Micpa - Caanz Programmme

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Notes:

- It is not nature of the business to invest in shares. So the expenses is not incurred wholly and exclusively in the production of gross income.

- Not subject to withholding tax as services rendered outside Malaysia. It is allowable expenses. Realized loss on technical fees is added back because it already been included in foreign exchange loss.

- Cost of samples of aluminum containers given free at trade fair is assumed have the company’s logo and is given at international trade fair.

Cover sheet[pic 8][pic 9]

Candidate ID Word count

[pic 10][pic 11]

2/1391AS 2194

TAX116 Project (2700 words)

Candidate declaration

I declare that:

- This is my own original work and I have acknowledged all materials, sources and references used in the preparation of this assignment.

- I have abided by the Institute’s Bye-Laws.

- This assignment has not been submitted previously for assessment.

- I have not copied in part or whole or plagiarised the work of other candidates, students and/or authors.

- The electronic version of this assignment has been submitted in compliance with the project requirements.

I consent to the Institute notifying my employer and/or any tertiary institution at which I am enrolled if this assignment constitutes an actual or reasonably suspected breach of any of the Institute’s Bye-Laws and Exam Regulations.

I acknowledge that the Institute will retain the original of this assignment.

In submitting this assignment to the Institute, I declare it is my own work undertaken for the purpose of meeting the assessment requirements of the MICPA-CAANZ Programme module in which I am currently enrolled.

I understand that the Institute will check my assignment for plagiarism and will retain a copy of my assignment for future plagiarism checking.

This declaration confirms the above statements.

Signature: Hazazi Date: 7/03/2016[pic 12][pic 13][pic 14]

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QUESTION 2.

- Since the company involved in manufacturing pharmaceutical products which is hair care products, these products are eligible for consideration of pioneer status and investment tax allowance under the Promotion Of Investment Act 1986.

- Pioneer status.

With pioneer status, they will get them a tax exemption of 70% of statutory income for a period of 5 years. The balance of statutory income will be taxed at the normal corporate tax rate 25%.

- Investment Tax Allowances (ITA) is a capital expenditure based incentive given as exemption on income. ITA is equal to 60% of qualifying capital expenditure. It can only be utilized if it can be set off against 70% of statutory business income. ITA is mutually exclusive with pioneer status. ITA is available to companies involved in promoted products or activities.

The choice between the pioneer status and investment tax allowance would generally be influenced by the following three factors:

- The gestation period of the project and the time when profits can be expected to arise.

- The level and timing of capital expenditure. The investment tax allowance exemption depends upon the amount of qualifying capital expenditure incurred each year as well as upon the availability of statutory business income.

- The level of income relative to capital expenditure. The amount of pioneer status exemption is determined by the amount of the company’s statutory business income. In general a company should choose pioneer status if its profitability is good and its capital spending is not large.

Pioneer status is more tax efficient to Trendy & Beauty Sdn Bhd (TBSB) because:

- The statutory business income under Pioneer status is less compared to statutory business income under ITA.

- Profitability of the company is good and its capital spending is not large. Even though there are qualifying capital expenditure incurred multiple times in 5 years’ time but it is not large enough. Thus pioneer status is more tax efficient.

The calculations as below:[pic 15]

- Computation of pioneer status:

[pic 16]

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- Tax treatment for the following transactions:

- Consultant from Korea

Not subject to withholding tax as services rendered outside Malaysia. It is allowable expenses under Section 4(a) Business Income.

- Korean artists

Subject to withholding tax as payment by resident to non-resident and service is in Malaysia under public entertainers’ remuneration at 15%. Such remuneration is allowable expenses under Section 4(a) Business Income.

- Malaysian artist

Not subject to withholding tax as the recipient is resident but it is allowable expenses under Section 4(a) Business Income.

- Rental of audio equipment

This rental of moveable property is subject to 10% withholding tax and is chargeable to tax under Section 4(a) Business Income.

- Free sample of new product (assumed there is company’s logo on the free sample)

Expenditure incurred in providing promotional samples as stated in S 39(1) (1) is allowable expenses under Section 4(a) Business Income.

- Director General of Inland Revenue will disallowed the company’s

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