CONFIDENTIAL 1 AC/JUN 2019/TAX517

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : TAXATION 2
COURSE CODE : TAX517
EXAMINATION : JUNE 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 check to make sure that this examination pack consists of :

i) the Question Paper

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

5. 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/JUN 2019/TAX517

QUESTION 1

Deco Wood Sdn Bhd is a wholly owned Malaysian company located in Kuantan, Pahang.
The company which was incorporated in January 2010 with paid up capital of RM2.8 million,
involves in importing and exporting wooden furnitures. The company prepare its accounts to
31 December every year. The company’s Statement of Profit or Loss for the year ended 31
December 2018 is as follows:

Note RM RM
Sales 1,720,500
Less: Cost of sales 1 (940,200)
Gross profit 780,300
Add: Other income 2 43,300
823,600
Less:
Bad and doubtful debts 3 15,200
Staff remuneration 4 117,400
Advertisement & promotions 5 78,200
Professional fees 6 45,000
Entertainment 7 75,200
Depreciation 58,500
Donation 8 35,800
Business zakat 25,000
Insurance 9 35,000
Repairs and maintenance 10 56,300
Fines and penalties 11 13,000
Special skills training 12 10,000
(564,600)
Net profit before taxation 259,000

Additional information:

1. Cost of sales include:

RM
Provision for damaged stock 11,300
Provision for warranty amounting to RM15,000 provided for the year of
which RM7,400 was paid out as claims from customers

2. Other income comprises of:

RM
Interest charged on overdue trade debtors 13,330
Foreign exchange gain on receipt of trade debts (unrealised) 7,530
Dividend received from a local company (single tier) 12,440
Government grant (note i) 10,000
43,300

Note (i): Deco Wood Sdn Bhd received a grant from the government in respect of a
special skills training program for its labour staff which the company undertook as
part of its training program (see also note 12).

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3. Bad and doubtful debts include decrease in general provision for doubtful debts of
RM3,800. The balance was for specific trade debts.

4. Staff remuneration comprises of:

RM
Employee salaries (including salaries paid to handicapped employee
amounted to RM7,000) 65,200
Bonuses for employees 20,000
Medical expenses for employees 11,400
EPF contribution 20,800
117,400

5. Advertisement & promotions expenses:

RM
Advertisement in trade magazines, radios, televisions 31,200
Promotion of export expenses approved by the Minister of International
Trade and Industry (MITI) for participation in Malaysian International
Furniture Fair 15,000
Expenses incurred for obtaining export marketing information 32,000
78,200

6. Professional fees comprise of:

RM
Auditing and accounting fees 20,000
Legal fees to obtain new loan facility 7,200
Consultancy fees for market expansion 17,800
45,000

7. Entertainment comprises of:

RM
Entertainment to suppliers 54,520
Free meals and refreshments to employees 20,680
75,200

8. Donation comprises of:

RM
Donation of furnitures to Kuantan Public Library (elected under
S34(6)(g)) 21,000
Cash donation to Rumah Sinar Cahaya (old folks home, approved by
Jabatan Kebajikan Masyarakat Malaysia) 14,800
35,800

9. Insurance expenses include a sum of RM24,500 in respect of premium paid on

export credit insurance taken with an insurance company approved by the Minister of
Finance.

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10. Repairs and maintenance comprise of:

RM
Replacing the security alarm system with an improved and upgraded
version 29,800
Rewiring the showroom unit to display the wooden furnitures 11,000
Maintenance of companies’ lorries 15,500
56,300

11. Fines and penalties include:

RM
Fines and compound fees for traffic offences 6,600
Penalty paid to Inland Revenue Board on late submission of income
tax 3,400
Penalty on late contribution to the EPF 3,000
13,000

12. Special skills training

The cost of the special skills training program was attributable to the grant of
RM10,000 received from the government.

13. Capital allowance for the year of assessment 2018 amounted to RM58,700. In
addition, the company has unabsorbed business losses of RM98,600 brought
forward from year of assessment 2017.

Note: The chargeable income of the company for the year of assessment 2017 was
RM156,876.

Required:

A. Compute the income tax payable of Deco Wood Sdn Bhd for the year of assessment
2018. Indicate ‘NIL’ where no adjustment is required.
(24 marks)

B. Teak Design Sdn Bhd (TDSB) closes its accounts annually on 30 June. On 1 June
2017, the company estimated its income tax payable for the year of assessment
2018 at RM150,000 and no revision of tax estimates has been made thereafter. The
actual income tax payable for the year of assessment 2018 was RM268,000. Identify
the followings for TDSB:

i. The penalty that will be imposed on Teak Design Sdn Bhd in respect of its
underestimation of tax for the year of assessment 2018.

ii. The possible action that the company can undertake to avoid the similar
penalty in the following year of assessment.
(3 marks)
(Total: 27 marks)

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QUESTION 2

Paradigm Sdn Bhd, a resident company in Perak, manufactures both promoted and non-
promoted products. The company, which closes its accounts on 31 December annually, has
been in operation since the year 2012. The company was granted pioneer status incentive
effective from 1 July 2015.

The financial information pertaining to the promoted and non-promoted products of

Paradigm Sdn Bhd are as follow:
2017 2018 2019
RM’000 RM’000 RM’000
Promoted products:
Adjusted income/(loss) (125,000) 500,000 1,000,000
Balancing charge 45,000 - -
Capital allowance (note 1) 120,000 205,000 230,000

Non-promoted products:
Statutory Income - - 110,000
Adjusted loss (35,000) (78,000) -
Donations to local authority 5,000 5,000 18,000

Qualifying capital expenditure incurred by

Paradigm Sdn Bhd:
Office building (renovation) 50,000
Factory building - 180,000 150,000
Plant and machinery - 100,000 -
Fixtures and fittings - 10,000 15,000

Required:

a. With respect to the tax incentives granted to Paradigm Sdn Bhd, determine the
followings:

i. The chargeable income and amount to be credited to exempt income account

for the years of assessment 2017, 2018 and 2019.

ii. The amount of investment tax allowance that could be utilised in the years of
assessment 2017, 2018 and 2019 if Paradigm Sdn Bhd decided to apply for
the said tax incentive instead of pioneer status incentive.
(16 marks)

b. Discuss the tax treatment under pioneer status incentive for the following items:

i. Pioneer business loss

ii. Unabsorbed capital allowance
(3 marks)

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c. Bright Sdn Bhd (BSB) and Rainbow Sdn Bhd (RSB) are tax resident companies in
Malaysia and have commenced their operation since 2015. BSB is a manufacturer
of electrical components while RSB is a textile manufacturer. During the year of
assessment 2018, both companies have incurred capital expenditure for their new
projects as follows:

Bright Sdn Bhd Rainbow Sdn Bhd

Additional production lines for the Ventured into a new product which is
purpose of increasing its existing not related to the existing business
production capacity

Required:

Comment with reasons whether both companies are eligible for reinvestment
allowance.
(3 marks)
(Total: 22 marks)

QUESTION 3

Ace received a house in Klang from his grandfather, Hacket as a gift on 13 April 2015. The
market value of the house on that date was RM950,000. Hacket bought the house on 9 July
2012 for RM700,000 and incurred legal fees of RM10,000 on the transfer of the house.

On 21 September 2017, Ace transferred the house to Kaca Sdn Bhd, a company controlled
by him and his uncle for RM1.7 million payable by 425,000 in shares of RM3.00 each and
the balance in cash. At the date of transfer, Kaca Sdn Bhd was not a real property company.
It became a real property company on 1 November 2017. Later, on 26 November 2017, Ace
sold 100,000 units of those shares to his friend, Bee for RM400,000.

Kaca Sdn Bhd owned a shophouse in Ipoh. It purchased the shophouse for RM3 million on
10 July 2013. On 15 August 2018, Kaca Sdn Bhd disposed both the properties to Palmca
Sdn Bhd, an unrelated company. The house and shophouse were sold for RM5.1 million and
RM5.9 million respectively. Kaca Sdn Bhd incurred legal fees of RM15,000 and commission
of RM200,000 on both disposals.

On 20 December 2018, Axim Sdn Bhd approached Ace and Bee to sell their shares in Kaca
Sdn Bhd. Ace and Bee agreed to sell all their shares in Kaca Sdn Bhd to Axim Sdn Bhd for a
total price of RM2 million.

Ace has an allowable loss of RM50,000. All the companies close its accounts on 31
December each year.

Required:

a. With respect to the transfer of the house on 21 September 2017 to Kaca Sdn Bhd,
determine the followings:

i. Real Property Gains Tax (if any) payable by Ace

ii. Changes in tax implications (if any) if Kaca Sdn Bhd is owned by Ace and his
friends (no computation is required)
(6 marks)
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b. Compute the Real Property Gains Tax (if any) payable on the:

i. Sale of shares by Ace in Kaca Sdn Bhd to Bee on 26 November 2017.

ii. Sale of a house by Kaca Sdn Bhd to Palmca Sdn Bhd on 15 August 2018.
iii. Sale of shares by Ace in Kaca Sdn Bhd to Axim Sdn Bhd on 20 December
2018.
iv. Sale of shares by Bee in Kaca Sdn Bhd to Axim Sdn Bhd on 20 December
2018.
(14 marks)

c. Explain briefly the treatment of shares acquired in Real Property Company according
to Section 34A (1) of the RPGT Act.
(3 marks)
(Total: 23 marks)

QUESTION 4

A. MingThye Sdn Bhd (MTSB) is a manufacturing company produces metal mould.

Recently, MTSB was awarded a contract to produce a new product mould. The
product requires a special system integration and configuration software. Thus,
MTSB appointed Schimdt Ltd, a company in Germany, to develop the software. The
software development was held in Germany. The overall cost of developing the
system was RM1.2 million of which RM300,000 was for the technical advice for the
software development. The payment was made to Schmidt Ltd on 16 March 2018.

The new system requires a high-end computer specifications. MTSB incurred a cost
of RM850,000 to acquire the asset from Schimdt Ltd. MTSB took up a bank loan from
Union Bank in Singapore to finance the acquisition of the assets. The interest
charged by Union Bank of RM25,000 was paid by MTSB on 26 December 2018.

Apart from that, Schimdt Ltd has to provide on-site support to install and configure
the software. A consultant from Germany, Mr Brumen came to Malaysia to provide
the installation and training to the employees of MTSB. The installation fee of
RM900,000 and the training fees of RM800,000 were paid on 13 June 2018 and 31
August 2018 respectively.

Required:

a. With respect to the above payment, discuss the withholding tax implications
on such payments. Support your arguments with reasons, relevant section of
Income Tax Act 1967, amount of withholding tax to be paid and the due date
to remit the tax to the Inland Revenue Board (IRB) (if applicable).
(8 marks)

b. Regardless of your answer in (a) above, discuss the withholding tax

implications should the payment of withholding tax in respect of interest
charged by Union Bank was paid to Inland Revenue Board (IRB) on 15
February 2019.
(3 marks)

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B. According to the tax audit framework, a tax audit is an examination of a taxpayers’

business records and financial affairs to ascertain the right amount of income should
be declared and the right amount of tax should be calculated and paid are in
accordance with tax laws and regulations.

Required:

Explain briefly the audit time frame to be carried out by the tax authority officer as
outlined in the Tax Audit Framework 2018.
(5 marks)
(Total: 16 marks)

QUESTION 5

A. Nami Sdn Bhd (NSB) is a manufacturing company involves in the production of

leather products at their factory in Senai, Johor. For the last eleven months (October
2017 to August 2018), the company’s turnover was RM420,000 and the turnover had
increased currently by 30% by end of September 2018. In November 2018, NSB sold
their goods as follows:

a. RM30,000 value of goods to NAZZ Shop at Dataran Pahlawan, Melaka.

b. RM85,000 value of goods exported to Hanoi, Vietnam.
c. A total of RM50,000 value of goods to Chenang Mall, Langkawi.

In complying with the requirements of the Sales Tax Act 2018, NSB seeks your
advice on matters related to their business activities.

Required:

Explain briefly the followings:

i. Status of NSB as a taxable person under Sales Tax Act 2018.

ii. The sales tax implications on the sale of goods by NSB in November 2018.
iii. The taxable period and the submission of sales tax (if any) to the Royal
Custom Department (RMCD).
(8 marks)

B. Mentari Sdn Bhd (MSB) is a company providing consultancy services to its client
under the Service Tax Act 2018. In providing consultancy services to its client, Puan
Amira, MSB sought legal advice from Wazir & Co, a legal firm. On 1 October 2018,
the legal firm issued an invoice amounting to RM2,500 (inclusive of service tax) for
the legal advice given. Subsequently, on 20 October 2018, MSB charged Puan Amira
for the consultancy fees amounting to RM6,200 and additional cost of RM230 for the
printing and documentations.

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Required:

In complying with the requirements of the Service Tax Act 2018:

i. Determine the amount to be stated in the invoice issued by Mentari Sdn Bhd
to its client, Puan Amira indicating all charges (including the service tax, if
any).

ii. Assuming that the service tax calculated in (i) above was paid to the Royal
Malaysian Custom Department on 10 February 2019, calculate the debt due
to the government. (show your workings).
(4 marks)
(Total: 12 marks)

END OF QUESTION PAPER

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