Computation of Chargeable Income of Alumin Sdn Bhd for the Year of Assessment 2015
Essay by Ahmad Hazazi Zahrullail • October 16, 2016 • Term Paper • 1,174 Words (5 Pages) • 1,371 Views
Essay Preview: Computation of Chargeable Income of Alumin Sdn Bhd for the Year of Assessment 2015
QUESTION 1.
Computation of chargeable income of Alumin Sdn Bhd for the year of assessment 2015.
[pic 1]
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 2]
- Computation of pioneer status:
[pic 3]
- Tax treatment for the following transactions:
| Not subject to withholding tax as services rendered outside Malaysia. It is allowable expenses under Section 4(a) Business Income. |
| 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. |
| Not subject to withholding tax as the recipient is resident but it is allowable expenses under Section 4(a) Business Income. |
| This rental of moveable property is subject to 10% withholding tax and is chargeable to tax under Section 4(a) Business Income. |
| 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 claim of the tour promotion, sales promotion and sponsorship costs paid to the distributors and dealers under the basis that the expenses amounted to ‘entertainment’ costs. The expenses incurred are for the promotion of the business and would not amount to entertainment. So those expenses does not meet the definition of entertainment under S 39(1) (1) and no deduction is allowed and if it falls under ‘entertainment’ costs, such provision is incidental to the entertainment of others and not the company itself. That is why Director General of Inland Revenue will disallowed the claimed.
- Trendy & Beauty Sdn Bhd could convince the Director General of Inland Revenue that the tour promotion, sales promotion and sponsorship costs paid to the distributors and dealers were indeed incurred wholly and exclusively in the production of gross income by proved the company's intention to promote the company's product.
All the incentives such as tour promotions, sales promotions, and sponsorship programmes offered is the purpose of promoting the product of the company which should be allowable as a deduction under subsection 33(1) of the ITA.
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