TUTORIAL 3 SAMPLE EXAM QUESTION

A. 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 new out-door theme park. FSB is eligible
to apply for Pioneer Status or Investment Tax Allowance incentives for the construction
of the 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 the forecasted financial information pertaining to the new theme park
project of FSB for the years ended 31 October:

2021 2022 2023

Promoted business: RM’000 RM’000 RM’000
Adjusted income/(loss) (1,245) 2,040 2,350
Balancing charge 40 - -
Capital allowances for the year 1,080 650 650
Interest income 10 15 25
Approved donations to state government 8 18 15

The company is expected to incur the following expenditures for the new out-door
theme park project to be embarked in 2021:

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

Required:

a. Calculate the company’s chargeable income and the amount to be credited to the
exempt income account for the year of assessment 2021 to 2023 under the
following tax incentives:

i. Pioneer Status
ii. Investment Tax Allowance
(18 marks)

b. Select the more efficient tax incentive for Forest Sdn Bhd.
(2 marks)

B. Jati Agriculture Sdn Bhd is eligible for Reinvestment Allowance under Schedule 7A of
ITA 1967.

Required:
Discuss the eligibility criteria that has to be satisfied by Jati Agriculture Sdn Bhd to claim
for reinvestment allowance.
(4 marks)
END OF QUESTION
 TUTORIAL 3 SAMPLE EXAM QUESTION

a. Forest SB (FYE 31/10)

i. Pioneer Status
2021 2021 2022
RM’000 RM’000 RM’000
Promoted Business (PB)
Adjusted Business Income/(Loss) Nil 2,040 2,350
(cy 1,245)
Add: Balancing Charge 40√ - -
Less: Capital Allowance
CA b/f - (1,040) -
CA current year (40) (650) (650)
(c/f 1,040)
STATUTORY BUSINESS INCOME Nil 350 1,700
Less: PS exemption @ 70% SBI Nil 245 1,190
Deemed Total Income @ 30% SBI Nil 105 510

Other Income:
Interest income 10 15 25
AGGREGATE INCOME 10 15 25
Less: Approved donation to state
government (no restriction) (8) (15) (15)
TOTAL INCOME 2 Nil 10
Add: Deemed Total Income @ 30% SBI Nil 105 510
CHARGEABLE INCOME 2 105 520

Exempt Income Account (EIA)

2021 2021 2022
RM’000 RM’000 RM’000
PS exemption @ 70% SBI Nil 245 1,190
Less: CY business loss (Non-Pioneer) - - -
Less: Unabsorbed business loss (Pioneer) Nil (245) (1,000)
(c/f 1,000)
Amount credited to EIA Nil Nil 190
 TUTORIAL 3 SAMPLE EXAM QUESTION

ii. Investment Tax Allowance

2021 2021 2022
RM’000 RM’000 RM’000
SBI (promoted business) Nil 350 1,700
Less: ITA Utilised (refer ITA working) Nil (245) (1,190)
SBI after exemption (promoted business) Nil 105 510
Less: Unabsorbed business loss (NPB) - - -
Less: Unabsorbed business loss (PB) Nil (105) (510)
(c/f 1,140) (c/f 630)
Nil Nil Nil
Add: Other income
Interest income 10 15 25
AGGREGATE INCOME 10 15 25
Less: Current Year
Less: Current Year
Less: Approved donation to state
government (no restriction) (8) (15) (15)
TOTAL INCOME / CHARGEABLE Nil Nil 10
INCOME

ITA Working:
Qualifying capital expenditure:
Construction of road & other infrastructures 1,800
Provision of buildings & structural 850
improvement
Amusement plant & machinery 1,500
Planting of trees & plants 780
Total QCE 4,930

ITA b/f Nil 2,958 2,713

Add: CY ITA : 60% QCE 2,958 Nil Nil
Total ITA Available 2,958 2,958 2,713
Less: ITA Utilised and credited to EIA Nil (245) (1,190)
(restricted to 70% SBI)
ITA c/f 2,958 2,713 1,523

70% SBI Nil 245 1,190

b. The more efficient tax incentive that FSB Sdn Bhd should select is Investment Tax
Allowance because:
i. ITA provides lower Chargeable Income (RM12,000) than the Chargeable Income
of PS (RM627,000). This would reduce the income tax liability of FSB Sdn Bhd.

ii. ITA provides higher tax-exempt income account (RM1,435,000) than the tax-
exempt income of PS (RM190,000). This would increase the exempt dividend
available to the shareholders under ITA.

iii. ITA has unabsorbed business losses to be carried forward to future years of
RM630,000 compared to none under PS. This unabsorbed business loss can
help to reduce future Chargeable Income of FSB Sdn Bhd.
 TUTORIAL 3 SAMPLE EXAM QUESTION

QUESTION 2B

Jati Agriculture Sdn Bhd should satisfy the following conditions to be eligible to claim for
Reinvestment Allowance:

1. The company is a resident company in Malaysia

2. The company has been in operation for not less than 36 months
3. The company has incurred in the basis period for a YA capital expenditure on a factory,
plant or machinery used in Malaysia for the purpose of a qualifying project as per
paragraph 8 (a) [expansion, modernization, automation or diversification of existing
business within the same industry] and/or as per paragraph 8(c) [expansion,
modernization or diversification its cultivation and farming business excluding rearing
chicken and ducks]
4. The company does not enjoy any other tax incentive to be eligible for reinvestment
allowance tax incentive.

END OF SOLUTION