Answers

Applied Skills, TX – MYS December 2022 Answers

Taxation – Malaysia (TX – MYS) and Marking Scheme

Section A

1 Taxation is set with the aim of meeting revenue related objectives and not for any non-revenue related objectives.
Incorrectly states that the purpose of taxation is only to meet revenue related objectives such as government
employees’ salaries. Taxation can have non-revenue related objectives such as reducing the wealth gap between
the rich and poor by taxing the rich at higher tax rates than the poor. This statement is false.

2 RM510,000
The minimum tax estimate for the year of assessment (YA) 2022 must not be lower than 85% of the previous year
which is YA 2021. Hence, the tax estimate for YA 2022 is RM510,000 (RM600,000 x 85%).

3 1, 2 and 3
All the statements are true. The first statement is true as the Director General of the Inland Revenue (DGIR) can
make an assessment or additional assessment within five years after the end of the relevant year of assessment to
which the assessment relates. The second statement is true as the DGIR is also given the powers to request bank
statements and accounting records from a person, which the DGIR deems necessary. The third statement is true as
the Director of Immigration is given the authority to prevent any person from attempting to leave Malaysia when a
certificate to settle outstanding taxes has been issued to them.

4 Option 1
Taxable; Not taxable
The advertising services provided by Ad Sdn Bhd (ASB) are subject to service tax as they are taxable services. The
billboard rental provided by BB Sdn Bhd (BSB) does not fall within ‘advertising services’ and is not within the scope
of service tax.

5 Option 1
RM310,000; RM220,000
JSB WSB
RM RM
Disposal price 760,000 730,000
Less: Acquisition price (450,000) (510,000)
–––––––– ––––––––
Chargeable gain subject to real property gains tax (RPGT) 310,000 220,000
–––––––– ––––––––
Where there is a disposal by way of exchange for another asset, the market value of the asset received by the
disposer (asset sold by the acquirer) is taken as the consideration for the disposal. The chargeable gain for Juta Sdn
Bhd (JSB) is the disposal price at the market value of the asset acquired from W Sdn Bhd (WSB). The chargeable
gain for WSB is the disposal price at the market value of the asset acquired from JSB.

6 RM3,000
RM Claims
Life insurance premiums paid for policy X on 11 October 2022 1,000 1,000
Life insurance premiums pre-paid for policy X on 3 December 2022 1,000 1,000
Car insurance premiums paid on 21 May 2022 800 0
Life insurance premiums for policy Y paid on 25 February 2022 1,500 1,500
––––––
3,500
––––––
Maximum amount claimable 3,000
Halim can correctly claim the life insurance premiums of RM2,000 which were paid on policy X during the year
2022. Halim is also entitled to claim life insurance premiums of RM1,500 on policy Y paid during the year 2022.
However, the maximum amount claimable is RM3,000. No relief is available for car insurance premiums.

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7 RM50,000
RM
Cost of acquisition of patent rights 200,000
Travelling expenses 0
Consultancy fees 50,000
––––––––
Total costs 250,000
––––––––
Rate 20% x RM250,000 50,000
The cost of acquisition and consultancy fees may be claimed and the travelling expenses are excluded giving total
costs of RM250,000 at 20% as a deduction for year of assessment 2022.

8 Option 2
Balancing allowance; RM10,000
RM
Cost 200,000
––––––––
Qualifying plant expenditure 50,000
Less: Initial allowance (IA) 20% (10,000)
Less: Annual allowances (AA)
YA 2020 and 2021 (2 x 20%) (20,000)
––––––––
Total capital allowance (CA) 30,000
––––––––
Residual expenditure 20,000
Less: Disposal proceeds restricted (RM50,000/RM200,000 x
RM40,000) (10,000)
––––––––
Balancing allowance 10,000
––––––––
The balancing allowance is computed on the restricted cost of RM50,000 and the restriction is also applied to the
disposal proceeds of RM10,000.

9 1 and 4
The first statement is not correct. Suresh’s duties will be considered as incidental to his Malaysian employment
even if he performs his duties in Jakarta for more than 60 days. It does not depend on whether the services are
performed for 60 days. The fourth statement is not correct. Suresh’s duties will be considered as incidental to his
Malaysian employment even if the hotel and airfare costs are borne by the Indonesian subsidiary.

10 RM1,400,000
RM
Profit before tax 1,900,000
Vendor development programme (500,000)
––––––––––
Adjusted business income 1,400,000
––––––––––
Palm Sdn Bhd is entitled to claim double deduction for the vendor development programme on the maximum
amount of RM500,000 per year for three consecutive years.

11 1 and 2 only
Statements 1 and 2 are false. The first statement is not correctly stated as any gain which arises as a result of
compensation received for damage of property exceeding the acquisition consideration and incidental costs is
subject to RPGT when the compensation is received. The second statement is false as a gain arising from the
compulsory acquisition of land for an individual is not subject to RPGT as the disposal is deemed to be at no gain
no loss. The third statement is true as interest expenses are not allowed as a deduction for RPGT purposes.

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 Marks
12 RM15,000
RM
Sales value 500,000
Add: Sales tax 5% 25,000
––––––––
Total sales billed 525,000
Less: Amount recovered (210,000)
––––––––
Amount outstanding 315,000
––––––––
Sales tax refund
[RM315,000/RM525,000 x RM25,000] 15,000
Correctly calculates sales tax refund based on the amount outstanding.

13 RM656,000
RM567,000 + RM89,000
Both the gross salary and commission are taxable. The bonus will be taxed in year of assessment 2023 when it is
received.

14 Operations commence, for a company which carries out an activity wholly consisting of the making of investments,
when the company receives its first return
Operations include an activity which consists of the making of an investment. Operations is not when the first return
is received after making an investment. This statement is false.

15 RM60,000
The school fees paid by City Sdn Bhd (CSB) for Aqiloh’s child are a taxable perquisite. The entrance fee for corporate
membership paid by CSB for Aqiloh is not a taxable benefit.
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2 marks each 30
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Section B Marks

1 (a) Alam Sdn Bhd (ASB)

Invoice date Sales tax at Reason

10%
RM RM
5 January 2022 Invoice issued to 100,000 10,000 Taxable goods ½+½
Zahara
30 January 2022 Invoice issued to 30,000 3,000 Taxable goods ½+½
Malim Sdn Bhd
10 February 2022 Invoice issued to 2,000,000 0 Exports are not subject to sales ½+1
Jeju Ltd, Korea tax
16 February 2022 Invoice issued to TT 220,000 0 ASB is not required to impose ½+1
Sdn Bhd sales tax on the sale of the
compressors to TT Sdn Bhd as
it has obtained approval from
the Director General of the Royal
Malaysian Customs Department
The taxable period is from 1 January 2022 to 28 February 2022. The due date of payment of sales tax is
the last day of the following month from the end of the taxable period, i.e. on or before 31 March 2022. ½+1+½
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(b) Deed Sdn Bhd (DSB)

The training services are within the scope of service tax as this is a taxable service. The company will be
liable to register, and charge service tax, when its annual sales turnover exceeds RM500,000. ½+½
However, based on the monthly billings of RM40,000, DSB is not liable to register, since RM480,000
(12 x RM40,000) is below the registration threshold. 1
The research and development (R&D) services provided by contract R&D companies are specifically
excluded from the list of taxable services contained in the regulations and, therefore, not subject to service
tax. 1
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2 Guna and Jasvinder

(a) Guna – Gift to Jasvinder

The transfer of real property as a gift between parent and child, grandparent and grandchild or husband and
wife is treated at no gain no loss where the disposal price is deemed to be equal to the acquisition price as
long as the donor is a Malaysian citizen. ½+½+½
Hence, there will be no real property gains tax (RPGT) payable by Guna on the gift made to his wife,
Jasvinder. ½
The acquisition price for his wife, Jasvinder, will be the acquisition price and permitted expenses incurred
by the donor, Guna, which total RM630,000. ½
The date of acquisition for Jasvinder is the date of transfer of the property by Guna to Jasvinder, which is
7 May 2018. ½
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 Marks
(b) Jasvinder’s disposal
RM RM
Disposal consideration 2,100,000 ½
Less: Permitted expenses
Enhancement costs (extension) (180,000) ½
Incidental costs (real estate broker fees) (31,000) ½
––––––––––
Disposal price 1,889,000
Acquisition consideration 600,000 ½
Add: Stamp duty and legal fees (RM12,000 + RM18,000) 30,000 ½+½
Add: Legal fees – bank financing 0 1
Less: Deposit forfeited (20,000) ½
––––––––
Acquisition price (610,000)
––––––––––
Chargeable gain 1,279,000
Less: Schedule 4 exemption – higher of 10% of gain or RM10,000 (127,900) 1
Less: Allowable loss (51,000) ½
––––––––––
Chargeable gain 1,100,100
––––––––––
RPGT liability
Date of acquisition 7 May 2018
Date of disposal 3 January 2022
Disposal in 4th year (non-citizen) ½
RPGT at 30% 330,030 ½
––––––––––
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3 (a) Driving Academy (DA)

The building used for providing training by DA will not be considered as plant. 1
This is because the building is part of the premises or setting in which DA carries out its business and is not
the apparatus with which the business activities of DA are carried out. 1
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2
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(b) Glove Sdn Bhd

RM
Expenditure
Land 0 Non-qualifying ½
Stamp duty on land acquired 0 Non-qualifying ½
Demolition of an existing building on the land 410,000 1
Cost of construction of factory building 6,300,000 ½
Cost of construction of warehouse within the company’s curtilage 360,000 1
––––––––––
Qualifying building expenditure 7,070,000
––––––––––
Less: Initial allowances (IA) 10% 707,000 ½
Less: Annual allowance (AA) 3% 212,100 ½
RM
Machine
Cost of machine 97,000
Less: Foreign exchange gain (3,000) 1
–––––––
Qualifying plant expenditure 94,000 ½
–––––––
Less: IA 20% 18,800 ½
Less: AA 14% 13,160 ½
Refrigerator
Qualifying plant expenditure 2,000
Less: AA 100% 2,000 1
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 Marks
4 Kita Group

(a) KX Sdn Bhd (KX)

The gain of RM20 million arising from the disposal of the property by KX will be subject to income tax if it
arises from a trade or adventure or concern in the nature of trade and is regarded as revenue. ½+½
The principles, called the badges of trade, established in case law provide a guide to determine whether a
gain is revenue or capital in nature.
(i) KX acquired the property for investment purposes and derived rental income. Accordingly, the
subsequent profit arising therefrom may be regarded as a capital gain not subject to income tax. 1
(ii) The longer the period of ownership of the property, the more likely the disposal would be regarded as
a capital gain and not subject to income tax. The shorter the period of ownership, the more likely the
gain would be treated as a trading profit and subject to income tax. In this case, KX’s ownership (of
around ten years) is more likely to be regarded as a long period of ownership and therefore the profit
would not be subject to income tax. 1+½
(iii) The more frequent the number of transactions in properties, the more likely any profit may be regarded
as a gain arising from a trade and subject to income tax. However, the less frequent the transactions,
the more likely the gain is not subject to income tax. KX has never entered into such transactions in
the past and therefore the profit is likely to be a capital gain and is not likely to be subject to income
tax. 1+½
(iv) When there is any modification or alteration of the asset such as converting the land title where the
character has changed to make it more valuable, the more likely the gain would be a trade or an
adventure or concern in the nature of trade and, hence, the gain will be subject to income tax. Gains
arising from isolated transactions can be subject to income tax. ½+½+½
In conclusion, the disposal of the land is likely to be regarded as a capital gain and will not be subject to
income tax. ½
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(b) KY Sdn Bhd (KY)

The payment to be made by KY to Pune Ltd for training services are not subject to withholding tax as
they relate to services performed by the non-resident company outside Malaysia. The withholding tax due
is RM0. ½+½
The payment for the software licensing agreement is within the scope of a royalty and is deemed derived in
Malaysia as the payment is made by KY, a Malaysian tax resident. Accordingly, the payment is subject to
withholding tax at 10%. The withholding tax due is RM12,000 (RM120,000 x 10%). 1+½+½
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Marks will be awarded for other relevant points up to a maximum of 3. 3
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5 (a) Modal Sdn Bhd (MSB)

A business is generally regarded as having commenced when it embarks on activities integral to the
generation of income, and is in a position to earn income. 1
It is not necessarily when the business is set up or preparatory or preliminary activities are carried out, such
as the construction of the factory, nor when the first sale took place. ½+½
MSB can be regarded as having commenced its business when the raw materials were received, which was
on 1 December 2021, after its manufacturing facility had become ready for use. 1
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 Marks
(b) Kudat Sdn Bhd
Tax computation for year of assessment 2022
Basis period: 1 August 2021 to 31 July 2022
RM’000 RM’000
– +
Profit before tax 5,235
Add/less
Depreciation 87 ½
Research and development expenses (double deduction) 1 1
Interest income 102 ½
Unrealised foreign exchange gain on payments for raw materials 30 ½
Irrecoverable trade debts recovered 0 1
Statutory audit fees 0 ½
Secretarial fees (maximum allowed RM15,000) 10 1
Entertainment expenses (50% x RM60,000) 30 1
Donation of computers 6 ½
Renovation of office for certified disabled employee 0 1
Lease rentals for a motor vehicle (RM65,000 + RM45,000 =
RM110,000 – RM50,000) 60 1
Hire-purchase interest expense 0 ½
Theft of cash by director 14 ½
Leave passage 6 ½
–––– ––––––
133 5,448
(133)
––––––
5,315
Less: Capital allowances (1,080) ½
––––––
4,235
Interest income 102 ½
––––––
Aggregate income 4,337
Less: Donations (in-kind) (0) ½
––––––
Total income/chargeable income 4,337
––––––
Tax liability
RM4,337,000 x 24% 1,041 ½
–––––– –––
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15
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Tutorial note: The 17% tax rate does not apply as KSB’s gross revenue is more than RM50 million.

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 Marks
6 Koshy and Soo

(a) Koshy – Year of assessment 2022

RM RM
Business income – s.4(a)
Loss before tax (33,000) ½
Add: Depreciation 12,000 ½
––––––––
Adjusted loss (21,000)
––––––––
Adjusted income 0
Add: Balancing charge 5,000 ½
Less: Capital allowances (1,000) ½
––––––––
Statutory income – business 4,000 ½
Less: Unabsorbed business losses brought forward and used (4,000) 1
––––––––
Statutory income – business A 0
Employment income s.4(b)
s.13(1)(a)
Gross salary (RM15,000 x 12 months) 180,000 ½
s.13(1)(b) – Benefits in kind
Medical expenses 0 ½
Leave passage – outside Malaysia (RM3,840 – RM3,000) 840 1
––––––––
Gross employment income/adjusted income/statutory income B 180,840
Aggregate income A+B 180,840
Less: Current year loss (21,000) 1
––––––––
Total income 159,840
Less: reliefs
Self 9,000 ½
Parent medical expenses 1,500 ½
Employees’ provident fund (maximum) 4,000 (14,500) ½
–––––– ––––––––
Chargeable income 145,340
––––––––
Tax liability
First RM100,000 10,700
Next RM45,340 x 24% 10,882 ½
––––––––
21,582
––––––––
Soo
RM
Gross salary for year (A) 81,000 ½
Gross rent 69,000 ½
Less: Quit rent and assessments (10,000) ½
––––––––
Adjusted income 59,000
Less: Industrial building allowance (RM700,000 x 3%) (21,000) 1
––––––––
Statutory income (B) 38,000
––––––––
Aggregate/total income (A + B) 119,000
Less: Relief – self (9,000) ½
––––––––
Chargeable income 110,000
––––––––
Tax liability
First RM100,000 10,700
Next RM10,000 x 24% 2,400 ½
––––––––
Income tax payable 13,100
–––––––– –––
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Tutorial note: Soo will be a deemed resident in Malaysia because she is employed in the public services
as a Malaysian diplomat and exercises her employment outside Malaysia (i.e. in Ireland). Therefore, she is
entitled to claim relief.

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 Marks
(b) The gold bar given to Koshy would be regarded as a perquisite subject to personal income tax as it has a
cash value, can be sold, assigned or converted into cash as a reward for service excellence. 1
The amount of RM6,000 will be exempt up to an amount of RM2,000 and the balance of RM4,000 will
be subject to income tax when received, i.e. for the year of assessment 2023. 1+1
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