Company Y is a manufacturing company. The loss of Company Y was RMB 500,000 in 2012 and RMB 200,000 in 2013. In 2014 and 2015, the profit and loss were even. The profit in 2016 was RMB 100,000. The profit in 2017 was RMB 300,000. The accounting clerk has prepared the following statement of enterprise income tax (EIT) payable for the year 2018 as follows: Note RMB Turnover 12,500,000 Cost of goods sold 1 (7,300,000) Gross profit 5,200,000 Sales expenses 2 (2,580,000) Financial expenses 3 (420,000) Administrative expenses 4 (1,210,000) Other income 5 220,000 Taxable profit 1,210,000 Tax rate 25% Tax payable 302,500 1. Cost of goods sold includes a batch of goods at a cost of RMB 98,000, which was sold at RMB 35,000 due to the poor market situation. 2. Sales expenses include the following: RMB (1) Entertainment expenses 80,000 (i) Advertising and promotion (the amount in excess of the deduction limit for 2017 was RMB 580,000) 1,200,000 (iii) Compensation paid to a customer for breach of contract 240,000 3. Financial expenses include interest of RMB 300,000 calculated at 30% per annum on a loan from one of 1 Company Y's shareholders, Mr A. The market rate of interest on a similar type of loan from a bank is 5% per annum 4. Administrative expenses include the following: RMB (i) Penalty for the late filing of a tax return 2,000 () Donation to a school 10,000 5. Other income comprises: RMB (i) Interest income on national bonds 30,000 (ii) Dividend received from a long-term investment in a subsidiary in China 120,000 (iii) Gain on the disposal of national bonds 70,000 Required: Calculate the correct amount of enterprise income tax (EIT) payable by Company A for the year 2018. TAX RATES AND ALLOWANCES The following tax rates and allowances are to be used in answering the questions. Enterprise income tax Rate Income tax for resident enterprises and non-resident enterprises with an establishment in China Income tax for specific China sourced income of non-resident enterprises 25% 10% Deduction limits on certain expenses Employment welfare expenses 14% of total wages Labour union expenses 2% of total wages Employee training expenses 8% of total wages Donations 12% of the accounting profits Entertainment expenses 60% of the amount subject to a maximum of 0.5% of sales/business income of the year Advertising and promotion expenses 15% of the sales/business income of the year* Commission 5% of the specific sales/business income * Except for certain industries with no deduction Individual income tax Comprehensive income - annual basis and cumulative withholding basis of wages and salaries for a tax resident Level Taxable income (annual) Rate Quick deduction factor (RMB) % (RMB) 1 Up to and including 36,000 3 0 2 Over 36,000 to 144,000 10 2,520 3 Over 144,000 to 300,000 20 16,920 4 Over 300,000 to 420,000 25 31,920 5 Over 420,000 to 660,000 30 52,920 6 Over 660,000 to 960,000 35 85,920 7 Over 960,000 45 181,920 Annual allowance RMB60,000, specific deductions and specific additional deductions can be deducted. OU AWN