CONFIDENTIAL AC/DEC 2019/TAX517

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE TAXATION 2

COURSE CODE TAX517

EXAMINATION DECEMBER 2019

TIME 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of five (5) questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Please eheck to make sure that this examination pack consists of:

i) the Question Paper

ii) a two - page Appendix 1
iii) an Answer Booklet - provided by the Faculty

Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO

This examination paper consists of 9 printed pages

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CONFIDENTIAL 2 AC/DEC 2019/TAX517

QUESTION 1

Montech Sdn Bhd (MSB) is a manufacturing company involves in the production and supply
of computer parts for local and foreign markets since 2012. The company prepares its
accounts to 31 March every year and its paid-up ordinary share capital is RM2.4 million. The
following is the Statement of Profit or Loss of the company for the year ended 31 March 2019:

Note RM RM
Sales 3,250,450
Less: Cost of sales 1 (1,270,300)
Gross profit 1,980,150
Add: Other income 2 273,750
2,253,900
Less: Expenses
Remunerations 3 470,800
Marketing and entertainment 4 56,800
Research and development 5 100,000
Lease rental 6 30,000
Legal and professional fees 7 42,700
General expenses 8 78,600
Depreciation 83,200
Sponsorship and donations 9 66,900
Business zakat 47,250 (976,250)
Net profit before taxation 1,277,650

Notes:

1. Cost of sales includes:

RM
Provision for stock obsolescence 95,200
Compensation paid due to restrictive covenant 80,000
Export credit insurance premium (based on takaful concept) approved 34,700
by the Ministry of Finance
Royalty paid to a Russian company for the use of patent. The 78,500
withholding tax was yet to be paid to the Inland Revenue Board.

Other income:
RM
Dividend income from Singapore remitted to Malaysia 120,500
Gain on disposal of old machine. The residual expenditure of the 35,800
machine was RM29.300 and the disposal value was RM61.500.
Dividend income from EZ Bhd (single tier) 74,000
Interest income on overdue trade receivables 43,450

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3. Remunerations:
RM
Salaries and bonuses (Note i) 309,800
Salaries and bonuses of disabled employees 42,000
Contribution to Employees Provident Fund (EPF) 65,200
Contribution to unapproved pension scheme 53,800

Note (i): The salaries include a monthly salary of RM2.500 paid to an ex-convict
to work in the production line.

4. Marketing and entertainment:

RM
Wedding gift to a supplier on his wedding day 2,500
Participation in international technology trade fair held in Putrajaya 32,300
Food and drinks during the launching of a new product given to 22,000
existing and potential buyers

5. Research and development:

RM
Research on new technology for computer parts (Approved by the 45,000
Minister)
Routine product testing 55,000

6. Lease rental:

The company leased a car for the manager's use. The cost of the car when new was
RM107.000. The company paid a monthly lease of RM2.500 commencing on 1 July
2015.

7. Legal and professional fees:

RM
Tax filing fees 11,000
Legal fees for recovery of trade debts 8,500
Statutory audit fees 8,000
Secretarial fees 5,200
Penalty for late submission of sales tax 10,000

8. General expenses:
RM
Replacing a damaged machine with a new digital machine 43,000
Extension of the office parking 30,400
Repair and maintenance of company's motor vehicles 5,200

9. Sponsorship and donations:

RM
Cash contribution to 2019 Kuala Lumpur Annual Sports Event 32,000
(approved)
Sponsorship of approved local cultural activities 14,400
Donation of food supplies to Rumah Anak Yatim Bangi (approved) 20,500

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Additional information:

i. The company has a brought forward business loss of RM35.750.

ii. Capital allowance for the current year and unabsorbed capital allowance from the
previous year were RM98,000 and RM32.350 respectively.

Required:

a. Compute the income tax payable of Montech Sdn Bhd for the year of assessment 2019.
Every item in the notes to the account must be shown in your computation. Write 'NIL'
where no adjustment is necessary.
(22 marks)

b. Seroja Sdn Bhd (SSB) which adopts 31 December financial year end is a company
involves in producing canned foods. The accounts executive of SSB is uncertain of the
tax treatment for the following expenditures and seeks your advice. Briefly explain the
tax treatment of the following:

i. Provision for stock obsolescence of SSB for the year was RM100,000.
RM20.000 written off during the year refers to the expired stock of canned foods,
ii. Lease rental of RM3.000 per month is for a lorry used by the company to deliver
goods to customers. Cost of the lorry was RM110,000.
(4 marks)

c. For the year of assessment 2018, the total estimated income tax paid by Seroja Sdn Bhd
(SSB) amounted to RM950.000. The final tax instalment was paid on 12th January 2019.
The final income tax payable for the year of assessment 2018 calculated in the tax return
form showed an additional income tax of RM105,000.

Required:

Explain briefly the followings:

i. The due date for the payment of the additional income tax of RM 105,000 by SSB.
ii. Consequences to SSB ifthe company fails to pay by the above due date.
iii. The amount of estimated income tax payable to be furnished to Inland Revenue
Board in the prescribed form (CP 204) for the year of assessment 2019.
iv. The due date for the first monthly instalment of tax estimates for the year of
assessment 2019.

(4 marks)
(Total: 30 marks)

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 CONFIDENTIAL AC/DEC 2019/TAX517

QUESTION 2

Forest Sdn Bhd (FSB) is a resident company involves in tourism business and has been
operating an in-door theme park in Penang since 2005. Due to an overwhelming response
from the foreign tourists to the theme park, the company has decided to expand its tourism
projects by constructing a newout-door theme park. FSB is eligible to apply for Pioneer Status
or Investment Tax Allowance incentives for the construction ofthe new theme park.
However, FSB is uncertain whether to apply for Pioneer Status or Investment Tax Allowance
for the new theme park project, therefore FSB is seeking your advice on the best incentives
option.

The followings are theforecasted financial information pertaining tothe new theme park project
of FSBfor the years ended 31 October:
2020 2021 2022
Promoted business: RM RM RM
Adjusted income/(loss) (1,245,000) 2,040,000 2,350,000
Balancing Charge 40,000
Capital allowances for the year 1,080,000 650,000 650,000
Interest Income 10,000 15,000 25,000
Approved donations to state government 8,000 18,000 15,000

The company is expected to incur the following expenditures for the new out-door theme
park project to be embarked in 2020:

Land 4,000,000
Construction of road and other infrastructures 1,800,000
Provision of buildings and structural 850,000
improvement
Amusement plant and machinery 1,500,000
Planting of trees and plants 780,000

Required:

Determine the company's chargeable income and the amount to be credited to the
exempt income account for the year of assessment 2020 up to the year of assessment
2022 (if any) under the following tax incentives:

Pioneer Status Incentive

Investment Tax Allowance incentive
(16 marks)

b. Analyze which incentive is more tax efficient to Forest Sdn Bhd.

(3 marks)

c. Jati Manufacturing Sdn Bhd is eligible for Reinvestment Allowance under Schedule 7A
of ITA 1967. Discuss the eligibility criteria as outlined by the above legislation that has
to be satisfied by the company.
(3 marks)
(Total: 22 marks)
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CONFIDENTIAL 6 AC/DEC 2019/TAX517

QUESTION 3

Jennifer, a Singapore citizen purchased a small factory in Batu Pahat, Johor for RM2 million
in April 2013. She paid a five percent commission of the factory price to a property agent. The
legal fees and stamp duty were RM20.000 and RM12,000 respectively. In September 2013,
Jennifer received RM75.000 from the developer as compensation for its damaged factory due
to the construction works at the neighborhood project. In July 2014, Jennifer renovated the
factory for RM320.000 and the factory was leased out to BPB Sdn Bhd effective from 1
September 2014 for a monthly rental of RM8.000 for a 2-year contract.

Jennifer decided to terminate the 2-year leasing contract and transfer the factory to her son,
Billy (Malaysian citizen) as a gift on 1 November 2016 after repairing the factory at a cost of
RM6.000. The market value of the factory was RM2.5 million as at the date of transfer.

On 15 June 2017, Billy disposed the factoryto Amir for RM2.8 million. Billy incurred advertising
and legal fees of RM3.400 and RM27.500 respectively.

Amir, a Malaysian citizen, together with his wife, Jannah and his brother, Nazmi were the
shareholders of Kristal Sdn Bhd (KSB). The company was not a real property company on its
incorporation on 2 January 2015. The shares of Kristal Sdn Bhd are held by the three family
members as follows:

No. of shares held

Amir 300,000
Jannah 150,000
Nazmi 550,000

On 20 May 2018, Amir transferred his factory to KSB for a consideration of RM3 million of
which he received 500,000 shares at RM5.00 per share in KSB and the balance was in cash.

On 1 February 2019, KSB acquired 40,000 shares at RM2.00 per share from Emerald Sdn
Bhd (not a real property company). The market value of KSB's land, factory building and other
tangible assets after the acquisition were RM830.000, RM3.5 million and RM220.000
respectively.

On 12 June 2019, Amir disposed 100,000 shares that he acquired on 2 January 2015 from
KSB to Amzar for RM4.00 per share.

KSB decided to expand its business by acquiring a plot of land from Albert for RM300.000 on
1 October 2019.

Albert inherited the land from his late grandfather on 1 July 2014 with a market value of
RM240.000. His grandfather acquired the land on 18 March 2011 for RM200.000. In 2015,
Albert received a compensation of RM35.000 from the state government due to flood that had
damaged his land.

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Required:

a. Compute the real property gains tax payable (if any) by the following disposers:
Jennifer on the transfer of the factory to Billy on 1 November 2016.
i. Billy on the disposal of the factory to Amir on 15 June 2017.
ii. Amir on the transfer ofthe factory to Kristal Sdn Bhd on 20 May 2018.
v. Amir on the disposal of his shares on 12 June 2019.

Note: Private Residence Exemption was not elected by all the disposers.
(17 marks)

b. Determine the real property gains tax payable (if any) by Albert with respect to the
disposal of land to Kristal Sdn Bhd on 1 October 2019.
(3 marks)
c. Forthe purpose of Real Property Gains Tax, briefly explain the followings:
i. Any three (3) circumstances where the disposal priceshould be deemed at market
value,
ii. Any two (2) conditions where the disposal of real property is a no gain no loss
transaction.
(5 marks)
(Total: 25 marks)

QUESTION 4

A. Expert Talent Sdn Bhd is currently developing a special interactive learning edutainment
theme park in Kuantan, Pahang. During the year ended 30 June 2019, the company
made the following transactions:

i. Payment of RM4,500,000 to Kids World Inc. (resident in Australia) for work carried
out for the theme park. The breakdown is as follows:
RM
Cost of plant and machinery 850,000
Payment for the service of the installation of plant and 450,000
machinery
Consultancy services in respect of the management and 700,000
marketing of the new project
Contract work on infrastructure and buildings 2,500,000
ii. Obtained a 2-yearloan ofRM12,000,000 on 1 June 2018 from a bank in Singapore
with 3% interest rate per annum to finance the project. Payment of interest is on
a monthly basis to be paid on the first of every month.

in. Payment of RM150,000 to Dreambig Sdn Bhd (a company resident in Malaysia)

for the use of patents relating to artistic work.

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Required:

Discuss whether each of the above payment made by the company is subjected to
withholding tax.

Support your answer with reasons, the relevant withholding tax provisions and the
amount of withholding tax payable (if any).
(8 marks)

B. Ilham Software Bhd, a company located in Puncak Alam, Selangor is in the business of
selling software. It has a website hosted in a server in Singapore, which enable
customers to choose, make queries and order the products and paying for the purchase
online. All the business activities of the company such as the procurement of the
software, the supply of information for the website and the maintenance of the website
are carried in Malaysia.

Discuss (with reasons) the tax treatment of income derived by Ilham Software Bhd.
(3 marks)
(Total: 11 marks)

QUESTION 5

A. Lazzo Furniture Sdn Bhd (accounting year end 31 December) is a registered

manufacturer and importer of wood-based furnitures. In March 2019, the following
furnitures were either purchased from overseas manufacturer or manufactured by the
company:

Type of Furniture Origin Final Destination

Italian sofa Italy 40% sold overseas
40%o sold to retailers in Malaysia
20% still in stock
Rattan furniture Brunei All sold to retailers in Malaysia
Rubberwood Locally manufactured 50% sold in Labuan
furniture 40% sold to individual customers
in Kuala Lumpur
10% contributed to a charity
house in Kuala Lumpur

Required:

Identify with reasons, whether the above transaction is subject to sales tax. No
computation is required.
(8 marks)

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B. Perfect Safe Sdn Bhd is a taxable person under the Service Tax Act 2018, carried out a
business of installing and commissioning multi-functional electronic security systems in
Sungai Petani, Kedah. The followings are the detailed works done for services rendered
to Maju Home Enterprise in August 2019:

Work done RM
1 Sold 5 units CCTV camera worth RM1,000 each 5,000
2 Installation of safety alarm equipment 3,000
_3J Installation of CCTV camera 2,000
4 Remote monitoring services 1,500
5 Travelling cost 500

Required:

Prepare an invoice to be issued to Maju Home Enterprise incorporating all the above
items (including the service tax, ifany). Show your workings.
(4 marks)
(Total: 12 marks)

END OF QUESTION PAPER

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CONFIDENTIAL APPENDIX 1 (1) AC/DEC 2019/TAX517

The following tax rates and allowances are to be used in answering the
questions:

Income Tax Rates

(a) Companies 24%

(b) Small companies 17%&24%

(c) Non-resident individuals 28%

(d) Resident individuals Scaled rate*

*Chargeable Income Rate Cumulative Tax

RM RM
On 5,000 0
Next 5,000 1 50
On 10,000 50
Next 10,000 1 100
On 20,000 150
Next 15,000 3 450
On 35,000 600
Next 15,000 8 1,200
On 50,000 1,800
Next 20,000 14 2,800
On 70,000 4,600
Next 30,000 21 6,300
On 100,000 10,900
Next 150,000 24 36,000
On 250,000 46,900
Next 150,000 24.5 36,750
On 400,000 83,650
Next 200,000 25 50,000
On 600,000 133,650
Next 400,000 26 104,000
On 1,000,000 237,650
Exceeding 1,000,000 28

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 CONFIDENTIAL APPENDIX 1 (2) AC/DEC 2019/TAX517

Rate of Capital Allowances

Initial allowance Annual allowance
(IA) (AA)
Rate % Rate %
Industrial buildings 10 3
Plant and machinery - general 20 14
Motor vehicles and heavy machinery 20 20
Office equipment, furniture and fittings 20 10
Computers 20 20

Agriculture allowance
Buildings for the welfare of or as living
accommodation for farm employees Nil 20
Other buildings used in the business Nil 10
All other qualifying agricultural expenditure Nil 50

Real Property Gains Tax Rate

Companies Individuals Individuals (Non-

(Citizen/PR) citizen/Non-PR)
Disposal within three years after the 30 30 30
date of acquisition
Disposal in the fourth year after the 20 20 30
date of acquisition
Disposal in the fifth year after the 15 15 30
date of acquisition
Disposal in the sixth year after the 10 5 10
date of acquisition and thereafter

Sales and service tax

Sales tax rate 5%/10%

Service tax rate 6%

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