Corporate Taxation: Tax Computation

Practical Example (adopted from Choong, K.W., 2021)

PC Sdn. Bhd. (PCSB) was incorporated on 1st January 2020 with a paid-up share capital of RM2
million. It commenced its operations on 1st April 2020. It operates in the business of book
publishing and offering of career guidance and recruitment services. The total gross income
from all its business sources at the end of financial year 2020 was RM4.99 million. It makes up
its accounts to 31st December annually.

PCSB’s statement of profit and loss for the financial year 2021 is as follows:

Note RM’000 RM’000

Sales 14,000
Less: Cost of sales 1 (7,000)
Gross profit 7,000
Add: Other income
• Single-tier dividend income 500
• Share of profits from partnership with EFB 2 2,000
University College
• Other income 3 30
2,530
Less: Expenses
• Salaries and wages 4 5,832
• Entertainment expense 5 122
• Travelling expense 6 79
• Insurance expense 7 90
• Legal and professional fees 8 28
• Repair and maintenance expense 9 68
• Provision for receivables and irrecoverable debts 10 30
written off
• Pre-commencement expenses 11 20
• Foreign exchange loss 12 170
• Losses due to theft and embezzlement 13 50
• Statutory audit fee 43
• Donations 14 100
(6,632)
Profit before tax 2,898

Notes

1. Cost of sales included

Depreciation of plant and machinery RM1,400,000

Royalty fees RM1,800,000

1
 Royalty fees paid to Book Tech Inc. (BTI), a non-resident company, and the withholding tax
remitted to IRBM are as below. No penalties in respect of late payment were paid.

Date paid to BTI Date of remittance to IRBM Amount paid

30.06.2021 02.08.2021 RM200,000
30.09.2021 23.10.2021 RM1,600,000

2. PCSB has entered into an equal partnership agreement with EFB Education Services Sdn.
Bhd. to establish EFB University College, where PCSB provides AI engineering education
services for the local and international markets. All necessary approvals had been obtained.

In the financial year 2021, the partnership recorded a pretax profit of RM4 million, after
charging depreciation of RM10,000. Capital allowances for the partnership for YA2021
have been determined at RM100,000.

3. The other income arose from a keyman’s endowment policy in respect of its CEO.

4. Salaries and wages expenses include

Leave passage for managing director (local trip) RM20,000

Salaries and wages for directors RM2,000,000
EPF contributions for directors RM500,000
Staff training cost RM110,000

The staff training was delivered by a non-resident trainer and the costs include RM8,000
paid to a local hotel for the accommodation expenses incurred for the trainer’s one-week
stay. It was agreed that PCSB would bear the hotel accommodation expenses incurred by
the trainer. No withholding tax was deducted from the payment made to the hotel. The
staff training was not approved for any further deduction.

5. Entertainment expense include

Gifts without business logo for a client’s corporate lunch RM66,000

Entertainment provided to employees of related companies RM8,000
Promotional samples RM48,000

6. Travelling expense comprises of travelling and promotional expenses for four company
representatives to participate in a career and education fair in Berlin for ten days. The fair
was approved by the relevant authorities.

Economy air fares at RM5,000 each RM20,000

Hotel accommodation RM20,000
Meals and refreshments RM15,000
Promotional pamphlets and booth rental RM7,000

7. Insurance expense includes

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 Premium to cover risk of loss of income of the company’s key personnel RM60,000
Premium paid for a keyman whole life policy on the managing director
with the company being the beneficiary RM10,000

8. Legal and professional fees comprise of:

Cost of defending legal proceedings brought by a former manager

claiming unfair dismissal RM10,000
Tax fees for appealing against a penalty on a late tax instalment payment RM12,000
Company secretarial fees RM6,000

9. Repair and maintenance expenses include RM3,000 for the cost of installing wheelchair
ramp to provide access for disabled employees.

10. Provision for receivables and irrecoverable debts written-off include

General provision for trade receivables RM15,000

Specific provision for trade receivables RM15,000

11. The total pre-commencement expenses incurred during the period up to 31st March 2020
comprised of:

Salaries and EPF-related expenses RM30,000

Recruitment expenses RM30,000

PCSB amortised all the above expenses over a period of 3 financial years.

12. Foreign exchange loss comprises of

Foreign exchange loss realised on trade payables RM180,000

Foreign exchange gain realised on acquisition of machinery RM(10,000)

13. This figure incorporates embezzlement of RM20,000 in cash by one of PCSB’s directors. A
police report was lodged by PCSB but it was dismissed later.

14. PCSB contributed computers worth RM100,000 to the National Library of Malaysia to
improve the library’s facilities.

15. PCSB’s capital allowance for the year of assessment (YA) 2021 have been calculated at
RM2,000,000.

Required: Compute the income tax payable of PC Sdn. Bhd. (PCSB) for YA2021.