Reinvestment allowance (RA) is an incentive given to companies under Schedule 7A of the ITA for certain qualifying projects. The Malaysian income tax authorities closely scrutinise RA claims made by businesses during tax audits.

In respect of the above statements, provide appropriate answers to the following:

(a)How does a company qualify for a RA and state the types of conditions required for its eligibility?(4 marks)

(b)Explain the rationale for a company in choosing the RA incentive over other tax incentives available under the Malaysian tax legislation.(4 marks)

(c)Premium Glove Sdn Bhd (PG) is a leading manufacturer of disposable rubber gloves. PG located in Perak and is planning to expand its production lines to meet the extensive demand for its products in Malaysia.

PG's budgeted profits and capital expenditure in 2020 and 2021 are shown below:

2020 2021

RM'000 RM'000

Adjusted income 1,680 7,200

Capital allowance 800 900

Rental income (net) 45 58

Approved donations 35 40

Projected capital expenditure:

Land in Perak 1,600 Nil

Factory 3,000 1,500

Plant & machinery 1,300 400

PG is entitled to 60% of the qualifying expenditure to be offset against 70% of the company's statutory income.

Required:

Calculate the reinvestment allowance claim and compute the chargeable income of PG incorporating reinvestment allowance for years of assessment 2020 and 2021.(12 marks)