PROJECT INFORMATION

In January 2021, Luxury Furniture Sdn Bhd (LFSB) will commence the manufacturing of a promoted product in Asun, Kedah. By December 2021, LFSB will have invested RM30 million on its factory, plant and machinery. It makes up its accounts annually to 31 December. LFSB has been granted with pioneer status and expects its production day to be set on 1 March 2021. Miss Lily, the financial controller of LFSB contacted Smart Creative Tax Consultancy regarding the tax impact of the pioneer incentive. Accordingly, she furnishes the following forecast details:

Year of assessment	2021	2022	2023	2024
	RM000	RM000	RM000	RM000
Adjusted income/(loss)	(2,400)	10,000	7,300	8,100
Investment income	50	50	50	50
Approved donation	20	30	40	60
Capital allowance	8,100	3,100	3,100	3,100

REQUIRED:

1. As a leader for the Think-Thank Group, draft a report from Smart Creative Tax Consultancy to LFSB addressing the following issues:

1. Determine the pioneer tax relief period and explain its significance for tax purposes;
2. Provide a tax analysis of the pioneer incentive, supported by LFSB tax computations for the years of assessment 2021 to 2024, with special mention of:

the income tax liability;

the absorption of the business loss and approved donations;

the cumulative exempt income credited to the exempt account; and

any item and amount carried forward to the year of assessment 2025.

2. Based on the same facts, consider the alternative incentive measure of investment tax allowance and prepare the followings:

1. Provide a parallel tax analysis with supporting computations, assuming that investment tax allowance is granted, instead of pioneer status.
2. Explain and quantify your conclusions as to whether the pioneer status or the investment tax allowance yields the greater tax benefits to LFSB and recommend the preferred incentive measure.

(Assume that the income tax rate is 24% for relevant years of assessment)

3. LFSB also has intention to expand its businesses by exporting its furniture products to ASEAN countries like Thailand and Brunei. Advise LFSB on the eligibility for the allowance for increased export (AIE).
4. Apart from AIE, advise LFSB on the potential incentives that the company may enjoy after the pioneer tax relief period.
5. Explain to LFSB on the administration procedures for application of all the incentives above from MIDA.