CONFIDENTIAL 1 AC/FEB 2023/TAX517

UNIVERSITI TEKNOLOGI MARA

FINAL EXAMINATION

COURSE : TAXATION 2
COURSE CODE : TAX517
EXAMINATION : FEBRUARY 2023
TIME : 3 HOURS

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of two (2) parts: PART A (15 Questions)
PART B (3 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) an Answer Booklet – provided by the Faculty
iii) a two-page Appendix 1

5. Answer ALL questions in English.

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

This examination paper consists of 15 printed pages
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CONFIDENTIAL 2 AC/FEB 2023/TAX517

PART A – Multiple Choice Questions

1. JJ Electrical Sdn Bhd (JESB), a Malaysian tax resident company submitted its
estimated tax payable for the year of assessment 2022 amounted to RM150,000. The
first monthly installment is due on 15 August 2021.

Identify the amount to be paid (including penalty) to the Inland Revenue Board (IRB) if
JESB fails to pay the first monthly installment on the stipulated due date.

A. RM12,500
B. RM16,500
C. RM15,000
D. RM13,750
(2 marks)

2. EzyTech System Sdn Bhd (ETSSB) is a custom software development company in

Kuala Lumpur. ETSSB closes its account on 31 December every year. During the
year 2022, the company’s sales turnover has increased significantly. However, the
estimated tax payable was not revised in 6th and 9th month.The following information
were provided for the year ending December 2022.

RM
Actual Income Tax Payable 56,000
Original estimates 32,000

Identify the possible income tax penalty arising from not revising the estimates.

A. RM24,000
B. RM16,800
C. RM720
D. RM7,200
(2 marks)

3. Merlin Tour Sdn Bhd (MTSB) is a well-established travel agency that has been
rendering services for local and international destinations. Being in the tourism
business, the company enjoys the investment tax allowance (ITA) incentive. From the
followings, determine in which situation MTSB’s ITA is credited to an exempt income
account:

A. When the ITA amount exceeds the 70% of the statutory income.
B. When the ITA amount is less than the 70% of the statutory income.
C. When the ITA is equivalent to total amount of chargeable income.
D. When the unabsorbed ITA is in excess of the 70% statutory income.
(2 marks)

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The following scenario relates to question 4 and 5

Matrix Sofa Sdn Bhd (MSSB) is a registered manufacturer of taxable goods, prepares its
account to 30 April annually. The company carries on leather sofa manufacturing business
for domestic and international market. In the month of September 2022, the company sold
40% of its product to retailers in Langkawi, Kedah, whilst 60% to retailers in Shah Alam,
Selangor. The total sales value was RM160,000.

Sales tax rate: 10%

4. Calculate the sales tax payable to the Royal Malaysian Customs (RMC) by MSSB for
the transaction in September 2022.

A. RM10,000
B. RM16,000
C. RM9,600
D. RM6,400
(2 marks)

5. Determine the rate of penalty, assuming MSSB paid sales tax on the 15th day after the
due date.

A. 15%
B. 10%
C. 25%
D. 40%
(2 marks)

6. Light Crystal Sdn Bhd (LCSB) is a registered manufacturer of taxable goods,

producing LED lighting products. The following transactions took place during the year
2022:

3 March 2022 Sales of 1000 LED downlights to a company in Johor for

RM20,000
10 June 2022 Sponsored 200 LED bulbs for 2 tahfiz schools in Melaka
(market price for the LED bulb is RM10 per unit)
17 September 2022 Sold 5 units of decorative LED lights to a hotel in Pulau
Tioman amounted to RM2,500
25 October 2022 Export 500 units of LED floodlights to a company in Korea
amounted to RM27,500

Describe the CORRECT tax treatment on the taxable goods transacted by LCSB
during the year 2022.

A. All taxable goods transacted by LCSB during the year 2022 would be subjected
to sales tax of 10%.
B. Only transaction made by LCSB on 3 March 2022 and 10 June 2022 would be
subjected to sales tax of 10%.

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C. All taxable goods transacted by LCSB except the sponsor made to tahfiz school
would be subjected to sales tax of 10%.
D. Only transaction made by LCSB on 3 March 2022 would be subjected to sales
tax of 10% as it is within the scope of sales tax in Malaysia.
(2 marks)

7. NMA & Co (NMA), a taxable person for service tax, provided auditing services to ASC
Sdn Bhd (ASC) valued at RM7,250 in June 2022. NMA incurred travelling expenses of
RM1,250 as part of the auditing work and the amount was charged as reimbursement
to ASC. NMA also incurred disbursement of statutory costs amounted to RM200 on
behalf of ASC while providing the services.

Identify the CORRECT invoice amount NMA & Co should issue to ASC Sdn Bhd.

A. RM9,135
B. RM9,210
C. RM9,222
D. RM8,700
(2 marks)

8. Determine the true statement from the followings with regard to Special Area (SA) which
will be subject to Service Tax Act 2018.

i. A registered company in the Special Area provides consulting services to a company

located in Alor Star, Kedah.
ii. A registered company in Johor Bahru, Johor provides accounting services to a
company located in the Special Area in Johor.
iii. Semangat Manpower Enterprise supplies employees to Coffeeman Sdn. Bhd of
which both companies are in Special Areas.
iv. A registered company in Special Area provides engineering services to a company in
Pasir Tumboh, Kelantan.

A. i, ii & iii
B. i, ii & iv
C. i, iii & iv
D. ii,iii & iv

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9. Salam Holding Sdn Bhd (Salam) is a taxable person under the Service Tax Act 2018.
During the year 2022, the company provides professional services to the followings:

RM
Salam’s subsidiaries, Serai Sdn Bhd and Serama Sdn Bhd 250,000
External customer, Pandan Sdn Bhd (Pandan) 10,000

Discuss the service tax implication for the provision of professional services to the
above customers by Salam Holding Sdn Bhd.

A. No service tax shall apply to the service provided to external customer, Pandan
since it does not exceed 5% of total taxable services provided.
B. No service tax shall apply to the service provided to both of Salam’s subsidiaries
since the same service provided to external customer does not exceed 5% of
total taxable services provided.
C. The entire services provided to Salam’s subsidiaries and external customer shall
be subject to 6% service tax.
D. No service tax applies to the entire services provided to Salam’s subsidiaries and
external customer since the value of services provided to Pandan is less than
5% of the total services in year of assessment 2022 .
(2 marks)

The following scenario relates to question 10 and 11.

In 2022, Naning Sdn Bhd (Naning), a tax resident company in Malaysia entered into a
contract with Sugih Co Ltd (Sugih), a non-resident contractor to develop two projects, in
Malaysia and Indonesia.

The following payments were made to Sugih:

A digital mall at 20 June 2022 • Initial payment of RM10 million as part of

Kluang, Johor the contract value.

• RM16,000 was paid for the technical

advices (performed in Indonesia) related
to the structural design of building.

• RM40,000 was paid to Sugih’s engineers,

who came to Malaysia and provide
training to the staff of the project.

Condominium 20 June 2022 • Contract payment of RM8 million.

project at Dumai,
Indonesia

Bank of Indonesia 30 Nov 2022 • Naning paid RM45,000 and RM20,000

respectively for the interest on loan to
partly finance the projects held in Kluang,
Johor and Dumai, Indonesia

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10. Compute the amount of withholding tax (if any) for the payment made by Naning Sdn
Bhd to Sugih Co Ltd on 20 June 2022.

A. RM1,004,000
B. RM1,304,000
C. RM1,305,600
D. RM1,005,600
(2 marks)

11. Identify the tax implication, assuming the payment of withholding tax was not made to
Inland Revenue Board (IRB) for the interest paid to Bank of Indonesia.

A. An amount of RM9,750 is a debt due to government and RM45,000 interest is

disallowable expenses
B. An amount of RM6,750 is a debt due to government and RM45,000 interest is
disallowable expenses
C. An amount of RM10,725 is a debt due to the government and RM65,000 interest
is disallowable expenses
D. An amount of RM7,425 is a debt due to the government and RM45,000 interest
is disallowable expenses
(2 marks)

12. On 23 March 2022, Halford Sdn Bhd (HSB) made a royalty payment to a non-resident
company in China under a licensing agreement.

Determine the withholding tax rate applicable on the royalty payment.

A. Withholding tax is not applicable on the above payment to the non-resident.

B. Withholding tax rate of 10%.
C. Withholding tax rate of 20%.
D. Withholding tax rate of 15%.
(2 marks)

13. Amanda Sdn Bhd (ASB), a tax resident company in Malaysia signed a contract with
Queen Ltd (tax resident in Korea) to construct a new building in Kulai, Johor. During
the year ended 31 December 2022, ASB paid RM1,200,000 to Queen Ltd for work
carried out for the construction of the building (service portion).

Compute the amount of debt due to government by ASB if the payment of withholding
tax was made after the due date.

A. RM156,000
B. RM120,000
C. RM15,600
D. RM171,600
(2 marks)

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14. Alam Maya Sdn Bhd (AMSB) made a payment of RM30,000 on 14 August 2022 as
sales commission for introducing a customer in Japan to Nalita Ltd, a non-resident
company. Nalita Ltd’s main business activity is manufacturing IT software.

Compute the withholding tax applicable on the sales commission payment of

RM30,000 to Nalita Ltd.

A. RM1,500
B. RM3,000
C. RM2,300
D. RM1,700
(2 marks)

15. Celvi Ltd is a manufacturer of printing equipment in Vietnam. The company is

planning to penetrate the Malaysian market and is considering to incorporate a
subsidiary company in Malaysia to promote and sell the printer in Malaysia

Analyse the correct statements which describe permanent establishment f rom the
above scenario:

A. Permanent establishment does exist because subsidiary company is an

independent legal entity from Celvi Ltd
B. Permanent establishment does exist because a subsidiary company in
Malaysia may maintain a warehouse to keep the stocks.
C. Permanent establishment does not exist because a subsidiary company may
have staff in Malaysia.
D. Permanent establishment does not exist because subsidiary company is an
independent legal entity from Celvi Ltd

(2 marks)
(Total: 30 marks)

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PART B – Structured Question 1

D-Steel Manufacturing Sdn Bhd (year end 31 March annually), is a tax resident company,
with a paid-up capital of RM2.8 million involves in manufacturing and trading of stainless
steel products. The main suppliers of the raw materials are from China. The following is the
statement of profit or loss of the company for the financial year ended 31 March 2022:

D-Steel Manufacturing Sdn Bhd

Statement of Profit of Loss for the year ended 31 March 2022

Notes RM RM
Sales 8,210,500
Cost of sales 1 (4,210,200)
Gross profit 4,000,300
Other income 2 1,050,000
5,050,300
Expenses:
Remuneration 3 597,200
Repairs and maintenance 4 192,000
Professional charges 5 108,690
Entertainment expenses 6 391,950
Depreciation 20,800
Interest charges 7 90,000
Lease payment 8 36,000
Donation 9 181,700
Advertising and promotion 10 183,200
Insurance premiums 11 64,000 (1,865,540)
Net profit before tax 3,184,760

Notes:

1. The cost of sales include:

RM
Provision for warranty claims 142,500
Compensation for termination of contract to one of the agent in China
due to poor service 68,200

2. Other income include:

RM
Insurance recovery in respect of goods stolen while in transit 32,200
Interest received from trade receivables on overdue accounts 29,750
Dividend received from an investment in a local company (single-tier) 19,400
Rental income of a leased factory building 85,000

3. Remuneration comprise of:

RM
Directors’ fees, employee salaries and bonuses 450,000
Salary of ex-convict (hired on 1 October 2021 on full-time basis) 21,000
Contribution to Employee Provident Fund (EPF) 94,200
Contribution to an unapproved pension scheme 32,000
597,200

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4. Repairs and maintenance comprise of:

RM
Widening of the drains around the factory area 152,000
Repairs of plant and machinery 13,000
Major wiring maintenance of the whole factory building 27,000
192,000

5. Professional charges comprise of :

RM
Valuation of land and building 54,240
Secretarial and tax filing fees 12,000
Accounting charges for preparing company’s financial report 5,050
Legal fees for obtaining a new loan facility 9,800
Professional fees paid for advice on future listing of the company’ 27,600
shares
108,690

6. Entertainment expenses comprise of:

RM
Entertainment to suppliers 10,900
Gift to customers for purchases above RM300 2,350
Sponsorship of foreign cultural show approved by Ministry of Tourism,
Arts and Culture 348,500
Contribution to community project on maintaining heritage buildings in
Melaka 30,200
391,950

7. Interest charges comprise of:

RM
Interest on a loan taken for an equity investment in local company 35,000
Interest paid on a loan for working capital 55,000
90,000

8. The company leased a new motor car commencing from September 2019 (cost
RM210,000) for its managing director. The lease charges during the year was
RM36,000.

9. Donations comprise of:

RM
Cash gift to an approved charitable institution 18,000
Provision of school library facilities to a public school in Singapore 143,600
Child care allowance for employees 20,100
181,700

10. Advertising and promotion comprise of:

RM
Advertising on Malaysian brand name 52,000
Trade advertisements in the local print media 18,000
Gift to customers (without logo) during cultural show held in Putrajaya 27,200
Sponsoring golf tournament in Shah Alam (open to the public) 86,000
183,200

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11. Insurance premiums comprise of:

RM
Insurance premium for risk of loss of income of the company’s key
personnel 44,000
Insurance premium paid for a whole life policy to insure the life of the
marketing manager 20,000
64,000

Additional information:

Capital allowances for the year of assessment 2022 was RM223,700 while unabsorbed
business loss from previous year was RM18,300.

Required:

a. Compute the income tax payable by D-Steel Manufacturing Sdn Bhd for the year of
assessment 2022. Every item in the notes to the account must be shown in your
computation. Write ‘NIL’ where no adjustment is necessary.
(22 marks)

b. Explain with reason(s) for your treatment of the following items as in part (a):

i. Note 4: Widening of the drains around the factory area.

ii. Note 6: Sponsorship of foreign cultural show approved by Ministry of Tourism,

Arts and Culture.

iii. Note 9: Child care allowance for employees.

(4 marks)
(Total: 26 marks)

PART B – Structured Question 2

Miracle Sdn Bhd (MSB) is a Malaysian tax resident company based in Rawang, Selangor
and was incorporated in December 2020. MSB involves in manufacturing latex surgical
gloves, a promoted product, which has been granted pioneer status tax incentive effective
from 1 December 2021. The company closes its financial accounts on 31 May annually.

The current and forecasted adjusted income/(loss), capital allowances and capital
expenditures incurred by MSB on its promoted product for the financial years ended 31 May
are as follows:

Financial year ended 31 May 2022 2023 2024

RM’000 RM’000 RM’000
Latex surgical gloves
Net Profit/(loss) before taxation (Note 1) 1,900 4,600 8,620
Capital allowances 1,100 1,950 1,600

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Note 1:
The net profit/(loss) before taxation is derived after crediting the following income:
Dividend income (single-tier) 980 1,800 2,200
Interest income 1,000 1,500 2,000

Capital expenditure:
Land 250
Buildings (Note 2) 1,050
Plant and machinery 425 530
Office equipment 55 100
Motor vehicles 185

Note 2: Capital expenditure incurred on buildings includes RM320,000 house for the
Managing Director and the balance was for factory buildings

Required:

A. With respect to the above information on the business of Miracle Sdn Bhd, determine
the followings:

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

account for the years of assessment 2022, 2023 and 2024.
(12 marks)

ii. The amount of Investment Tax Allowance that could be utilised for the years of
assessment 2022, 2023 and 2024 if the company decided to apply for the said
tax incentive instead of Pioneer Status incentive.
(5 marks)

B. Assuming Miracle Sdn Bhd continues with its current tax incentive, i.e. Pioneer Status,
determine the basis period for the followings up to the years of assessment 2027:

i. Pre-pioneer period
ii. Pioneer period
iii. Post-pioneer period
(4 marks)
(Total: 21 marks)

PART B – Structured Question 3

Aremyn, his wife and two sons who are citizen of Australia, arrived in Malaysia on 10 May
2017. On 20 July 2017, Aremyn acquired a condominium for RM750,000, incurring a stamp
duty of RM30,000 and legal fees of RM18,000. Soon after the purchase, he bought new
furniture amounted to RM25,000.

In September 2019, Aremyn received an offer to sell the condominium to Danial, who paid
him a deposit of RM30,000. However, due to disaproval of loan facility, Danial later called
off the deal, thus forfeiting his deposit.

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On 10 April 2021, Aremyn gave the condominium as a wedding gift to his sons, Uwais. The
market value of the condominium at the date of transfer was RM810,000. Uwais incurred
RM32,000 to partly renovate the kitchen. Due to growing of family members, Uwais decided
to sell the condominium and purchase a landed house. On 15 June 2022, he signed a sale
and purchase agreement on the disposal of the condominium to his childhood friend, Azlan
for RM960,000. Uwais incurred agent’s brokerage fees for the sale was RM25,000.

Required:

A. Determine the real property gains tax implications (if any) on the above real property
transactions:

i. The transfer of the condominium from Aremyn to his son, Uwais on 10 April
2021.
(4 marks)

ii. The transfer of the condomiunium from Uwais to his childhood friend, Azlan on
15 June 2022.
(3 marks)

B. Reyfa Sdn Bhd (RSB), a company located in Machang, Kelantan commenced

business on 1 April 2020 with four shareholders, Safiyyah, Khadijah, Aminah, and
Rahimah. The following are the paid-up share capital of RM2.00 per share held by the
shareholders:

Shareholder Unit of shares

Safiyyah 200,000
Khadijah 100,000
Aminah 150,000
Rahimah 50,000

Reyfa Sdn Bhd acquired:

• Real property of RM550,000 on 1 June 2020 (at that date, the value of other
tangible assets in Reyfa Sdn Bhd was RM250,000).

• Real property of RM1,400,000 on 31 January 2021 (at that date, the market
value of the real property acquired on 1 June 2020 and other tangible assets in
Reyfa Sdn Bhd were RM820,000 and RM360,000 respectively).

On 1 July 2021, Rahimah transferred his own land to Reyfa Sdn Bhd for RM650,000
payable by cash of RM150,000 and the balance in shares of Reyfa Sdn Bhd of
RM2.00 each. The land was given by her father, Zahari as a gift on 24 December 2019
at a market value of RM500,000. Zahari bought the land on 2 April 2018 at a cost of
RM425,000 on which he incurred legal fees and stamp duty amounted to RM8,000. In
January 2019, Rahimah developed the land as an orchard at a cost of RM77,000.

On 10 May 2022, Rahimah sold 50,000 units of share that she acquired on 1 July 2021
in Reyfa Sdn Bhd to Henriksen Sdn Bhd for RM190,000.

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Required:

i. Determine when Reyfa Sdn Bhd became a real property company.

(3 marks)

ii. Compute the real property gains tax payable (if any) on the followings:

a. Rahimah on the transferred of his land on 1 July 2021.

(4 marks)
b. Rahimah on the disposal of his shares on 10 May 2022.
(6 marks)

C. Discuss two (2) transactions where the disposer is treated to have received no gain
and suffered no loss situations.
(3 marks)
(Total: 23 marks)

END OF QUESTION PAPER

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CONFIDENTIAL APPENDIX 1 (1) AC/FEB 2023/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
Next 1,000,000 28 280,000
On 2,000,000 517,650
Exceeding 2,000,000 30

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CONFIDENTIAL APPENDIX 1 (2) AC/FEB 2023/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 (effective from 1 January 2020 and onwards)

Companies Individuals Individuals (Non-

Incorporated (Citizen/PR) citizen/Non-PR)
in Malaysia or
Company Not
Incorporated in
Malaysia
(%) (%) (%)
Disposal within three years after 30 30 30
the date of acquisition
Disposal in the fourth year after 20 20 30
the date of acquisition
Disposal in the fifth year after the 15 15 30
date of acquisition
Disposal in the sixth year after the 10 0 10
date of acquisition and thereafter

Sales and service tax

Sales tax rate 5% / 10%
Service tax rate 6%

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