by Edgar

Tax on your Windfall…

Last month, the Malaysian government decided to implement the provision under the Windfall Profit Levy Act 1998 ie. impose a 30 per cent levy on returns on assets above the 9 per cent threshold of the Independent Power Producers’ (IPPs) audited accounts.

Apparently, the law would effectively mean a higher corporate tax rate on profits made by companies.

While at this moment, the impact is limited to IPPs. But should the government’s fiscal conditions worsen, will this “martial law” be suddenly applied on other sectors that too are doing well.

Such laws confuse investors. They blur visibility in investing in a country. While the law has been around since 1998 (apparently), it was not implemented.
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by Edgar

HK outranked Singapore

my ketchup-filled fish ball noodle

ACCA released a report in BT today after conducting a survey among ACCA members in Singapore, HK, UK, US, Canada and Australia to rank their respective tax system in terms of fairness, simplicity and transparent.

The good news is that Singapore and Hong Kong have the fairest, simplest and most transparent tax systems, out of six major developed countries.

The bad news is that Hong Kong ranked better than Singapore in all 3 areas.

The question that matters is whether having a tax system that is fair, simple and transparent translates to real comparative advantage against these big economies.

Or is it a hollow victory for Singapore and HK as it basically reflects the smallness of its geographic size and economic complexities?

by Edgar

SME Rebate Scheme

I quote…

“The SME Rebate Scheme is a 2-year assistance scheme to help locally registered SMEs* adjust to rising business costs.
You are invited to apply for the SME rebate at our website http://www.smerebate.gov.sg/ if your firm meets the following criteria:-
i. For a non-manufacturing firm:
– Business must be registered in Singapore
– Fixed Asset Investment (FAI) of less than S$15 million
– Not more than 200 employees
ii. For a manufacturing firm:
– Business must be registered in Singapore
– Fixed Asset Investment (FAI) of less than S$15 million
Please be reminded to submit your application by 31 July 2008 to receive cash rebates pegged to the total employer and employee CPF contributions made by your firm over two years for the period July 2007 to June 2009.

Firms that apply after 31 July 2008 will only qualify for the rebate for the period July 2008 to June 2009.
Eligible firms will receive notification letters from CPF Board indicating the date and amount of payment.
Please visit the SME Rebate Scheme website (http://www.smerebate.gov.sg/) for more information.” Unquote…
by Edgar

Sec 10(2)(c) Place of Residence provided by the Employer

This is an undoubtedly a taxable benefit. The only doubt here is how to compute the quantum of taxable benefit.

Benefit is applicable to employees. Not applicable to directors who are employees too.

What is the Rule?
The taxable value of the accommodation is the lower of:-

  • 10% of the gains or profits from employment LESS any rent paid by the employee; OR;
  • the annual value of the premises.

Illustration

Annual value – $38,000

Rent paid by employee – $700 x 12 months = $8,400

Remuneration from employment – $150,000

Which of the following presentation is correct?

Option A

Lower of:-

  • (10% x $150,000) = $15,000 or
  • $38,000

The lower amount being $15,000 ==> taxable benefit would be $15,000 less $8,400 = $6,600.

Option B

Lower of:-

  • (10% x $150,000) less $8,400 = $6,600 OR;
  • $38,000

Thus the taxable benefit would be $6,600.

Which do you think is the correct presentation though both give you the same answer?

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by Edgar

FRS 7 Cash Flow Statements – Summary

FRS 7 prescribes the principles in preparing cash flow statements.

The standard requires the provision of information about historical changes in cash and cash equivalents of a company by means of a cash flow statement that classifies cash flows during the period by operating, investing and financing activities.

Operating activities are the principal revenue-producing activities of the enterprise. Cash flows from operating activities are disclosed either using the:-

a) direct method (disclosure of major categories of gross cash receipts and payments); or

b) indirect method (profit or loss for the period is adjusted for non cash items (such as depreciation, foreign exchange losses etc.) and income or expense related items related to investing and financing activities to determine the operating cash flows.

Investing activities are those expenditures incurred with an intention to generate future income and cash flows.

Financing activities are those expenditures incurred that result in changes in the size and composition of the contributed equity and borrowings of the entity.

“Do you know the definition of “cash and cash equivalents”? Can you name some examples of cash equivalents?”, ask Edgar.

Source – ICPAS ePublication 22 November 2005 Issue 11/2005

by Edgar

GST on Donation

In BT dated June 4, 2008, Wong Sze Teen and Yeo Kai Eng also discusses the implication of GST on donations.

What is the Rule?
Generally, no GST on CASH donations if the amount involved is small and no tangible benefits granted to Donor.

But when Donors are entitled to some form of benefits ie. chance of a lucky draw to win a trip to Timbuktu, technically speaking such donations attract GST.

IRAS Concessionary Exemption is granted to certain benefits if:-
– the benefit is given as part of acknowledging the donation made and;
– the benefit has no resale value.

Thus certain acts by the Recipients, which are technically speaking, benefits to the Donors, are exempted. Eg. Donors could be invited to and honoured at a Gala Dinner held in conjuction to the Charity.

What if your GST-registered business gave a donation in kind?
Donor has to account for output GST on deemed supply except if:-
– less than $200 and;
– is not part of a series of gifts.

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by Edgar

The GST trap of Sponsorship, Grant and Donation

such beautiful mature bamboo

In BT today, Wong Sze Teen and Yeo Kai Eng, GST experts from Ernst & Young, wrote an article on the implication of GST on sponsorship, government grants and donation.

I will cover issues on sponsorship and grants first.

Situation
Company X gives $1,000,000 to Company Y as sponsorship for a certain event that Company B is organising. Assuming both are GST-registered.

What is the Rule?
IRAS said sponsorship will not attract GST if company X:-
– did it voluntarily without any obligation and;
– did not receive any tangible benefits in return.

Failing which, company Y would have to issue a GST-tax invoice to company X.

For what amount should the invoice be issued on?
Answer – It depends on the market value of the benefits company Y would have to give to company X.

If market value of benefits < $1,000,000 eg. $800,000, company Y would have to issue an invoice for $800,000 inclusive of GST. Thus company Y would have to account for output GST of $52,236.45 to IRAS. Company X could then account for input GST of the same amount.

Any difficulty?
Firstly, when is a benefit given is considered a benefit given?
Secondly, company Y would have to determine the market value the benefits granted.

Government Grants
Generally and simply said – Attracts no GST to both the Giver and Recipient.

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by Edgar

FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors – Summary

The objective of FRS 8 is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and correction of prior period errors.

Changes in accounting policies
An entity should change its accounting policies only if the change is required by the Standards or the change results in a more relevant and reliable information about the entities financial position. Any changes in accounting policies shall be accounted for in accordance with the specific transitional provisions of the Standards. If there are no specific transitional provisions, the change in accounting policies shall be done retrospectively as though the new accounting policy had always been applied.

Changes in accounting estimates
Changes in accounting estimates should be recognised prospectively in the profit and loss account either in the period of the change only or the period of change and future periods, if the changes affect both. Any corresponding changes in assets, liabilities or equity are recognised by making adjustments to the carrying amount of the assets, liabilities or equity in the period of change.

Errors
Material errors in financial statements that are discovered in subsequent periods must be adjusted retrospectively in the first set of financial statements authorized for issue after their discovery. The comparative amounts for prior period are either restated or if the error occurred before the earliest prior period presented, the opening balances of the assets, liabilities and equity for the earliest prior period are restated.

FRS 8 specifies that in instances where it is impracticable to do a retrospective adjustment for change in accounting policy, the entity should restate the comparative information prospectively from the earliest date practicable.

FRS 8 also specifies the disclosures required of changes in accounting policies, accounting estimates and errors.

What is prior period errors? When did an error occur?

Prior period errors are omissions from, and misstatements in, the entity’s financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that:-

  • was available when financial statements for those periods were authorised for issue; and

  • could reasonably be expected to have been obtained and taken into account in the preparation and presentation of those financial statements.

Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts, and fraud.

Source – ICPAS ePublication 29 Nov 2005 Issue 12/2005

by Edgar

FRS 2 Inventories – Summary

Objective
FRS 2 provides guidance on the determination of cost of inventories and its subsequent recognition as an expense, any write down to net realizable value.

FRS 2 applies to all inventories except for:

a) WIP under construction contracts;
b) Financial instruments; and
c) Biological assets related to agricultural activity produce at the point of harvest.

Inventories are measured at the lower of cost and net realisable value (NRV).

  • NRV is the estimated selling price in the ordinary course of business less estimated costs of completion and costs necessary to make the sale.
  • Cost of inventories comprise of cost of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Three methods of costing inventories are specified under paragraph 23-27 of FRS 2.

i) Specific identification of costs method

ii) First-In, First-Out (FIFO) costs method

iii) Weighted average costs method

FRS 2 requires that the amount of write down of inventories to NRV is recognised as an expense in the period the write down or loss occurs. Any reversals of the write down, as a result of increase in NRV, is recognised as a reduction in amount of inventories recognized as an expense in the period the reversal occurs.

FRS 2 also specifies the disclosures required of inventories.

Source – ICPAS ePublication

by Edgar

FRS 1 – Presentation of Financial Statements Nov 2005

Objectives

  1. To prescribe the basis of presentation of general purpose financial statements and;
  2. To ensure comparability of entity’s financial statements with previous periods and with other entities’ financial statements.

Below is a summary of the overall considerations for the presentation of financial statements.

  • Fair presentation and compliance with FRS

A faithful representation of the effects of transactions, events and conditions in accordance with the FRS.

  • Going concern

Preparation of financial statements with the assumption that the business will continue indefinitely.

  • Accrual basis of accounting

A method where income and expense items are recognized and recorded when income is earned and expense is incurred, regardless of when cash is actually received or paid.

  • Consistency of presentation

Presentation and classification of items in financial statements are retained from one period to the next unless the standard requires a change in presentation or there is a significant change in the nature of the entity’s operations, such that another presentation would be more appropriate.

  • Materiality and aggregation

Similar items of each material class are to be presented separately.

  • Offsetting

No offsetting of asset and liabilities, and income and expenses unless permitted by a Standard.

  • Comparative information

To disclose comparative information of previous period for comparative purposes.

FRS 1 also specifies the minimum line item disclosure required on the face of the balance sheet, income statement, statement of changes in equity and notes to the financial statements except for presentation of cash flow statements which is covered under FRS 7.

FRS 1 also specifies that entities disclose information that is presented in the financial statements such as the accounting policies, judgments and key sources of estimation uncertainty at the balance sheet date.

Source – ICPAS ePublication 8 November 2005 Issue 9/2005