IC Interpretation 21

Levies
Prepared by ICON
MUHAMMAD SYAFIQ BIN MD ISA A132026
SIE CHOO KEONG A136268
NUR BAIYAH BINTI HASAN A136819
SIEW PEI JU A136879

INTRODUCTION

Government
may impose a
levy on an
entity.

IFRS
Interpretations
Committee
received
requests for
guidance on
accounting for
levies in
financial
statements of
entity that
paying the
levy.

Question about
when to
recognise a
liability to pay
a levy in
accordance
MFRS 137

DEFINITION OF LEVIES
An outflow of
resources contains
economic benefits that
is imposed by
governments on
entities in accordance
with legislation .
Other
than :
a)

Those outflows of
resources within
the scope of other
Standards
Example :
Income
taxes
(MFRS 112)

b)

Fines or other
penalties that are
imposed for break
of the legislation.

RECOGNITION & MEASUREMENT

Identification of the obligating event
The activity that creates the obligation to pay the

levy (as specified in the legislation) is the event that

determines the point of recognition.
This activity is related to the entity's participation in
a relevant market at a specific date(s).
Neither a constructive nor a present obligation arises
as a result of being economically compelled to
continue operating; or from any implication of an
intention and ability to continue operations in the
future.

GUIDELINES ON HOW TO ACCOUNT FOR THE TIMING OF THE

RECOGNITION FOR THE VARIOUS TYPES OF LEVIES
TYPE

OBLIGATION
EVENT

RECOGNITION
OF LIABILITY

Levy triggered
progressively as revenue
is generated in current
period

Generation of
revenue (recognise
progressively)

Recognise
progressively

Levy triggered in full as

soon as revenue is
generated in one period,
based on revenues from a
previous period

First generation
of revenue in
subsequent
period

Full recognition at
that point of time

Levy triggered in full if

entity operates as a bank
at the end of the annual
reporting period

Operating as a
bank at the end
of the reporting
period

Full recognition at
the end of the
annual reporting
period

Levy triggered if revenues

are above a minimum
Specified threshold (e.g.,
when a certain level of
revenue has been

Reaching the
specified
minimum
threshold

Recognise an
amount consistent
with the obligation
at that point of
time

EXAMPLES OF PROGRESSIVE-TYPE
LEVIES
Examples of
Application examples of recognition of
features for
progressive-type
levy

liability

30 June 2014 RM49 million

31 July 2014 RM51 million
31 Dec 2014 RM100 million

30 Jun-49m

31 Jul-51m

31

Dec-100m
Recognise
progressively
- 2% of revenues at
any point in time

1) 30 June 2014 RM980,000 is recognised

(2% x RM49 million)
2) 31 July 2014 RM1.02 million is recognised
(2% x RM51 million)
3) 31 Dec 2014 RM2 million is recognised
(2% x RM100 million)

Progressive tax
- 2% on the first
RM50 million in
revenues,

1) 30 June 2014 RM980,000 is recognised

(2% x RM49 million)
2) 31 July 2014 RM1,030,000 is recognised
((2% x RM50 million) + (3% x RM1

LEVY TRIGGERED PROGRESSIVELY AS THE ENTITY GENERATES

REVENUE

1/1/2014

31/12/2014

0.25% x Revenue

At any point in 2014, the entity has a present obligation to

pay a levy on revenue generated to date
Interim financial report

Entity has a present obligation to pay the levy on revenue

generated from 1 January 2014 to the end of the interim
period.

LEVY TRIGGERED IN FULL AS SOON AS THE ENTITY GENERATES REVENUE

Example
2013
Revenue RM 350,000
2014
Revenue generate on 3rd January, Levy 0.25%
3/1/2014
Interim report

RM 350,000 x 0.25%
= RM 875

The liability is recognised in full in the first interim period of

2014 because the liability is recognised in full on 3 January
2014.

GENERATES REVENUE ABOVE A MINIMUM

AMOUNT OF REVENUE

Revenue RM 500,000
2 Methods
Example:
Revenue = RM 850,000, Expenses = RM 600,000, Levy = 0.125%

Method 1

Method 2

Levy on Net Profit

RM 850,000
(-) RM 600,000
RM 250,000
X
0.125%
RM
313

Levy on Gross Profit

Dr Expenses RM 313
Cr Provision of Levy RM 313

Dr Expenses RM 1,063
Cr Provision of Levy RM 1,063

RM 850,000
0.125%
RM 1,063

LEVY TRIGGERED IF THE ENTITY GENERATES REVENUE ABOVE A

MINIMUM AMOUNT OF REVENUE

1/1/2014

1/5/2014

31/12/2014

A liability is recognised only at the point that the

specified minimum threshold is reached.

Interim report

The liability is recognised between 1 May 2014 and 31

December 2014 as entity generates revenue above the
threshold.

CONSTRUCTION INDUSTRY
DEVELOPMENT BOARD MALAYSIA (CIDB)

LEVY TRIGGERED IN FULL IF THE ENTITY OPERATES AS A BANK AT A

SPECIFIED DATE

1/1/2014

31/12/2014

The liability is recognised only at the end of the annual

reporting period.
Interim report

The liability is recognised in full in the interim period in which

31 December 2014 falls because the liability is recognised in
full on that date.

STANDARD CHARTERED

Q&A
Question
Entity A has an annual reporting period that ends on 31

December. In accordance with legislation, a levy is

triggered if an entity generates revenue above RM50
million in 2014. The amount of the levy is calculated by
reference to revenue generated above RM50 million, with
the levy rate at 0 per cent for the first RM50 million
revenue generated (below the threshold) and 2 per cent
above RM50 million revenue. Entity As revenue reaches
the revenue threshold of RM50 million on 1 July 2014.