2.

1 Alternatives for PASB to improve the effective tax rate of the group
Pym Atoms Bhd (PASB) is the main borrower for the group. As a parent company,
PASB can improve the effective tax rate of the group tax efficiency by :
2.1.1 Interest of loan
It is advisable for PASB to not become the main borrower for its
subsidiaries by taking loan from third parties because the interest paid by
PASB is not a deductible expense. The expense incurred is not wholly and
exclusive as it is not used in producing income for PASB. If the subsidiary
who takes the loan, the interest paid is a deductible expenses because the
expenditure incurred is wholly and exclusively incurred in the production of
income.
PASB is advised to not obtain loan from the DJNC Bank for PISB with a
principal of RM 60 million as it will lead to obligation of RM 3.6 million
interest. This RM 3.6 million is not a deductible expenditure for PASB.
Therefore, PISB should be the one who takes the loan, as the interest
payable of RM 3.6 million will be deductible expenses and this will reduce
the chargeable income of the PASB group.
2.1.2 Management fees
PASB currently does not charge management fees to its subsidiaries and
made huge losses as a result as PASB is the one who bears the costs of
management. To improve their group tax efficiency, PASB should charge
its subsidiary on management fees.
According to Section 60F, an investment holding company (IHC) which is
PASB is entitled to claim management fees expenses against its aggregate
income for a year assessment. Thus, by charging management fees to its
subsidiaries, the chargeable income of the group will be reduced by this
effect.
RM 5 million of provision of management and administrative services to its
subsidiaries is a permitted expense according to Section 60F.
2.1.3 Group relief
According to Section 44A, a company resident and incorporated in
Malaysia in the basis year of assessment (surrendering company) may
surrender not more than 70% of its adjusted loss in the basis period for
that year of assessment to the claimant company.
PASB and its subsidiaries are resident companies and incorporated in
Malaysia and PASB have investment in subsidiaries for more than 12
months. PASB fulfilled all the criteria to be entitled for group relief.
PASB and Pym Services Sdn Bhd (PSSB) are both making losses in the year
assessment. But, in order to surrender its losses, the company should

have a paid up capital of more than RM 2.5 milion which is a non-SME

company.
As a result, PASB is the one that should be the surrendering company to
surrender its losses to the claimant company. As PCSB is very profitable, it
should become the claimant company for group relief. However, PCSBs
current financial year end is on 30 th June which differs from the PASB with
financial year end on 31st December.
To qualify for group relief, both surrendering and claimant company must
have 12 months basis period ending on the same day. Therefore, in order
for PCSB to be the claimant company, it should change its financial year
end to 31st December as it will fulfil the group relief criteria.
3.1 Tax incentives for Pym Industries Sdn Bhd (PSB) company
PISB is a newly incorporated company which is a non-SME and can consider to
utilise the tax incentives that are available such as :
3.1.1 BioNexus status company (BSC)
In order for PISB to be eligible for BSC, it must be incorporated under the
Companies Act 1965 which is engaged in a business of life sciences, such
as biology, medicine, anthropology or ecology, which deals with living
organisms and their organisation, life processes and relationship to each
other and their environment.
[Income Tax (Industrial Building Allowance) (BioNexus Status Company)
Rules 2007. PU(A) 374/2007]
PISB fulfils those stated criteria to be eligible for BSC as it undertakes
commercialisation of extract a tissue culture from the plant sap of a local
plant found in Malaysia which is capable of increasing the yield in rice
farms and grain based plants.
Therefore, qualifying building expenditures incurred by PISB for the
purpose of first approved business undertaken by PISB shall be given an
annual allowance of 10%.
3.1.2 Pioneer status
Pioneer status is given to a person who intends to establish or to
participate in a promoted activity or produce a promoted product. It is also
available to those in the non-manufacturing industry such as agricultural,
hotel and tourist industries.
PISB is in the agricultural industry producing a promoted product which is
extraction of a special tissue culture from the plant sap of a local plant
found in Malaysia which is capable of increasing the yield in rice farms and
grain based plants which engaged with high technology.
A pioneer status company will be eligible for exemption on income tax
from statutory income either 100% or 70% depends on project location. If
the company locate its project in promoted areas, it will entitle for 100%

statutory income exemption, meanwhile if the project is located in nonpromoted areas, it will entitle for only 70% statutory income exemption.
Promoted area refers to areas located in the Eastern Corridors of
Peninsular Malaysia, Perlis, and areas to be designated by the minister in
the state of Pahang and North Eastern Johor, Labuan and the state of
Sabah and Sarawak. Hence, it is advisable for PISB to locate its project in
promoted areas because it will entitle 100% statutory income exemption
on income tax.
3.1.3 Research and development (R&D) incentive
According to Section 34(7), the government has provided a suite of tax
incentives as follows :
i) Double deduction
- PISBs expenditure incurred on the approved R&D will be entitled for
double deduction
against its aggregate income
ii) Capital allowance
- Industrial building allowance incurred for a building used in approved
research by a contract R&D company
- On qualifying building expenditure incurred for alteration or renovation
of rented premises for research purposes.
iii) Exemption of income or additional relief for capital expenditure
- In-house R&D by PISB will be entitled for Investment Tax Allowance
(ITA) which PISB will enjoy a flat rate of 60% of qualifying capital
expenditure incurred as exemption within 5 years.
5.0 Economy transformation program
5.1

Type of business activity to be promoted

The PASB group can engage into several types of promoted business
activity in order to
enjoy incentives offered by the government such as agricultural,
manufacturing, high
technology company and activities that are encouraged by the
government.
5.2

Incentive that government can offer

5.2.1 Reinvestment allowance

According to schedule 7A of Income Tax Act 1967, a resident
manufacturing company or a
person undertaking an agricultural project may claim reinvestment
allowance on the
amount of qualifying capital expenditure incurred for purpose of a
qualifying project.
5.2.2 Pioneer status

Pioneer status is given to a person who intends to establish or to

participate in a promoted activity or produce a promoted product. It is also
available to those in the non-manufacturing industry such as agricultural,
hotel and tourist industries.
5.2.3 Investment tax allowance
ITA is given to a person who have incurred capital expenditure in a
promoted activity or in
the production of a promoted product.
5.3

Suggestions to enhance incentives

5.3.1 Pioneer status

The pioneer status should be extended for more than 5 years because
Malaysia is a
developing company and could encourage companies to promote new
promoted activities.