CONFIDENTIAL 2 MIAQE MARCH 2017

 The following tax rates are to be used in answering the questions.

Income tax rates

(a) Companies 24%

(b) Small companies

Chargeable income: On first RM500,000 19%
Subsequent Balance 24%

(c) Resident individuals

Income tax rate for resident individuals

(Chargeable income) Rate Cumulative tax
RM RM % RM
First 5,000 (0 -5,000) 0 0
Next 15,000 (5,001 – 20,000) 1 150
Next 15,000 (20,001 – 35,000) 5 900
Next 15,000 (35,001 – 50,000) 10 2,400
Next 20,000 (50,001 – 70,000) 16 5,600
Next 30,000 (70,001 – 100,000) 21 11,900
Next 150,000 (100,001 – 250,000) 24 47,900
Next 150,000 (250,001 – 400,000) 24.5 84,650
Exceeding 400,000 25

(d) Non-resident individuals 25%

 Benefits-in-kind (BIK) scale rates as per Inland Revenue Board (IRB) guidelines

Cost of car when new Annual Annual

prescribed prescribed
benefit of benefit of
motorcar petrol
RM RM RM
Up to 50,000 1,200 600
50,001 - 75,000 2,400 900
75,001 - 100,000 3,600 1,200
100,001 - 150,000 5,000 1,500
150,001 - 200,000 7,000 1,800
200,001 - 250,000 9,000 2,100
250,001 - 350,000 15,000 2,400
350,001 - 500,000 21,250 2,700
500,001 and above 25,000 3,000

The value of the car benefit equivalent to half of the above rates is taken if the car
provided is more than five years old.
CONFIDENTIAL 3 MIAQE MARCH 2017

 Prescribed value of household furnishings, apparatus and appliances

Category Type of Benefit Annual Prescribed

value of BIK
provided
RM
1 Semi-furnished with furniture in the lounge,
dining room or bedroom. 840
2 Semi-furnished with furniture as in Category 1
and one or two of the following:
 air-conditioners 1,680
 curtains and alike
 carpets
3 Fully furnished with benefits as in Category 1
and 2 plus one or more of kitchen equipment, 3,360
crockery, utensils and appliances.

Other benefits RM per month

Household servant 400

Gardener 300
Driver 600

 Rates of Capital Allowances

Motor Vehicles/ Plant & Computers Others Industrial

Heavy Machinery Machinery Building

Initial allowance 20% 20% 20% 20% 10%

Annual allowance 20% 14% 80% 10% 3%

 Real property gains tax

With effect from 01.01.2014 the tax rates that apply depending on the holding
period from the date of acquisition of the asset at follows:

Period of Disposal Company Individual Individual

(Citizens and (Non-Citizens)
Permanent Resident)
(%) (%) (%)
Within 3 years 30 30 30
In the 4th year 20 20 30
In year 5 15 15 30
In its 6th year onwards 5 0 5

 Goods and services tax (GST)

Standard rate 6%
Registration limit RM500,000
CONFIDENTIAL 4 MIAQE MARCH 2017

QUESTION 1 – PL Adjustment

Menara Manufacturing Sdn Bhd (‘the company’) is a Malaysian resident company that
manufactures motor vehicle seats using PVC materials, for many years. The company has a
paid up capital of RM5 million and eighty percent (80%) of these shares are held by
Malaysian citizens.

The company which closes the accounts to 31 December each year, has appended the
following results for the year ended 31 December 2016:

Menara Manufacturing Sdn Bhd

Income statement for the year ended 31 December 2016

Note RM’000 RM’000

Sales 522,900
Less: Cost of sales 285,000
Gross profit 237,900
Add: Other income
Dividend 1 45
Interest 2 40
Insurance recovery 3 45 130
238,030
Less: Expenses
Salaries and wages 4 1,560
Interest on loan 5 125
Entertainment 6 363
Depreciation 119
Repair and maintenance 7 368
Bad and doubtful debts 8 859
Motor vehicle expenses 9 70
Lease payments 10 320
Advertisement and publicity 11 866
Professional fees 12 167
Insurance 13 117
Foreign exchange loss 14 46
Donation 15 200 5,180
Profit before taxation 232,850

The company has provided the following notes to the accounts:

Notes to the accounts:

1. Dividend

The company received a single tier dividend of RM25,000 in October 2016 from a
local public listed company. A foreign dividend of RM20,000 was received from
investments in a company in Thailand, which was remitted to Malaysia on November
2016.
CONFIDENTIAL 5 MIAQE MARCH 2017

2. Interest

Customer who settled their payments late are charged an ‘administrative fee’ which
is essentially interest on the outstanding trading account. During the year, the
company collected RM40,000 from such customers.

3. Insurance recovery

The company received RM45,000 from an insurance company for raw materials
destroyed during a fire at the factory.

4. Salaries and wages – managing director

The remuneration package under ‘salaries and wages’ includes payments to the
company’s managing director as follows:

Particulars RM’000
a. Salary 384
b. EPF contribution 84
c. One free overseas trip 32
Total 500

The managing director holds 35 percent of the company’s shares.

5. Interest on loan

RM38,000 is interest on a loan taken for an investment in a company in Thailand

from which the company received dividend in the year 2016. Another RM87,000 was
interest paid for a loan taken last year from a local bank for working capital.

6. Entertainment

The company spent RM38,000 on its annual dinner to which the staff and their family
are invited. RM174,000 was disbursed to the marketing and sales staff on their
entertainment expenses incurred on existing customers of the company. RM151,000
was incurred for promoting a new line of PVC materials to various dealers during the
year.

7. Repair and maintenance

The company extended its showroom during the year (in line with the PVC
promotion) at a cost of RM273,000. The balance of RM95,000 refers to the
maintenance of the plant and machinery.

8. Bad and doubtful debts

During the year, the company wrote off trade debts totaling, RM165,000. A general
provision of RM400,000 for trade debtors, and a specific provision of RM208,000 for
loan debts was provided for in the accounts during the year.

RM30,000 advanced to a customer and RM56,000 advanced to an old time supplier

were written off during the year when they passed away during the year.
CONFIDENTIAL 6 MIAQE MARCH 2017

9. Motor vehicle expenses

RM20,000 relates to traffic offences by the company’s marketing staff. RM50,000

refers to the maintenance of the company’s motor vehicles used in the business.

10. Lease payments during the year

A saloon car for business use was leased for RM150,000 (a new car would cost
RM600,000). A fabricating machine was leased during the year for RM170,000 to
replace a faulty machine for three months.

11. Advertisement and publicity

RM620,000 was spent on advertising the company’s products in local dailies. Free
gifts to customers purchasing the company’s products during festive occasions
amounted to RM95,000.

The company holds a Malaysian patent for one of the product (registered under the
relevant laws). The patent was obtained through the acquisition of a proprietary rights
costing RM600,000, acquired two years ago.

RM151,000 was spent to promote one of the company’s own brand name in the
course of sponsoring an approved international motor event held in Malaysia (which
is registered under the relevant law).

12. Professional fees

During the year, the company had incurred various professional charges as follows:

Particulars of expenditure RM’000

a. Termination of a supply contract for raw materials 18
b. Guarantee fee for securing a bank loan 25
c. Legal fees for preparation of lease agreement 19
d. Supply contract with a new vendor 12
e. Secretarial fees 10
f. Income tax filing fees 18
g. GST appeal 15
h. Transfer price audit advice and trial run (Note 1) 50
Total 167

Note 1: The company was audited by the Inland Revenue Board (IRB) in 2013 and
the report for the record of transactions, including those with its overseas customers
and suppliers was less than satisfactory. As a result, the company had to pay
additional taxes and penalties. The company then obtained professional advice. On
tax matters and a mock transfer pricing audit trial run in May 2016.
CONFIDENTIAL 7 MIAQE MARCH 2017

13. Insurance

The company paid RM29,000 to a local insurance company as a premium for the
import of PVC materials and another RM38,000 for export of fabricated materials to
Thailand. RM50,000 was a premium for fire insurance to cover its trading stocks,
plant and machinery and business premises.

14. Foreign exchange loss

The realized loss of RM13,000 was on import of trading stock from Thailand and
another RM15,000 on import of machinery spare parts from India. An unrealised loss
of RM18,000 was incurred on the import of a fabricating machine in late December
2016.

15. Donation

The company made a cash donation of RM200,000 to the Selangor State

Government in October 2016.

16. Other information:

For the year of assessment 2016, the company is claiming capital allowance of
RM46,024,000 on its qualifying plant and machinery and other assets used in the
business.

Required:

Based on the information given, compute the chargeable income of Menara

Manufacturing Sdn Bhd for the year of assessment 2016.

Note:
Your computation should start with the profit before taxation figure and follow the
description used in the profit and loss account, and where applicable the description
used in the notes to the accounts. In making your tax adjustments to the entries, you
should indicate ‘Nil’ where no adjustments are made or are not required. You do not
need to explain the adjustments that you are making.
(20 marks)
CONFIDENTIAL 8 MIAQE MARCH 2017

QUESTION 2

A. Malik acquired a piece of land from Kassim for RM249,750. He signed the agreement
on 16 July 2013 and settled the payment from a bank loan on 30 September 2013.
The property was then transferred to his name on 23 November 2013. In acquiring
the land, Malik incurred stamp duty of RM3,885 and legal fees of RM2,089.

Upon acquisition, Malik spent RM34,410 on clearing, levelling and draining the land.
In April 2015, he received a partial compensation of RM44,173 for flood damages to
the land and the balance of the compensation of RM10,989 was received in
December 2015.

In October 2014, Malik was approached by a buyer to purchase the land who paid a
deposit of RM6,000 and proceeded to make an application for a bank loan. The
buyer however, was not successful in his application and as per the agreement,
Malik then forfeited the deposit of RM6,000. A dispute arose regarding the title to the
land (initiated by a contractor who owned the adjacent property) and Malik retained a
lawyer to successfully defend his right to the land. The legal fee was RM7,000.

Malik sold the land to Robert for RM322,000 and the sale and purchase agreement
was signed on 17.10.2016. The payment was settled on 16.11.2016. The title was
transferred to Robert on 17.12.2016.

In securing a buyer for the land, Malik had incurred the following expenditure:

 valuation fee RM4,995;

 advertisement RM888; and
 brokerage fee RM6,993

Malik had incurred an interest charge of RM46,653 on the bank loan he took to buy
the land.

Required:

In relation to the Real Property Gains Tax 1976, compute the chargeable gain arising
from the disposal of the land, after exemption under Schedule 4 of the said Act.

Note: Ignore any tax implications arising on account of the application of the Goods
and Services Tax Act 2014 (as amended) in your determination of the chargeable
gain.
(10 marks)
CONFIDENTIAL 9 MIAQE MARCH 2017

B. MGR Holdings Sdn Bhd (‘the company’) is a Malaysian incorporated resident

investment holding company with a paid up capital of RM5 million. It closes the
accounts to 31 December each year. Its income is derived mainly from investments.

The investments consists of fixed deposit in local financial institutions, shares in

companies listed on Bursa Malaysia and a retail lot in a shopping mall in Kuala
Lumpur. There is no support or maintenance services provided for this retail lot.

The company has produced the following result for the financial year ended 31
December 2016.

MGR Holdings Sdn Bhd

Year ended 31 December 2016

Gross income RM RM
Fixed deposit interest 80,000
Rent from a retail lot 65,000
Dividends (single tier)
Investment 1 21,840
Investment 2 95,000 116,840
Gains from realization of investment 100,000
Total gross income 361,840
Less: Expenses
Directors’ remuneration 64,223
Staff salary 38,534
Accounting and secretarial fees 12,847
Audit fees 25,688
Interest charges (loan for investments) 50,000
Printing and stationary 2,568
Management expenses 35,963
Office rent 64,114
Quit rent and assessment (retail lot) 2,568
Entertainment 3,852
Depreciation 6,000 306,357
Net profit 55,483
CONFIDENTIAL 10 MIAQE MARCH 2017

Single tier dividends were received from the investments made in two lots of shares
and rental income from the shop lot in the mall. The details of the investment are as
follows:

Cost of investment Cost

RM
Mall shop lot 850,000
Investment 1 - shares 1,500,000
Investment 2 - shares 950,000
Total 3,300,000

MGR Holdings Sdn Bhd took a substantial bank loans to make the investments in the
shop lot and the shares. Accordingly interest charges were incurred as charged in
the accounts.

Required:

With reference to the Income Tax Act 1967 (as amended), compute the income tax
payable by MGR Holdings Sdn Bhd for the year of assessment 2016. You must show
all the relevant workings.
(10 marks)
CONFIDENTIAL 11 MIAQE MARCH 2017

QUESTION 3

A. PDE Sdn Bhd (‘the company’) is a Malaysian incorporated resident company

providing legal and management services to companies in the oil and gas industry in
Malaysia. Its main strength is its team of expert staff, both local and foreign,
specializing in legal and management matters, particularly in cross border
transactions in oil exploration and related oil dealings. However, these staff being
very mobile has resulted in the company being plagued with high staff turnover. It
was decided at a recent Board of Director’s meeting that a plan to be implemented as
an incentive to retain these staff in the company. Accordingly, in early 2016, the
company set up an incentive benefit plan (‘the plan’) for its employees with an initial
contribution of RM30 million.

Under the plan, employees will be entitled to receive, and the company is under an
obligation to pay, an attractive sum of money if they retire from the company only
after serving at least 10 years. However, the employee would receive no payment if
he or she is found guilty of any criminal offence or misconduct or terminated from the
employment for any determined cause.

Notwithstanding this, the company can still make payment to such an employee (i.e.
those found to be guilty of an offence or misconduct) at its sole discretion. For the
financial year ended 31 December 2016 the company made a provision of RM2
million being accrued vesting benefits due and payable to the staff and claimed a
deduction for this sum in the profit and loss account.

Required:

With reference to the Income Tax Act 1967 (as amended), discuss whether the claim
of RM2 million by PDE Sdn Bhd would be deductible in arriving at the adjusted
income from its business for the year of assessment 2016.

Note: Candidates are encouraged to quote the relevant provisions of the law and
case laws where appropriate.
(5 marks)

B. KJM Sdn Bhd is a Malaysian incorporated resident company engaged in the

business of timber logging. In 2015 the company entered into an agreement with a
State Government for the extraction of timber from a forest in the northern State.

Under the agreement worth RM80 million, the company would be granted a license
to cut, extract and remove timber logs from the designated concession area for a
period of ten years. The agreement included an upfront payment of RM20 million
payable to the State Government immediately upon signing of the agreement; and
the balance of the RM60 million is to be paid in equal monthly installment over the
period of ten years for the removal of specific tonnage of timber. Should the company
fail to remove the stipulated tonnage of timber at the end of said period, the State
Government will not refund any portion of the consideration paid.
CONFIDENTIAL 12 MIAQE MARCH 2017

Required:

Based on the information provided, discuss whether KJM Sdn Bhd could claim the
amount of RM80 million paid to the State Government as an expense deductible in
arriving at the adjusted business income under the Income Tax Act 1967 (as
amended). You are encouraged to quote relevant case laws to support your
discussion.
(5 marks)
(Total: 10 marks)

QUESTION 4

A. Randall, who is married to Ashmita, (both are resident in Malaysia) are blessed with
two children, Sharon and Bishop. Sharon, aged 22 is married and is studying at
University Malaya. Bishop, aged 16, is studying at Sekolah Sukan Bukit Jalil.
Previously, Randall worked as a senior manager for MEGA Sdn Bhd (MEGA) for 12
years, then resigned from his job on 30 September 2016.

Details of Randall’s employment income for YA 2016 are as follows:

a. A monthly net salary of RM30,000 after deducting monthly tax deductions of

RM1,000.

b. A bonus equal to one month’s gross salary.

c. Randall contributed 11% of his monthly salary towards the employees’

provident fund (EPF).

d. Reimbursement received from MEGA for:

i. Taxi fares for business trips to clients and suppliers totalling RM4,600
for the year

ii. Medical expenses claims for the year totalling RM1,200

e. A watch costing RM10,000 being awarded to him for being MEGA’s service
excellence award.

f. A fully furnished accommodation for which MEGA paid a monthly rental of

RM5,500, including RM500 for furnishings. Randall was required to pay
MEGA RM450 per month towards the cost of this accommodation.

g. Randall is required to entertain company clients and is provided with a

corporate membership at a local golf club for this purpose. The total entrance
fee and monthly subscription paid by MEGA on Randall’s behalf in 2016 were
RM6,000 and RM400 respectively.

h. An overseas leave passage costing RM4,200 and the hotel and related
expenditure for Randall’s family amounting to RM4,580.
CONFIDENTIAL 13 MIAQE MARCH 2017

i. In 2016, Randall also received interest income of RM1,500 from fixed deposit
account in Public Bank. In addition, he also received dividend (single tier) of
RM5,800 from Sitcon Bhd. Randall obtained a bank loan to invest in Sitcon
Bhd for which he paid RM300 per month, of which RM280 represents
principle payment. The instalment commenced in February 2016

Ashmita owns two businesses which reported the following income for the year
ended 31 December 2016:

a. Business in Ampang:
RM
Adjusted income 38,000
Capital allowance 14,000
Balancing charge 8,000

b. Business income from Vietnam was RM30,000 but only RM10,000 was
remitted to Malaysia in 2016.

c. Ashmita received a rental income of RM1,500 per month from an apartment

which was rented out to Ameer since June 2010. He vacated the house on 31
March 2016. On 1 July 2016, the apartment was rented out to Leela at
RM1,600 per month. Expenses incurred on the apartment in 2016 are as
follows:

RM
Fire insurance 110 per month
Interest on loan 150 per month
Installation of kitchen cabinet 6,300
Repairs of broken windows 500
Quit rent 350 per year

Additional information:

During the year 2016, Randall incurred the following expenses:

 RM600 for complete medical examination for himself.

 RM500 to purchase a wheel chair for his handicapped brother.
 Life insurance policies on his life and his son’s life, Bishop, at a monthly
premium of RM150 and RM200 respectively.

Ashmita bought her first set of computer for RM3,800 and Randall bought sports
equipment worth RM450 for their family use in 2016. Randall and Ashmita donated
cash to an approved institution of RM2,000 and RM3,000 respectively. In addition,
Randall and Ashmita also donated hamper to an old folks home (an approved
institution) in Seremban worth of RM300 and RM500 respectively.

Required:

Determine the income tax payable by Randall and Ashmita for the year of
assessment 2016.
(20 marks)
CONFIDENTIAL 14 MIAQE MARCH 2017

QUESTION 5

A. Salima, Farhani and Alisya are equal partners in their business firm as suppliers of
various magazines to the bookshops located in the Klang Valley. Their partnership
business was incorporated in 2007. The terms of the agreement until September
2016 are as follows:

Salima Farhani Alisya

RM RM RM
Capital contribution 210,000 180,000 150,000
Salary per annum 90,000 75,000 60,000
Interest on capital per annum 7% 7% 7%
Partners’ private expenses 11,000 10,000 8,450

On 30 September 2016, Farhani opted for retirement and the interest on capital for
Salima and Alisya has been changed to 8% per year and the profit and and loss is
shared equally between them, the other terms remain the same.

The provisional adjusted income for the year ending 31 December 2016 was
RM480,000. The capital allowance on the plant and machinery was RM8,000. The
business made a cash donation of RM9,000 to an approved institution on 31 May
2016.

Required:

Compute the total income of the partners for the year of assessment 2016.
(10 marks)

B. Tan Siew Eng, a sole proprietor of Tan Enterprise supplies hardware goods. Tan
Enterprise is registered for goods and services tax (GST). Tan Enterprise recorded
the following sales for November 2016:
RM
Supplied hardwood to Beng Ho Sdn Bhd, a GST registered business 15,000
Supplied hardwood to Mail, a non-GST registrant 2,000
Supplied scrap stocks to Simon & Co, a non-GST registrant 6,000

All the amounts stated above are exclusive of any GST which may be chargeable.
Tan Enterprise has not received permission to issue simplified tax invoices to its
customers and therefore, must issue full tax invoices. Tan Enterprise issued the
relevant invoices in respect of the above sales to Beng Ho Sdn Bhd, Mail and Simon
& Co on 3 December 2016.

On 12 November 2016, Tan Enterprise received a GST invoice dated 10 November

2016 from Alberto Sdn Bhd, a GST registered business, for the supply of tools and
hardware inventory (stock) for RM12,720 (including GST of RM720). Alberto Sdn
Bhd has given Tan Enterprise a credit period of three months to settle this invoice.
CONFIDENTIAL 15 MIAQE MARCH 2017

Required:

a. State whether GST output tax can be charged by Tan Enterprise on the
supplies made to Beng Ho Sdn Bhd, Azlan and Simon & Co and, if so,
compute the GST chargeable.
(4 marks)

b. State whether Tan Enterprise can claim GST input tax of RM720 on the
invoice received from Alberto Sdn Bhd, and if so, determine the GST return
for the claim.
(1 mark)
(Total: 15 marks)

QUESTION 6

A. Santan Pekat Bhd (Santan) is the holding company of Santan Pekat’s Group of
Companies, listed on Bursa Malaysia. Santan closes its accounts to 31 December
annually.

Santan’s wholly-owned subsidiary, Kerisik Sdn Bhd (Kerisik), has been operating a
chain of grocery shops since 2007. Kerisik recorded statutory income of RM6 million
and RM7 million respectively in 2015 and 2016. The company expects this profit
trend to continue in the future years.

Another wholly-owned subsidiary of Santan, Kelapa Muda Sdn Bhd (Kelapa) has
been in the past 30 months starting up a chain of cafes. Kelapa recorded losses in
both 2015 and 2016.

All three companies have a paid-up ordinary share capital of RM20 million, and none
of these companies, until now, enjoyed any tax incentives under the Malaysian tax
legislations.

Required:

With regard to the group relief provisions under the Income Tax Act 1967 (as
amended), explain whether Kerisik Sdn Bhd and Kelapa Muda Sdn Bhd qualify for
the group relief in the year of assessment 2016.
(4 marks)

B. Penaga Sdn Bhd (PSB) purchased a plant and machinery for RM4,500,000 from
Belagio Pte Ltd (BPL), a non-resident company for its factory in Penang on 1 April
2016. The agreement provides for non-resident employees of BPL to carry out the
installation of the plant and machinery and giving technical services to PSB , on site.

The fees charged by BPL for the installation and technical services were RM150,000
and RM750,000 respectively. The installation fees of RM150,000 was paid to BPL on
1 May 2016. The technical services were paid to BPL in two equal instalments, on 1
May 2016 and 1 June 2016. PSB remitted the withholding tax to the Inland Revenue
Board on 15 June 2016.
CONFIDENTIAL 16 MIAQE MARCH 2017

Required:

Compute the amount of withholding tax payable by PSB to the Inland Revenue Board
including the penalties (if any).
(6 marks)

C. Tropicana Sdn Bhd, a resident company is interested to set up factory in Melaka. The
company intends to manufacture promoted product which is eligible for the tax
incentives under the Promotion of Investment Act 1986.

The forecasted financial information for this venture is as follows:

Year of Assessment Qualifying Capital Expenditure Statutory Income

RM’000 RM’000
2017 1,200 Nil (refer note i)
2018 4,000 Nil (refer note i)
2019 - 5,300

Notes:

i. The forecasted adjusted losses for the year of assessment 2017 and 2018
are RM900,000 and RM200,000 respectively.
ii. Interest income of RM80,000 per annum from financial institutions in Malaysia
are to be receivable for the years of assessment 2017 until 2019.
iii. The company will contribute cash donation of RM30,000 to an approved
institutions in the year of assessment 2018.

Required:

a. For the year of assessment 2017, 2018 and 2019, compute the chargeable
income and the amount to be credited to the exempt income account
assuming that the company, Tropicana Sdn Bhd utilizes Pioneer Status tax
incentives.

(4 marks)

b. Assuming Tropicana Sdn Bhd is located in Kelantan instead of Melaka, what

is the effect on its chargeable income and the amount to be credited to the
Exempt Income Account.
(1 marks)
(Total: 15 marks)

END OF QUESTION PAPER