≤ RM20,000
libraries [Subsection 44(8)] Section 44(8) and Section
34(6)(g) are mutually
exclusive.
 Gift of paintings to the National Art Gallery or any state art On the value determined
gallery [Subsection 44(11)] by the National Art Gallery
or State Art Gallery

Example 3-4

Syarikat An-Nahl Sdn. Bhd. is corporate in Malaysia on 2005. The amount of aggregate
income for the year of assessment 2021 is RM400,000. In the year of assessment 2021,
the company made cash donation amounted RM35,000 to Yayasan Anak Yatim Selangor
(an approved institution).

Prepare the computation for the donation.

Solution for Example 3-4

 Gift of money to approved institutions, Restricted to 10% of the

organizations or funds [proviso to subsection aggregate income
44(6)]

85 | P a g e
Workings:

AGGREGATE INCOME RM 400,000

(-) Donation for approved institution under Sec 44(6)
Restricted to : 10% x RM400,000 = _______________ @
______________ (amount of donation given)
** choose the lower amount between RM40,000 @
RM35,000
CHARGEABLE INCOME (CI)

Exercise 3.3

Syarikat An-Nahl Sdn. Bhd. is corporate in Malaysia on 2005. The amount of aggregate
income for the year of assessment 2021 is RM400,000. In the year of assessment 2021,
the company made cash donation amounted RM60,000 to the local authority. Prepare
the computation for the donation.

Solution for Exercise 3.3

 Gift of money to the Government or local authority Deduction is the amount

[subsection 44(6)] donate (full amount)

Workings:

AGGREGATE INCOME RM 400,000

(-) Donation to the local authority under Sec 44(6)
CHARGEABLE INCOME (CI)

Exercise 3.4

Syarikat An-Nahl Sdn. Bhd. is corporate in Malaysia on 2005. The amount of aggregate
income for the year of assessment 2021 is RM400,000. In the year of assessment 2021,
the company made cash donation amounted RM33,000 to the public library in Penang.
Prepare the computation for the donation.

Solution for Exercise 3.4

 Gift of money for the provision of library facilities or to libraries ≤ RM20,000

[Subsection 44(8)]

Workings:

AGGREGATE INCOME RM 400,000

(-) Donation to the local authority under Sec 44(6)
CHARGEABLE INCOME (CI)

86 | P a g e
3.12 BUSINESS ZAKAT
Business Zakat is an obligation for all Muslim practitioners in the business. The amount of
business zakat paid to Zakat Collection Centre in Malaysia shall be given tax deduction
does not exceed 2.5% of the aggregate income of the company.

The deduction will be lower of:

a) Business Zakat paid; or

b) 2.5% x aggregate income

Example 3-5

Syarikat Maryam Sdn. Bhd. is corporate in Pulau Pinang, Malaysia on 2010 with paid-up
capital RM3 million. These are information about the company for the year of assessment
2021:

 Aggregate Income is RM900,000

 Company have paid RM23,000 for Business Zakat in YA 2021 to Zakat Collection
Centre Pulau Pinang.

Prepare the computation for Business Zakat.

Solution for Example 3-5

AGGREGATE INCOME RM900,000

(-) Approved Donation -
(-) Business Zakat
RM900,000 x 2.5% =_______________ @ __________________
(restricted to 2.5% of aggregate income) @ zakat paid
(choose the lower)
CHARGEABLE INCOME RM877,500

3.13 SECRETARIAL FEE AND TAX FILING FEE

 Both expenses are given special allowable deduction in arising the business adjusted
income.
 With effect from YA 2020, the threshold for tax deduction on company’s secretarial fees
and tax filing fees are combined at RM15,000 for each YA.

87 | P a g e
Example 3-6

Xtra Shining Bhd is a wholly owned Malaysian company which is in the business of
producing fine bullions gold and jewellery. The company closes its accounts on 31st
December each year. The paid-up capital on the first day of the basis period for the year of
assessment 2021 is RM2.5 million.

The Statement of Comprehensive Income of Xtra Shining Bhd for the year ended 31st
December 2021 is as follows:

Xtra Shining Bhd.

Statement on Comprehensive Income for the year ended 31st December 2021
Notes RM RM
Sales 15,150,000
(-) Cost of sales 1 (11,120,000)
Gross Income 4,030,000
(+) Other incomes 2 32,250
4,062,250
(-) Operating expenses:
Loss on disposal of asset 50,000
Foreign exchange loss 3 2,000
Professional and legal fees 4 46,000
Bad and doubtful debts 5 40,000
Repairs and maintenance 99,000
Salaries and wages 6 1,200,000
Entertainment expenses 7 94,000
Advertising and promotions 74,000
Miscellaneous expenses 8 141,000
Lease payments 9 100,000 (1,846,000)
Net Profit 2,216,250

Notes to the account:

1. Cost of sales includes:

i. Depreciation of factory building, plant, machinery and vehicles amounted to
RM73,000.
ii. Export credit insurance paid to Malaysian Export Credit Insurance Bhd. amounted
to RM14,000.

2. Other incomes comprise:

i. Dividend income RM21,250

ii. Interest income RM7,000 was from a fixed deposit account of Maribank Bhd.
iii. Foreign Exchange Gain, RM4,000 arising from conversion of balances owning by
overseas trade debtors at year-end (unrealized gain).

3. Foreign exchange loss: RM2,000

Foreign exchange loss of RM2,000 arose from buying a machinery from supplier
located in Japan.
88 | P a g e
4. Professional and legal fees comprise of:
RM
Secretarial fee and tax filing fees 20,000
Legal fees for tax appeal 4,000
Legal fees to recover trade debts 14,000
Annual subscription to Federation of Malaysian Manufacturers 8,000
46,000

5. Bad and doubtful debts account is as follows:

RM
Private loan to an employee 10,000
Specific provision for bad and doubtful debts 12,000
General provision for bad and doubtful debts 18,000
40,000

6. Salaries and wages include:

RM
Salaries paid to two special needs receptionists 20,000
Two-day company retreat cum staff family holiday to Pangkor 27,000
Island including directors, staff and immediate families

7. Entertainment expenses include:

RM
Entertainment of supplier 26,000
Entertainment of company’s client 10,000
Entertainment of staff 28,000
Allowance to staff in the marketing department 20,000

8. Miscellaneous expenses include: RM

Cash donation to approved organizations 10,000
Speeding and parking fines of the company drivers 4,000
Purchase a new Photostat machine 5,000
Business Zakat 25,000

9. Lease payments
The company leased two vehicles from a local leasing firm and payments details are as
follows:

Vehicle type Original cost of new Leasing payments for the

vehicle (RM) year ended
31 Dec 2021 (RM)
Lorry 300,000 45,000
Luxury car 250,000 75,000
Total 550,000 10,000

89 | P a g e
Additional information:

i. Capital allowance for the year of assessment 2021 is RM84,000 (not included notes
no.8)

ii. Unabsorbed business losses brought forward from the year of assessment 2020 is
RM26,000. There is no substantial change of shareholders in the immediately
preceding and during the relevant year of assessment.

You are required to:

a) Compute the chargeable income of Xtra Shining Bhd. for the year of assessment
2021.

b) Compute the income tax liability of Xtra Shining Bhd. for the year of assessment
2021. (Show all relevant working computation) (25 Marks)

Solution for Example 3-6

a)
Xtra Shining Bhd.
Computation of Tax Payable for the year of assessment 2021
RM RM
Net profit 2,216,250
(-) Non-Business Income:
Dividend 21,250
Interest 7,000
4,000
Foreign Exchange Gain 32,250
2,184,000
(+) Any Item /Non-Allowable Expenses
Loss on disposal of assets 73,000
Depreciation 2,000
Foreign exchange loss (bought machine) 5,000
Secretarial fee and tax filing fees allow
Legal fees for tax appeal allow
Private loan to an employee 10,000
General provision for bad and doubtful debts 18,000
Entertainment of supplier (50% x RM26,000) 13,000
Staff Allowance (50% x RM20,000)
Cash donation
Speeding and parking fines
Purchase a new Photostat machine
Business Zakat
Lease payments (RM75,000 – RM50,000) 254,000

(-) Double deduction

Export credit insurance
Salaries to special needs workers
ADJUSTED INCOME FROM BUSINESS 2,404,000

90 | P a g e
 Xtra Shining Bhd.
Computation of Tax Payable for the year of assessment 2021
(-) Capital Allowances
New Machine: (IA: 20% x RM5k) + (AA: 14% x RM5k)
Unabsorbed business (YA 2020)
STATUTORY INCOME FROM BUSINESS 2,318,300
(+) Statutory income from others
Interest from fixed deposit – Maribank Bhd
Dividend
AGGREGATE INCOME 2,318,300
(-) Donation to approved organizations (restricted to)
[(RM2,318,300x10% =RM231,830) @ RM10,000] (lower)
(-) Business Zakat
[(RM2,318,300 x 2.5% = RM57,958 @ RM25,000) choose lower]
CHARGEABLE INCOME 2,283,300

b) TAX PAYABLE:
First RM600,000 x 17%
Next RM (RM2,283,300 – RM ) x 24%

TAX PAYABLE NET RM505,992

SUMMARY OF CHAPTER 3

1. Resident Status for Company

A company carrying on a business or businesses is resident in Malaysia if, at any time in

the basis year for a year of assessment, the management and control of its business or
any of its businesses is exercised in Malaysia [Section 8 (1) (b)].

2. Resident Companies Tax Rate

a) General Companies - 24%
b) SMEs (paid up capital less than RM2.5 million and gross income less than RM50
million) – 1st RM600,000 (17%) and next (24%)

3. Format of tax computation to determine the tax payable.

4. Other Business Income treatment
5. Non-allowable Expenses :
i) Expenses that are not incurred
ii) Capital Expenditure
iii) Expenses related to the investment income
iv) Section 39 prohibited expenses

6. Special deduction for capital expenditure (Allowable Expenses)

7. List of Double Deduction (less)
8. Statutory Deduction (Allowable Expenses)
91 | P a g e
9. Donation under Sec 44(6) ITA 1967 (less)

Gift of money to approved institutions, Restricted to 10% of

organizations or funds [proviso to subsection 44(6)] the aggregate income

10. Business Zakat (less)

Business Business Zakat Paid or 2.5% from aggregate Income

Zakat (which is LOWER)

11. Secretarial Fee and Tax Filing Fee – special deduction threshold of RM15,000

TUTORIAL 3 : COMPANY TAXATION

Tutorial 3-1

(i) Categorize the expenses given below whether ‘Allowable’, ‘Non-Allowable’ or

‘Double Deduction’.

No. Transaction Allowable Non- Double

allowable Deduction
a. Unrealized foreign exchange loss
b. Cost of printing and distribution of
annual report
c. Interest charge on loan employed as
business working capital
d. Remuneration paid to ex-convict, who is
permanent employee
e. Stamp duty on the increase in
authorized share capital

[5 marks]

(ii) Falah Sdn. Bhd. (FSB), a company with a paid up share capital of RM 2.1 million on 1st
July 2019 closed its accounts annually to 30 June. FSB’s Statement of Comprehensive
Income for the financial year ended 30 June 2021 is as follows:

Falah Sdn. Bhd.

Statement of Comprehensive Income for the year ended 30 June 2021
Note RM’000 RM’000
Sales 1 39,000
Less: Cost of Sales (30,000)
Gross Profit 9,000
Add: Other Income
Dividend Income 9
Compensation received in breach of business contract 72 81
9,081
Less: Expenses
92 | P a g e
 Marketing Expenses 2 217
Finance Charges 3 7
Salaries 4 6013
Company Secretarial Fees 10
Tax Filling Fees (paid to approved tax agent) 19 (6,266)
Profit before Taxation 2,815

Notes to the account:

1. Cost of Sales includes:

 Depreciation of plant, property and equipment RM9,000,000
 Export credit insurance contribution based on takaful RM47,000
 Payment to approved research and development (R&D) company comprise of
RM1,097,000
 One off payment to staff who affect due to COVID-19, RM47,000

2. Marketing Expenses comprise:

 Cash donation to unapproved institution amounted RM95,000
 Hampers for customers during Hari Raya AidilFitri RM15,000 and Chinese New
Year RM15,000.
 Souvenir with company’s logo for a customer’s annual dinner amounted
RM84,000

3. Finance Charges includes interest expense arising from the bank loan for
investment to earn the dividend income.

4. Salaries include remuneration RM10,000 for a certified disabled staff by the

relevant authority.

Additional information:
Capital allowances for the year of assessment 2021 have been computed at
RM133,000.

You are required to:

Calculate Tax Payable for Falah Sdn. Bhd. for the year of assessment 2021.
[20 marks]

Tutorial 3-2

(i) List FIVE (5) expenses incurred by the company in Malaysia that are qualified as
double deduction expenses. [5 Marks]

(ii) Five Star Sdn Bhd is a Malaysian resident company engaged in manufacturing car
seats. The company has a paid up capital of RM2.5 million. The company closes its
accounts on 31 December each year, and has appended the following results for the
period ended 31 December 2021.

93 | P a g e
 Five Star Sdn. Bhd.
Statement of Comprehensive Incom for the year ended 31st December 2021
Note RM RM
Sales 61,900,000
(-) Cost of sales (9,600,000)
Gross profit 52,300,000
(+) Other Income
Interest 1 50,000
52,350,000
(-) Expenses
Remuneration 2 578,000
Entertainment 3 580,000
Depreciation 119,000
Repair and maintenance 4 480,000
Bad and doubtful debts 5 870,000
Motor vehicle expenses 6 850,000
Advertisement and publicity 7 105,000
Professional fees 8 100,000
Donation 9 100,000 (3,782,000)
Net Profit Before Tax 48,568,000

The company has provided the following notes and information to the accounts :

1. Interest : The company charges interest on late settlement; and accordingly

RM50,000 was received from customers who settled their trading debts late in
2021.

2. Remuneration : The remuneration paid to the staff of the company are as follows:
Remuneration RM470,000
EPF Contribution RM108,000

3. Entertainment : The entertainment expenditure details are as follows :

i. Entertainment of suppliers RM320,000
ii. Entertainment allowance of marketing staff RM140,000
iii. Annual dinner for staff RM40,000
iv. Gift to customers for purchases above RM2,000 RM30,000
v. Promotion expenses of launching a new sports car seat RM50,000

4. Repair & Maintenance : The following expenses were incurred during the year
and charged under repair and maintenance:
i. Extending the showroom amounting RM350,000 (approved by external
auditor)
ii. The factory roof was replaced with an improved quality tiles at a cost of
RM30,000
iii. RM100,000 was spent on the maintenance of the plant and machinery

5. Bad and doubtful debts : A general provision of the outstanding debtors as at 31

December 2021 amounting RM400,000 was made .

94 | P a g e
 6. Motor vehicles expenses :
i. The company incurred RM30,000 due to traffic offences such as speeding and
illegal parking. These expenses were incurred by its marketing staff in the
course of carrying out their employment duties.
ii. RM55,000 refers to the repairs and maintenance of the company motor
vehicles used in the business.

7. Advertisement & publicity : The company also has its own brand that is properly
registered in Malaysia, and RM150,000 was spent to promote this brand name in
the course of sponsoring an approved international event held in Kuala Lumpur.

8. Professional fees : Other details of the professional fees incurred during the year
are as follows :
i. Secretarial fees RM15,000
ii. Income tax filing fees RM20,000

9. Donation : As part of its corporate social responsibility, the company made a

donation in kind worth RM100,000 to an approved Malaysian charitable body
during Chinese New Year in February 2021.

10. Other information : For the year of assessment 2021, the company is claiming
capital allowance of RM460,190 on its qualifying plant and machinery and other
assets used in the business.

Required :
Based on the information given, compute the tax payable for Five Star Sdn Bhd for the year
of assessment 2021.
[20 marks]

Tutorial 3-3

a) All income accrued or derived in Malaysia is taxable and needs to be declared to the
Inland Revenue Board (IRB). Explain the process that needs to be followed by the
company under self-assessment as per required by the IRB. (3 marks)

b) Aina Sdn. Bhd. has been in the business of manufacturing tiles since 2000. The paid-
up capital for the company is RM3.2 million. For the year ended 31 December
2021, its statement of comprehensive income was as follows:

Note RM
Sales 22,000,000
Less: Cost of sales 1 (16,868,000)
5,132,000
Add: Other income 2 90,000
5,222,0000
Less: Operating expenditure
Salary 3 2,750,000
Professionals fees 4 300,000
Donations 5 255,000
95 | P a g e
 Note RM
Bad and doubtful debts 6 50,000
Administrative expenses 24,000
Profit before taxation 1,843,000

Notes:

1. Cost of sales including:

i. Depreciation of factory plant, machinery and vehicles amounted to

RM95,500.
ii. Export credit insurance premiums paid to local insurance company,
RM60,000.

2. Other income comprises:

i. Interest charged on trade debtors for late payment of account worth

RM50,000.
ii. Dividend RM40,000.

3. Salary including:

i. Entertainment allowance for staff worth RM60,000

ii. Internship payment for full-time undergraduate (approved by Talent
Corporation Malaysia Berhad) RM 20,000

4. Professional fees:

i. Service fee to approved research institute RM230,000.

ii. Stamp duty on the increase in authorised share capital worth RM60,000
iii. Legal fees for acquired working capital RM13,000

5. Donation comprises:

i. RM30,000 for the Polytechnic Seberang Perai’s library.

ii. Donation to an orphanage (approved institution), each orphan received cash
ang pow. Total ang pow distributed was RM3,000
iii. Cash wakaf to a state religious RM20,000
iv. RM175,000 was made to local authority.

6. Bad and doubtful debts accounts in respect of trading debts are made up of the
following movements during the year:

i. Bad debt written off RM5,000

ii. General bad debts provision RM25,000
iii. Specific debts provision RM20,000

96 | P a g e
 Additional information:
Capital allowances for the year assessment 2021 were RM120,000.

You are required to:

Compute the company tax payable for Aina Sdn. Bhd. for the YA 2021. (15 Marks)

Tutorial 3-4
a) Compute statutory business income for ABC Co. Ltd. for year assessment 2021 based
on the information given below:
RM
Sales 2,000,000
Capital Allowance 55,000
Allowable expenses 1,500,000 (5 Marks)

b) Rezqi manufactures component parts for vacuum cleaner in Pasir Gudang, Johor, a
firm with a paid-up share capital of RM3.2 million as of January 1, 2016, closes its
accounts for the year ending December 31.

Rezqi Hitech Sdn. Bhd. (Rezqi) disclosed statement of comprehensive income for the
financial year ended 31 December 2021 is as follows:

Rezqi Hitech Sdn. Bhd.

Statement on Comprehensive Income for the year ended 31st December 2021
Notes RM RM
Sales 51,000,000
(-) Cost of Sales 1 (33,000,000)
Gross Profit 18,000,000
(+) Other income
Dividend Income 12,000
Interest income on overdue trade 75,000
receivables
Foreign exchange gains 2 75,000 162,000
18,162,000

(-) Expenses
Company secretarial fees (paid to a 10,000
company secretary registered with
relevant authority)
Marketing expenses 3 230,000
Salaries 4 6,016,000
Tax filing fees (paid to approved 19,000
tax agent)
General Expenses 5 650,000 (6,925,000)
Profit Before Tax 11,237,000

97 | P a g e
 Notes:

1. Cost of sales includes:

 Depreciation of plant, property and equipment is RM12,000,000
 RM1,200,000 was expense for IT gadgets to facilitate the flexible working
arrangement of the employees during COVID-19 pandemic

2. Foreign exchange gain on trade receivables (realized) is RM75,000.

3. Marketing expenses comprise:

 RM80,000 for gifts of company product without logo for a customer’s annual
dinner
 RM50,000 for entertainment for an annual general meeting of company
 RM100,000 incurred in obtaining for recognized HALAL certification.

4. Salaries include remuneration amount RM20,000 for Fed, permanent staff who is
ex-convict.

5. General expenses comprises:

 Business zakat amounted for RM540,000
 Donation RM110,000 to an approved institution

6. The capital allowances for the year of assessment 2021 have been computed at
RM48,000.

You are required to:

Calculate the chargeable income of Rezqi Hitech Sdn. Bhd. for the year of assessment
2021.
(15 Marks)

c) Differentiate the expenditure below whether it is capital expenditure or revenue

expenditure.

i. An expenditure incurred to discharge a revenue liability

ii. It is shown in the statement of financial position (SOFP)
iii. Its increases the earning capacity of the business
iv. Modification of factory and business premises
v. The cost of installation of machines that are included in the repairs and
maintenance accounts.
(5 Marks)

Tutorial 3-5

a) Define the meaning of management and control for the determination of residential
status under Section 8, ITA 1967. (2 marks)

b) One Sdn. Bhd. (OSB) was incorporated on 1 January 2016 and commenced its operations
on 1 April 2016 with an authorised and issued share capital of RM4,000,000. OSB is in
98 | P a g e
the business of manufacturing furniture and makes up its accounts annually to 31
December.

The statement of Profit and Loss of OSB for the financial year ended 31 December 2021 is
as follows:

Note RM RM
Sales 54,000,000
Less: Cost of Sales 1 (17,000,000)
Gross profit 37,000,000
(+) Other income
Dividend income 500,000
Other income 2 30,000 530,000
(-) Expenses
Statutory audit fees 43,000
Cash losses due to theft and embezzlement 3 50,000
Donations 4 100,000
Entertainment expenses 5 96,000
Foreign exchange loss 6 170,000
Insurance premium 90,000
Legal and professional fees 7 28,000
Repair and maintenance expenses 8 68,000
Salaries and wages 9 5,832,000
Travelling expenses 79,000 (6,556,000)
Profit before tax 30,974,000

Notes:
1) The cost of sales includes depreciation of RM26,000 in respect of the factory and
plant and machinery.
2) The other income derived from a rent out the property.
3) This figure includes an amount embezzled of RM20,000 by one of the directors. A
police report was lodged.

4) OSB contributed building materials worth RM100,000 to an approved charitable

institution.

5) Entertainment expenses comprise: RM

Gifts with a business logo for a customer’s annual dinner 50,000
Entertainment for distributors of companies 8,000
Entertainment of suppliers 38,000
96,000

6) The foreign exchange loss comprises: RM

Foreign exchange loss (realized) on trade payables 190,000
Foreign exchange gain realized on the purchase of machinery 20,000
Total 170,000

99 | P a g e
 7) Legal and professional fees comprise: RM
Cost of defending legal proceedings brought by former employees 5,000
claiming unjust dismissal
Tax fees for appealing against a penalty on a late instalment tax 7,000
payment
Company secretarial fees 16,000
Total 28,000

8) Repair and maintenance expenses include the costs of installing a ramp to provide
access for special needs staff for RM4,000.

9) Salaries and wages include:

Leave passage (an overseas trip for five staff and one RM20,000
managing director
Salaries for special needs staff RM600,000
Salaries for directors RM2,000,000
EPF contributions for directors RM381,000

Additional information:
OSB’s capital allowances have been computed at RM2.1 million for the year of assessment
2021 and unabsorbed loss from year assessment 2020 was RM35,000.

Required:

i. List THREE (3) expenses entitled to a double deduction for One Sdn. Bhd. (OSB) year
of assessment 2021 (not necessarily charged in the above Statement of
Comprehensive Income). (3 Marks)

ii. Compute the tax payable for One Sdn. Bhd. for the year of assessment 2021.
(20 Marks)

Tutorial 3-6
Printcopy Marketing Sdn. Bhd., a company trading in printing equipment, prepared its
profit and loss account for the year ended 31 December 2021 as follows:

Printcopy Marketing Sdn. Bhd.

Income Statement for the year ended 31 December 2021
Notes RM RM
Sales 1,337,500
Less: Cost of sales 1 (450,000)
887,500
Less:
Salaries and wages 2 138,650
Staff welfare 3 37,000
Freight and insurance 107,500
Travelling and entertainment 4 65,000

100 | P a g e
 Printcopy Marketing Sdn. Bhd.
Income Statement for the year ended 31 December 2021
Advertising 34,050
Rental 5 69,700
Repairs and maintenance 35,000
Legal and Professional Fees 6 19,050
Miscellaneous expenses 7 108,000 (614,450)
273,050
Other Income:
Rental income from shop house 29,700
Gain from disposal of shares 34,600 64,300
Net Profit Before Taxation 337,350

Notes:
1. Cost of sales includes:
a. Depreciation amounting to RM54,000
b. Three units of printing equipment from the opening stock were transferred
to company’s fixed assets. The cost price for the three units was RM85,000
and the normal selling price is RM105,000.

2. Included in salaries and wages was a monthly salary of RM2,300 to a physically

special needs person who was employed as a clerk for 10 months.

3. Staff welfare comprises:

a. Staff medical and dental benefits are RM15,000
b. Personal loan to employees written off is RM10,000
c. Payment of child care allowance to the employees is RM12,000

4. Travelling and entertainment:

a. Business entertainment to expense suppliers RM20,000
b. Business entertainment to expenses agents RM12,000
c. Annual fee to a club for the managing director
(wholly related to sale) RM15,000

5. Included in rental are:

a. Rental for warehouse (3 months from 1/12/20 – 29/2/21) RM15,000
b. Rental of lorry for commercial vehicle RM34,500

6. Legal and professional fees include:

a. Secretarial fees of RM15,000.
b. Payment for stamp duty for renewal rental agreement for shop house of
RM2,300
c. Fine of RM2,000 imposed on the company for overloading a van

7. Miscellaneous expenses comprise:

a. Stamp duty on increase in authorized share capital RM3,000
b. Approved cash donation (RM21,000 for the public library) RM27,000

101 | P a g e
 8. Fixed assets:

Qualifying Residual Annual

expenditure as on Expenditure as on Allowance
January 1, 2021 January 1, 2021 Rate %
Plant & Machinery RM120,000 RM66,000 14
Motor Vehicles RM400,000 RM270,000 20
Office Equipment & Furniture RM450,000 RM245,000 10

9. On 1st January 2021, paid-up share capital of Printcopy Marketing Sdn. Bhd.
amounted RM3.5 million.

You are required to:

Compute the tax payable by Printcopy Marketing Sdn. Bhd. for the year assessment 2021.
(25 Marks)

Tutorial 3-7
Rattan Creation Sdn Bhd (RCSB) operates as a manufacturer of high-quality rattan
furniture for local and international market since 2005. The company started its business
with paid-up capital RM10 million. The company’s income statement for the year ending
31 December 2021 is as follows:

RATTAN CREATION SDN. BHD.

Statement of Comprehensive Income for the year ended 31 December 2021
Note RM’000 RM’000
Sales 40,000
(-) Cost of Sales:
Opening stock 2,500
Cost of goods manufactured 1 15,775
18,275
(-) Closing stock (1,900) (16,375)
Gross profit 23,625
(-) Expenses
Salary 1,950
Advertisement 730
Repairs and maintenance 2 450
Donation 3 910
Miscellaneous expenses 646
Loss on disposal of fixed asset 70
Provisions for doubtful debts 4 510
Interest on loan 182
Travelling and entertainment 428
Professional fees 5 250
Foreign exchange loss 6 144 (6,270)
17,355
(+) Other income 7 128
Profit before taxation 17,483

102 | P a g e
Notes:
1. Cost of goods manufactured includes :
Depreciation of machine RM350,000
Payment for the use of services of an approved research institute RM180,000
Insurance premium paid to a local insurance company for RM 70,000
imported raw material
2. `The following are the information related to the factory building at 1 January 2021 :

Residual Annual Allowance

Cost
Expenditure Rate (%)
Factory Building RM4,000,000 RM3,120,000 3

Included in Repair and Maintenance, renovation cost to the factory building to

increase the rattan furniture production RM400,000

3. Donation comprise :

 Contributions in terms of facilities for handicapped person in public use (related

with business) is RM120,000
 Donation in term of monetary for local authorization (receipts are disclosed) is
RM850,000

4. Provision for doubtful debt comprises :

General provision for doubtful debt RM100,000

Specific provision for doubtful debt RM310,000
Bad debts written off RM100,000
RM510,000

5. Professional fees:

Legal fees incurred on trade debt recovery RM80,000

Stamp duty on acquisition of working capital RM30,000
RM110,000

6. Realized foreign exchange loss comprises :

Loss arising from payments to foreign suppliers of raw material RM60,000

Loss arising from payments to foreign suppliers for purchasing RM84,000
machine
RM144,000

7. Other income comprises :

Received compensation from insurance company for loss of RM42,000

trading goods (the exact amount of loss)
Interest charged on trade debtors for late payment of accounts RM35,000
Dividend RM51,000

103 | P a g e
8. Capital allowances for the year assessment 2021 is RM840,000
(excluded Note No. 2).

You are required to:

Compute the tax payable of Rattan Creation Sdn Bhd for the YA 2021. (25 Marks)

POST QUIZ : COMPANY TAXATION

(i) Senaling Sdn Bhd was established to manufacture fishing equipment. The following
expenditure were incurred in 2021:
 Replacement of a few tables and chairs for every room for manager. The table and
chairs are form the same quality.
 Interior design and renovation to improve the Chief Executive Officer’s (CEO) room
and general office.

You are required to discuss the appropriate tax treatment for the above transaction.
[5 marks]

(ii) Sedenak Global Sdn Bhd (SG) manufactures and sells car speakers. SG makes up its
accounts annually on 31 March. SG’s income statement for its financial year ended 31
March 2021 is as follows:

Sedenak Global Sdn. Bhd

Statement of Comprehensive Income for the year ended 31 March 2021
Note RM RM
Sales 3,000,000
Less: Cost of sales 1 (1,800,800)
Gross profit 1,199,200
Add: Other income
Gain on disposal of commercial
property in Malaysia 30,000
Interest income 2 17,000 47,000
1,246,200
Less: Expenses
Loss on disposal of asset 20,900
Entertainment 3 24,000
Depreciation 60,000
Repair and maintenance 4 33,000
Bad debt written off 17,500
Lease payment 13,580
Staff cost 5 110,000
Professional fees 7,300
Foreign exchange losses (unrealised) 16,000
Donation 6 22,000 324,280
Profit before tax 921,920

104 | P a g e
Notes:
1. Cost of sales includes two units of speaker equipment from the opening stock were
tranferred to company’s asset. The cost price for the two unit was RM35,000 and
market values is RM40,000.

2. Interest was supposed recievable on 1.8.2020 and only received in YA2021.

3. Entertainment expenses includes:
a. Annual dinner to staff amounted RM10,000
b. Gift of flower for customer’s opening outlet of RM5,000

4. Include in repair and maintenance expenses is an amount of RM20,000 in making

improvement of company’s store.

5. Staff cost including remuneration for Deemin amounted RM24,000 who senior citizen
full time staff at age of 62 years. The company also incurred RM20,000 for the provision
and maintenance of child care centre that was provided for staff.

6. Donation comprises from:

a. Gift of cash to Federal Government of RM10,00
b. Cash donation to approved institution without receipt of RM12,000

Additional information:
Capital allowance for the current year and brought forward from the previous year were
RM 50,200 and RM20,000 respectively.

Required:
Compute tax payable of Sedenak Global Sdn. Bhd for the year of assessment 2021.
[20 marks]

105 | P a g e