Question 1

ABC Sdn Bhd commenced the manufacturing of televisions, a promoted product, in Penang in January 2019. In the same year the company had also invested RM10 million on plant and machinery, and a factory. ABC prepares its accounts annually to 31 December.

The finance director, Ms Lee, has approached your firm requesting for the tax impact from pioneer incentive. The company has been granted pioneer status on its manufacturing activity with production day starting on 1 January 2019. Ms Lee has provided the following forecast items:

Year of Assessment	2019	2020	2021	2022
	RM'000	RM'000	RM'000	RM'000
Profit/(loss) before tax	(5,100)	6,400	3,700	4,900
Depreciation	3000	3000	3000	3000
Business Entertainment	200	200	200	200
Interest Income	45	50	55	60
Capital allowance	7,500	2,800	3,000	3,200

Assume a tax rate of 24% for all the years of assessment.

Required:

1. Prepare a report to the company to analyse the pioneer incentive. Support your analysis with the companys tax computations for the years of assessment 2019 to 2022 specifically showing:
   • income tax liability;
   • absorption of business losses;
   • exempt income account; and
   • capital allowance (13 marks)

2. Your tax manager has also asked you to prepare a similar analysis assuming that investment tax allowance is granted instead of pioneer status. (13 marks)

(C) From your assessment of the two incentives above, give your recommendation on the preferred incentive. Support your evaluation with explanation and computational analysis. (4 marks)