October KDNPP 3809/3/2008

Transcription

1 October KDNPP 3809/3/2008

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3 The Malaysian Accountant OCTOBER 2007 EDITORIAL BOARD Datuk Robert Yong Kuen Loke (Chairman) Dato Nordin Baharuddin Dato Hj Maidin Syed Ali Loh Lay Choon Ng Kim Tuck See Huey Beng Sam Soh Siong Hoon Tan Chin Hock Chia Kum Cheng (Co-opted) Chong Kian Soon (Co-opted) PRINCIPAL OFFICE BEARERS President Dato Nordin Baharuddin Vice President Dato Ahmad Johan Mohammad Raslan PRINCIPAL OFFICERS Executive Director Foo Yoke Pin Technical Manager Melissa Yeoh Training Manager Joseph Leong Public Affairs & Communications Manager Vicky Rajaretnam Assistant Operations Manager Suzana Mohd Hulaimi Examination Officer Lee How Lai Membership Services Officer Adzlyn binti Aladzimy Single Copy: RM7.50 Subscription: 6 issues RM43.50 per annum (including P&P within Malaysia only) The Malaysian Accountant is published by: The Malaysian Institute of Certified Public Accountants (3246-U) 15, Jalan Medan Tuanku Kuala Lumpur, Malaysia Tel: Fax: micpa@micpa.com.my Website: Note: The views expressed in this journal are not necessarily those of the Institute or the Editorial Board. All right reserved; no part of this publication may be transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior pernission of the Institute or the Editorial Board. Concept & Design Digibook Sdn Bhd Reign Associates Sdn Bhd Printer Thumbprints Utd Sdn Bhd FEATURE page 3 INSTITUTE NEWS page 20 PERSPECTIVE LIFESTYLE page 39 FEATURES The 2008 Budget: A Commentary On The Tax Proposals 3 Customs Advance Rulings 19 INSTITUTE NEWS 2007 MICPA Excellence Awards 20 PROFESSIONAL NEWS IASB Update 26 IFAC Update 29 CASE LAW HIGHLIGHTS Andrew Christopher Chuah Choong Eng Chuan v. Ooi Woon Chee & Anor 33 GLOBAL INSIGHT News from Down Under 34 World News 36 LIFESTYLE The Lure of Emerald Isle 39

4 PERSPECTIVE The 2008 Budget announced by the Prime Minister recently focuses on several important key priorities which are in line with the theme of building the nation and sharing prosperity. Among these key priorities include maintaining an improved budget deficit position, enhancing national competitiveness and moving up the economy chain, particularly in view of the fast growing economies of China, India and Vietnam. The focus was also on continuing with the social agenda of helping the lower income group and implementing longer term initiatives to eradicate hardcore poverty, liberalising the economy in light of globalisation trends and leveraging on Malaysia s lead position in Islamic banking. Over the years, deficits arising from the Asian financial crisis have been substantially reduced. Indeed, due to increased petroleum revenue, dividends and improved tax collection, the 2008 deficit is forecast to be 3.1% of GDP (2007: 3.2%). There is also the need to enhance Malaysia s competitiveness as an ideal investment location and favourable place to do business. This is reflected in the budget by the reduction of the corporate tax rate, simplifying government procedures and improvement of human capital development. The reduction in the corporate tax rate of 1% from 26% to 25% for the year of assessment 2009 is seen as a positive move in making Malaysia more competitive. A significant shift from direct taxes to indirect taxes will see Malaysia join the ranks of countries that have successfully implemented tax reforms in this area. Another noteworthy introduction is the single tier tax system which is a significant measure to reduce administrative burden. Meanwhile, Islamic banking is sufficiently gaining momentum and the 2008 Budget proposals continue to ensure that this sector thrives successfully. Read the lead feature on the 2008 Budget for details in great length. On August 25, 2007, the Institute held its annual presentation of the Excellence Awards, Examination Certificates and Prizes at a special ceremony that was officiated by YBhg Datuk Ali Abdul Kadir, Chief Executive Officer and Head of Asia, Dubai Investment Group Asia Sdn Bhd. It was witnessed by over 230 guests including students, their family members, friends and guests of the MICPA. The Excellence Awards represents an important part of the Institute s efforts to promote accountancy as a career among young Malaysians, and the CPA qualification as a Number 1 Business Professional. The function presented an opportunity to accord honour and public recognition to young graduates who achieved all-round excellence in the pursuit of an accounting education. The Excellence Awards honoured the most outstanding CPA student and the best accounting graduates. The Vice-President of the Institute, YBhg Dato Ahmad Johan Mohammad Raslan, was on hand to present examination certificates to all the successful candidates. In this issue, the lifestyle section whisks you away to the verdant greenery of Ireland particularly to the medieval town of Kinsale the Riviera of Ireland and to the township of Cobh, the last port of call for the ill-fated RMS Titanic. These picturesque and historic townships are not only known for their many interesting attractions but also for their rich history and lush landscapes. Read more about them inside. 2 The Malaysian Accountant October

5 FEATURE The 2008 Budget: A Commentary On The Tax Proposals BY THANG MEE LEE Introduction The 2008 Budget, in line with the theme of Together Building the Nation and Sharing Prosperity, focuses on the following key priorities:- Maintaining an improved budget deficit position Enhancing national competitiveness and moving up the economy chain, particularly in view of the fast growing economies of China, India and Vietnam Continuing with the social agenda of helping the lower income group and implementing longer term initiatives to eradicate hardcore poverty Liberalising the economy in light of globalisation trends Leveraging on Malaysia s lead position in Islamic banking Deficits arising from the Asian financial crisis have been reduced substantially over the years. The 2008 deficit is forecast to be 3.1% of GDP (2007: 3.2%), mainly due to increased petroleum revenue, dividends and improved tax collection. The importance of enhancing Malaysia s competitiveness both as an investment location and a conducive place to do business is reflected in a number of measures such as reducing the corporate tax rate, simplifying government procedures and improving human capital development which includes measures to attract foreign knowledge workers, a crucial element in building a knowledge-based economy. The cut in the corporate tax rate of 1% from 26% to 25% for the year of assessment 2009 is seen as a positive move in making Malaysia more competitive in attracting foreign investments and to counteract the prospect of reduced dividend yields to shareholders arising from the abolishment of the tax imputation system. In the longer term, a significant shift away from direct taxes to indirect taxes will see Malaysia join the ranks of countries that have successfully implemented tax reform in this area. Thus, the implementation of the Goods and Services Tax (GST), although no mention of the implementation date was made in the Budget, must presage further cuts in the corporate tax rate. The competitiveness of Labuan as an international offshore financial centre has remained a concern for the Government. This has been compounded by the fact that several countries including the United Kingdom, Australia, The Netherlands, Japan, Sweden and Indonesia have excluded Labuan from the scope of their tax treaties with Malaysia. The proposal of allowing Labuan offshore companies to elect to be taxed under the Income Tax Act, 1967 (ITA) is designed for such companies to enjoy the October 2007 The Malaysian Accountant 3

6 benefits provided under the relevant tax treaty. The introduction of the single tier tax system in place of the current imputation system is a significant measure to reduce administrative burden. On the flip side however, tax refunds will no longer be applicable as ordinary share dividends will be tax exempt in the hands of the shareholders. Nevertheless, the Government has indicated that this disadvantage would be mitigated by higher dividends that companies could now declare in view of the reduction in the corporate tax rate. It remains to be seen whether companies would in fact pass on the benefit of the tax cut via higher dividend distribution. The impetus to spearhead the Malaysia International Islamic Financial Centre (MIFC) continues to gather momentum. The fact that over 60% of Sukuk issued globally are Malaysian issues and that more players are looking to Islamic financing options in Malaysia augurs well for this sector. For tax purposes, there has been a convergence between Islamic financing and conventional financing over the years, particularly over the last year where added steps have been taken resulting in tax advantages to Islamic financing over conventional financing methods. The 2008 Budget proposals continue to promote the MIFC in the form of tax exemption provided to fund management companies and non-resident Islamic finance experts, tax exemption on profits arising from Islamic securities and incentives for the Takaful sector. A. CORPORATE TAXATION Reduction in Corporate Income Tax Rate The corporate income tax rate for the years of assessment 2007 and 2008 is 27% and 26% respectively. These rates also apply to a trust body, an executor of an estate of a deceased individual who was domiciled outside Malaysia at the time of his death and a receiver appointed by the court. It is proposed that the corporate tax rate be further reduced to 25% for the year of assessment 2009 for these categories of taxpayers. The income of a unit holder (which is a non-resident company) consisting of income distributed to the unit holder by Real Estate Investment Trusts (REITs) or Property Trust Funds (PTFs) is currently subject to withholding tax at 27%. In an effort to streamline the corporate tax rate for various categories of taxpayers, it is proposed that the withholding tax applicable to such unit holder be reduced to 26% and 25% for the years of assessment 2008 and 2009 respectively. These proposals are seen as a move in the right direction to enhance Malaysia s competitiveness in attracting private sector investment (Malaysia is currently ranked 23rd in the World Competitiveness Yearbook 2007). As a quick comparison, the table below sets out the corporate tax rates in countries in the region. Country Corporate Tax Rate Hong Kong 17.5% Singapore 18% Malaysia 25% Vietnam 28% Thailand 30% Indonesia 30% Nevertheless, the reduction in the corporate tax rate will result in an estimated loss of revenue to the Government of RM900 million. Thus, further reduction in the corporate tax rate in the future seems untenable without the introduction of a GST regime. Introduction of the Single Tier Tax System Under the current imputation system, tax on dividends is imposed both at the companies and shareholders levels. Corporate tax paid by the payer company will be credited into the tax franking account (i.e. Section 108 account) and the payer company is required to monitor the credits in order to determine the amount of dividends that can be distributed to its shareholders. The shareholders will need to declare the dividend received in their tax returns and make a claim for the tax deducted at source. The tax authorities on the other hand, are tasked with processing tax refunds associated with the dividend. All of these have undoubtedly resulted in significant administrative cost burden for all parties involved. In order to simplify and enhance the efficiency of the tax administrative system as well as to remove the administrative cost burden, it is proposed that a single tier income tax system be introduced, with effect from the year of assessment Under this single tier system, tax on a company s profits is a final tax and dividends received by shareholders will no longer be taxable. It is however, unclear at this 4 The Malaysian Accountant October

7 juncture as to whether such tax exemption is extended to preference share dividends. A simple illustration on the two systems is set out in the table below. Imputation system Single tier system Company RM RM Company income Company tax (26%) After-tax income Shareholder Corporate Individual Dividend Gross-up for company tax N/A Shareholder s income Tax 26 28* 0 Imputation credit N/A Net shareholder s tax * assuming maximum individual tax rate (vi) For small and medium sized companies, tax on dividends paid to shareholders is deducted from the credit balance in the Section 108 account based on the highest current tax rate. The table below summarises the situations in which a company will move to the single tier system. Effective date for single tier system Company with nil Section 108 balance January 1, 2008 as at January 1, 2008 Newly incorporated company January 1, 2008 Company that fully utilises its At the time the Section 108 balance during Section 108 the transitional period balance is exhausted Company which has Section 108 balance At the time (irrevocable) but opts to move to the single tier system election is made Company which still has Section 108 January 1, 2014 balance as at December 31, 2013 A 6-year transitional period (between January 1, 2008 to December 31, 2013) is given for companies to switch from the current imputation to the new single tier system. The mechanism and conditions to utilise the Section 108 balance during the transitional period are as follows:- (i) The credit balance in the Section 108 as at December 31, 2007 is allowed for purposes of dividend distribution to shareholders. Tax paid by a company subsequent to December 31, 2007 can no longer be considered as part of the Section 108 balance; (ii) The credit balance in the Section 108 account will be adjusted only for tax reductions; (iii) A company that has fully utilised the credit balance in the Section 108 account at any time during the transitional period will automatically move to the single tier tax system; (iv) All companies will automatically move to the single tier tax system on January 1, 2014 even if they still have a credit balance in the Section 108 account as at December 31, 2013; (v) Companies are only allowed to pay cash dividends; and From the perspective of the shareholders, they may claim tax credits in respect of dividend received subject to the following conditions:- (i) A claim for tax credit is only allowed for shares held continuouslyfor90daysormorefromthedateofacquisition of the said shares (excluding public listed companies); (ii) Only dividends paid or credited from ordinary shares are eligible for tax credits; (iii) Only direct expenses related to dividend income are allowed as a deduction in arriving at the adjusted dividend income; and (iv) The statutory dividend income of the company for that year of assessment is deemed to be the total income or part of the total income of the company. The single tier system eliminates the barrier currently faced by companies that are cash rich but are unable to distribute franked dividends due to insufficient tax franking credits. On the flip side however, individual shareholders with low marginal tax rates (e.g. pensioners) would no longer be able to obtain tax refunds since the dividend income is no longer taxable under the new system. Generally, companies with adequate existing dividend franking credits will have no reason to move away to the new system within the 6 year time frame. On the other hand, companies with distributable reserves in excess of available franking credits will clearly benefit from this change in the tax system. Enhancing Tax Incentives for Energy Conservation Presently, the tax incentives for companies providing energy conservation (Energy Efficiency EE) activities are as follows: October 2007 The Malaysian Accountant 5

8 1. Companies providing energy conservation services are given: - (a) pioneer status with income tax exemption of 70% of statutory income for 5 years; or (b) investment tax allowance of 60% on the qualifying capital expenditure incurred within a period of 5 years with the allowance to be set-off against 70% of statutory income for each year of assessment; and (c) import duty and sales tax exemption on equipment used in such activities provided that the equipment are not produced locally and sales tax exemption on equipment purchased from local manufacturers; 2. Companies that incur capital expenditure for energy conservation for own consumption are entitled to investment tax allowance of 60% on the qualifying capital expenditure incurred within a period of 5 years to be set-off against 70% of statutory income for each year of assessment. To further encourage the conservation of energy, it is proposed that: 1. Companies providing energy conservation services be given:- (a) pioneer status with income tax exemption of 100% of statutory income for 10 years; or (b) investment tax allowances of 100% on the qualifying capital expenditure incurred within a period of 5 years with the allowance to be set-off against 100% of statutory income for each year of assessment; and 2. Companies that incur capital expenditure for energy conservation for own consumption be given investment tax allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years to be setoff against 100% of statutory income for each year of assessment. The proposal is effective for applications received by the Malaysian Industrial Development Authority (MIDA) from September 8, 2007 until December 31, private schools (these include schools formed by a body of persons, a trust body or a company limited by guarantee) be exempt from tax. The proposal takes effect from the year of assessment Gifts of New Computers and Broadband Subscription Fees Paid by Employers to Employees Currently, gifts of computers or payment of broadband subscription fees by employers for employees are not allowable for tax deduction if such benefits are not treated as benefits-in-kind to the employees. In line with the Government s aim of creating a large pool of knowledgebased workers who are IT-savvy, it is proposed that expenses incurred by the employers on computers or broadband subscription fees be allowed as tax deductions. The employees will be exempt from tax on such benefits. This proposal is effective for the years of assessment 2008 to Tax Exemption for Non-Profit Oriented Schools Presently, school fees, public donations, rental and interest which are the main sources of income of non-profit oriented Government assisted and private schools are subject to tax if these schools are not approved as charitable organisations or institutions under the ITA. In recognition of the contributions of trust bodies and charitable organisations in supporting the development of education in the country, it is proposed that all income received by non-profit oriented Government assisted and Extension of Power of Access to Buildings and Documents Under Section 80 of the ITA, the Director General is empowered to have full and free access to all lands, buildings and places and to all books and other documents of a taxpayer. In addition to this, it is now proposed that the Director General be also empowered to full and free access to objects, articles, materials and things of a taxpayer, which would include data stored in soft copy. This proposal takes effect upon the coming into operation of the Finance Act The Malaysian Accountant October

9 Tax Treatment on Transfer of Buildings to Real Estate Investment Trusts (REITs) Presently, a company that disposes buildings, which qualify for industrial building allowance (IBA), is subject to a balancing charge if the disposal value exceeds the tax residual value of the buildings. This applies to disposal of industrial buildings to REITs. However, no balancing charge is imposed on disposals of industrial buildings under a controlled transfer situation i.e. transfers between companies in the same group. It is proposed that the disposal of industrial buildings from companies to REITs will not be subject to a balancing charge and the REITs are eligible to claim IBA to the extent of the tax residual value of the buildings i.e. the balance of unclaimed IBA. This incentive is aimed at encouraging the growth of REITs in Malaysia and is effective from the year of assessment Tax Exemption for Trade Union and Amateur Sports Organisation Presently, dividend income derived by registered Trade Unions and National/State amateur sports organisations is subject to income tax. It is proposed that dividend income derived by such entities be exempted from income tax, with effect from the year of assessment This proposal is to streamline the introduction of the single tier tax system whereby the recipient of dividends paid under this system will be exempted from tax. Withholding Tax Exemption on Interest Currently, withholding tax provision under Section 109 is not applicable to the following interest paid or credited to a non-resident which is exempt from tax under Schedule 6 of the ITA:- (i) interest derived from Malaysia (other than such interest accruing to a place of business in Malaysia of such person) and paid or credited by any person carrying on the business of banking or finance in Malaysia and licensed under the Banking and Financial Institutions Act 1989 or the Islamic Banking Act 1983 or by any other institution approved by the Minister (provided that the interest paid or credited is not on funds required to maintain net working funds as prescribed by Bank Negara); (ii) interest or discount paid or credited to any individual, unit trust and listed closed-end fund in respect of securities or bonds issued by the Government; or debentures, other than convertible loan stock, approved by the Securities Commission; or Bon Simpanan Malaysia issued by Bank Negara; and (iii) interest paid or credited to any non-resident company (other than such interest accruing to a place of business in Malaysia of such company) in respect of securities issued by the Government; or in respect of Islamic securities or debentures issued in Ringgit Malaysia, other than convertible loan stock, approved by the Securities Commission In streamlining the withholding tax exemption as provided under Section 109 and tax exemption under Schedule 6, it is proposed that the withholding tax exemption be extended to the following interest exempted under Schedule 6:- (i) interest paid or credited to any non-resident company (other than such interest accruing to a place of business in Malaysia of such company) in respect of securities issued by the Government; or debentures issued in Ringgit or Islamic securities issued in any currency, other than convertible loan stock, approved by the Securities Commission; and (ii) interest paid or credited to any non-resident individual (other than such interest accruing to a place of business in Malaysia of such individual) in respect of Islamic securities other than convertible loan stock: a) issued in any currency other than Ringgit; and b) approved by the Securities Commission (iii) income of a unit trust in respect of interest derived from Malaysia and paid or credited by any bank or financial institution licensed under the Banking and Financial Institutions Act 1989 or the Islamic Banking Act The changes will take effect from the year of assessment Tax Treatment for Small and Medium Enterprises (SMEs) Currently, all companies are required to furnish an estimate of their tax payable to the Inland Revenue Board (IRB) not later than 30 days before the beginning of the basis period for a year of assessment. The tax estimate is payable via a 12-month installment scheme, beginning from the 10th day of the second month of the basis period for the relevant year of assessment. For new companies commencing operations in a year of assessment, they are required to submit an estimate of their tax payable within 3 months from the date of commencement of operations. The tax estimate is payable in equal monthly installments based on the number of months in the basis period concerned and the first installment begins from the sixth month of the basis period for the first year of assessment. In an effort to alleviate the cash flow burden faced by SMEs in their initial period of operations, the Government has proposed that SMEs which commence operations in a year of assessment are no longer required to submit an estimate of tax payable or make installment payments, for a period of 2 years beginning from the year of assessment October 2007 The Malaysian Accountant 7

10 in which the relevant SMEs commence operations. Nevertheless, the tax payable for the relevant years of assessment has to be settled upon the submission of the income tax return which is due not later than 7 months from the date of the company s financial year-end. SMEs are defined as companies with a paid-up capital in respect of ordinary shares of RM2.5 million and below at the beginning of the basis period for the relevant years of assessment. This proposal is effective from the year of assessment Tax Treatment for Special Purpose Vehicle for Issuance of Islamic Securities Presently, there is no specific provision in the ITA governing the tax treatment of a company that establishes a special purpose vehicle (SPV) for issuing Islamic securities. It is proposed that where a company establishes a SPV solely for the issuance of Islamic securities, the income of the SPV shall be treated as the income of the company that established the SPV. Further, the SPV will not be required to comply with the administrative procedures under the ITA. This proposal is effective from the year of assessment Tax Treatment on Bonds The current provision in the ITA does not provide for the taxability nor the deductibility of discount or premium arising from the subscription or issuance of bonds. It is proposed that any amount of discount or premium earned from the subscription or issuance of a bond shall be deemed to accrue over the whole period of the bond. Similarly, it is proposed that discount or premium incurred on the subscription or issuance of a bond be deemed to accrue over the whole period of the bond. The amount of discount or premium taxable or deductible (as the case may be) for a year of assessment shall be computed in accordance with the following formula: A x C B Where A is the number of days in the relevant period that falls within the period of the bond B is the total number of days of the whole period of the bond C is the total amount of discount or premium in respect of the bond In both cases, the Director General may allow the company to consistently apply any other formula, which is in accordance with the generally accepted accounting principles. The proposals take effect from the year of assessment Accelerated Capital Allowance for Security and Surveillance Equipment Presently, security and surveillance equipment used for business purposes qualify for capital allowances at the normal rates. To encourage companies to install security and surveillance equipment to safeguard against thefts, it is proposed that accelerated capital allowances be given on expenditure incurred for: (i) security control equipment installed in the factory premises of companies approved under the Industrial Coordination Act 1975; and (ii) vehicle surveillance equipment installed in the container lorries bearing Carrier Licence A and general cargo lorries bearing Carrier Licence A and C. The cost of the equipment (to be approved by the Minister of Finance) is to be fully written off within 1 year. This proposal is effective for the years of assessment 2008 to Deduction for Professional Indemnity Insurance Premium paid for professional indemnity insurance is currently not tax deductible as it is considered an expense that is not wholly and exclusively incurred in the production of gross income. However, Public Ruling No. 5/2006 provides that where the premium for professional indemnity insurance is compulsory under the Act, rules or by-laws of the respective profession, such premium is deductible on a concessionary basis. It is proposed that professional indemnity insurance premium be allowed as a tax deduction, regardless of whether or not such insurance is compulsory under the Act, rules or by-laws of the respective profession. This proposal takes effect from the year of assessment Takaful Business Revision of Section 60AA Section 60AA currently states that all provisions of Section 60 and 60A shall apply, mutatis mutandis, to a takaful business carried on pursuant to the Takaful Act However, Sections 60 and 60A do not cater for the following which are applicable to Takaful Operators: (i) Management expenses borne by the shareholders; (ii) Share of profits distributed to the Takaful participants and Shareholders Fund; (iii) Agency fee (Wakalah fee) received from the family Takaful Fund and General Takaful Fund; and (iv) Interest-free loan (Qard) from the shareholders fund. In view of the above, it has been proposed that Section 60AA be amended to set out the tax treatment of the following:- (i) Managements expenses borne from the Shareholders 8 The Malaysian Accountant October

11 shareholders fund as an actuarial surplus. This actuarial surplus is also taxed at the rate of 27%. The distribution of the actuarial surplus is made based on the proportion of income of the participating fund and non-participating fund of the life fund. The current tax treatment has resulted in double taxation and to alleviate this burden, it is proposed that a tax set-off from the total tax charged on the shareholders fund be given. The tax set-off is calculated using the following formula: Fund be allowed as a tax deduction from the gross income of the Shareholders Fund; (ii) Share of profits distributed from the Family Takaful Fund and General Takaful Fund be allowed as a tax deduction; (iii) Share of profits distributed to the participants in relation to the investment income be taxed on the participants through a final withholding tax mechanism; (iv) Tax be imposed on the Wakalah Fee received by the Shareholders Fund from the Family Takaful Fund and General Takaful Fund; and (v) Deduction be allowed for Qard from the Shareholders Fund and the repayment of Qard be taxed. These amendments will take effect from the year of assessment 2008 and are aimed at improving the tax treatment accorded to Takaful business and to make this business more competitive as compared to the conventional insurance operator. Taxation of Takaful Participants Presently, participants of Takaful Operators other than resident companies are not taxed on distributions received from Takaful Operators. It is proposed that such participants be subject to a final withholding tax rate at 8% (for individuals) and 26% (for non-resident companies). This would be effective from the year of assessment Review of Tax Treatment for Life Insurance Business [A x B/C] x D Where A is the actuarial surplus transferred; B is the net investment income and net proceeds from realisation of investments of the life fund; C is the net investment income and net proceeds from realisation of investments D is the tax rate of tax applicable to the life fund for that year of assessment The above computation is applicable wholly in ascertaining the tax set-off relating to the nonparticipating fund. For the participating fund, the computation for B and C will only take into account income and premiums attributable to shareholders fund. The tax set-off is applicable only where there is a chargeable income for the shareholders fund. This proposal takes effect from the year of assessment Tax Deduction for Community Projects Section 34(6)(h) of the ITA provides a tax deduction for expenditure incurred on the provision of services, public amenities and contributions to a charity or community projects pertaining to education, health, housing, infrastructure and information and communication technology as approved by the Minister of Finance (MOF). To encourage corporate social responsibility amongst companies, it is proposed that effective from the year of assessment 2008, a deduction will be given for expenditure incurred by a company in the provision of infrastructure in relation to its business which is available for public use and approved by the MOF. What is unclear at this juncture is the type of expenditure that would fall within the meaning of provision of infrastructure in relation to the company s business for public use. Further clarification or guidelines issued by the MOF on this issue would be welcomed. In the life insurance business, the investment income and profit from realisation of investments of the life fund are taxed at the rate of 8% whilst income of the shareholders fund is taxed at the rate of 27%. Further, a portion of the investment income and profit from realisation of investments, which have been taxed at 8%, is transferred to the Tax Deduction for Renovation of Workplace for Disabled Workers Currently, renovation costs including those incurred by an employer in providing facilities for the disabled workers are October 2007 The Malaysian Accountant 9

12 proposed that where such a situation arises, the institution or organisation concerned can make an appeal to the MOF within thirty days after being informed of the decision by the Director General. This proposal takes effect upon the coming into operation of the Finance Bill Admissibility of Electronic Returns, Records, Etc not tax deductible. It is proposed that expenditure incurred by a person on the alteration or renovation of premises to cater to disabled employees be allowed as a tax deduction. It is hoped that this move will encourage more employers to provide a safe and conducive working environment for disabled employees. The proposal is to take effect from the year of assessment Tax Relief on Approved Donation Section 44(6) of the ITA allows a tax deduction for cash donations made to the Government, a State Government, a local authority or an approved institution or organisation. In the case where the donor is a company, the deduction is limited to 7% of the aggregate income of the said company in the relevant year. To ensure consistency in this tax treatment, it is proposed that the 7% restriction on deduction against aggregate income be extended to a body of persons, individuals and a corporation sole, with effect from the year of assessment Currently, there is no provision in the ITA governing on the admissibility of returns submitted through e-filing. To enable admission of returns, any other prescribed forms or documents submitted by way of electronic medium for the purpose of a hearing before the Special Commissioners, it is proposed that electronic records, copies or print-out of electronic records of prescribed forms furnished, or any other documents stored, communicated or received through or by electronic medium, be admissible as evidence provided that such documents are certified by the Director General or authenticated in the manner as provided in the Evidence Act This proposal would enable the appellant to support the appeal by relying on the electronic documents. Submission of Prescribed Forms vide Electronic Medium Presently, taxpayers who use tax agents to prepare their income tax returns have to file on their own if the returns are filed electronically. There is no provision for tax agents to file the returns of their clients through electronic filing. It is proposed that a person be allowed to authorise a tax agent to furnish on his behalf any return through electronic filing. The person authorising the agent is required to make a declaration in the prescribed form containing authorisation and confirmation that the information given to the agent is true and correct. The tax agent, on the other hand, is required to make a declaration in the return stating that the return has been prepared in accordance with the information supplied by the person authorising him. This proposal takes effect upon the coming into operation of the Finance Act Appeal Procedure for Application of Approved Institution or Organisation Status Presently, where an institution or organisation is aggrieved by the decision of the Director General in respect of an application for approved status under Section 44(6) of the ITA, there is no specific provision allowing the applicant to appeal against the Director General s decision. It is Approval or Renewal as Tax Agents Presently, any approval or renewal as a tax agent shall only be valid for a period of 24 months beginning from the date of such approval or renewal. It is proposed that effective from February 21, 2007, the duration for the approval or renewal as a tax agent be for a minimum period of 24 months or any other period as approved by the Minister. 10 The Malaysian Accountant October

13 Hearing of Appeals Before the Special Commissioners The current provisions in the ITA do not provide for concurrent sittings of the Special Commissioners. In a move to expedite the hearing and resolution of appeals, it is proposed that two or more sittings of the Special Commissioners may be held concurrently at any one time, and if the Chairman of the Special Commissioners is presiding at the hearing of one of the appeals or has not been appointed or is not present at the hearing of any of the appeals, the Special Commissioners present at the hearing of the appeals may choose any one of themselves to preside at the hearing of the said appeals. This proposal will be effective upon the coming into operation of the Finance Act Hearing of Appeal to the Special Commissioners Failure to Appear Presently, when a party to an appeal before the Special Commissioners fails to attend, either personally or by a representative at the hearing of the appeal, the Special Commissioners may either postpone or hear and decide the appeal in the absence of the defaulting party. There are no provisions which empower the Special Commissioners to dismiss an appeal in the absence of the appellant. It is proposed that the Special Commissioners be empowered to dismiss an appeal if the appellant to an appeal fails to attend, either personally or by a representative, at the hearing of the appeal and if the Special Commissioners are not satisfied that the appellant is prevented from attending by sickness or other reasonable causes. This proposal will be effective upon the coming into operation of the Finance Act Deciding Orders of the Special Commissioners Presently, the deciding order of the Special Commissioners does not include a dismissal of an appeal by the Special Commissioners for the appellant s failure to attend the hearing of the appeal, either personally or by a representative. It is proposed that the deciding order will include such order pertaining to a dismissal of an appeal for the appellant s failure to attend the hearing of the appeal, either personally or by a representative. This proposal will be effective upon the coming into operation of the Finance Act This proposal will enable the appellant whose appeal is dismissed for his failure to attend the appeal hearing, to challenge the said dismissal like any other decisions made by the Special Commissioners under the ITA, including forwarding an appeal against the said dismissal to the High Court. However, as only questions of law can be appealed to the High Court, it is unlikely that the appeal will be successful since a dismissal on grounds of absence of the appellant would unlikely involve any question of law. B. INVESTMENT INCENTIVES Rationalisation of Incentive for Information and Communication Technology Currently, a company undertaking information and communication technology (ICT) activities is given pioneer status or investment tax allowance. Applications for the incentives are submitted to Multimedia Development Corporation Sdn Bhd (MDeC) or the Malaysian Industrial Development Authority (MIDA). These tax incentives vary by locations as follows: (i) Companies granted Multimedia Super Corridor (MSC) Malaysia status undertaking ICT activities in Cyber cities and Cyber centres:- (a) pioneer status with tax exemption of 100% of statutory income for a period of 10 years; or (b) investment tax allowance of 100% on qualifying capital expenditure incurred for a period of 5 years. The allowance is to be set off against 100% of statutory income for each year of assessment. These incentives are also applicable to multimedia faculties in institutions of higher learning located outside the Cyber cities and Cyber centres. (ii) Companies undertaking ICT activities located outside Cyber cities and Cyber centres:- (a) pioneer status with tax exemption of 50% of statutory income for a period of 5 years; or (b) investment tax allowance of 50% on qualifying capital expenditure incurred for a period of 5 years. The allowance is to be set off against 50% of statutory income for each year of assessment. (iii) Companies undertaking computer software development activities outside Cyber cities and Cyber centres:- (a) pioneer status with tax exemption of 70% of statutory income for a period of 5 years. To ensure that the development of ICT is carried out in a more focused and coordinated manner as well as to accelerate the infrastructure development within Cyber cities and Cyber centres, it is proposed that incentives for ICT activities, including computer software development be rationalised as follows: (a) Companies undertaking ICT activities including computer software development located outside Cyber cities and Cyber centres be centralised in the October 2007 The Malaysian Accountant 11

14 Cyber cities and Cyber centres and be given MSC Malaysia status company incentives as mentioned under item (i) above; (b) Incentives for companies undertaking ICT activities including computer software development located outside Cyber cities and Cyber centres to be discontinued. However, it is understood that companies that have already relocated outside Cyber cities and Cyber centres be allowed to continue to enjoy the existing incentives; and (c) MDeC to be the sole agency to process and recommend incentives for companies undertaking ICT activities including computer software development. These proposals are to take effect from September 8, Tax Incentives for Medical Devices Testing Laboratories Presently, there are no specific tax incentives for companies to set up or upgrade existing laboratories to test locally manufactured medical devices to the level of international standards. Most medical devices are sent abroad for testing. In an effort to encourage private sector investment in medical devices testing laboratories of international standards, the following proposals have been made: (i) Companies investing in a new testing laboratory for testing medical devices will qualify for either:- (a) pioneer status with income tax exemption of 100% of statutory income for a period of 5 years; or (b) investment tax allowance of 60% on the qualifying capital expenditure incurred within a period of 5 years. The allowance can be set-off against 100% of the statutory income for each year of assessment. (ii) Companies upgrading an existing testing laboratory for testing medical devices will qualify for investment tax allowance of 60% on the qualifying capital expenditure incurred within a period of five years. The allowance can be set-off against 100% of the statutory income for each year of assessment. These proposals are effective for applications received by MIDA from September 8, 2007 to December 31, Tax Incentives for Last Mile Network Facilities Provider for Broadband Presently, there are no special incentives for companies investing in last mile broadband infrastructure. In view of the significant last mile broadband infrastructure cost and in an effort to increase investment in this aspect to achieve the Government s target broadband penetration rate from the present 12% to 50% of households by 2010, it is proposed that the following incentives be given:- (i) income tax exemption equivalent to 100% of the qualifying capital expenditure incurred for broadband infrastructure with the allowance to be set off against 70% of statutory income for each year of assessment. The implementation of this exemption is similar to the Investment Allowance for Service Sector under Schedule 7B of the ITA; and (ii) import duty and sales tax exemption on broadband equipment and consumer access devices which are basic in providing the broadband services and which are not produced locally. This incentive is effective for investments made and equipment purchased until December 31, Applications are to be submitted to the Ministry of Finance for item (i) and to MIDA for item (ii). Tax Incentive for Reduction of Greenhouse Gas Emission At present, tax incentives are available for companies that carry out activities relating to environment management. These activities include recycling of agricultural waste into value added products, generation of renewable energy sources and energy conservation projects. As these projects effectively reduce emission of greenhouse gases (GHG), it is possible to obtain certification as Clean Development Mechanism (CDM) projects under the Kyoto Protocol. The reduction of emissions under the CDM projects can be translated into certified emission reduction ( CERs ) which can be traded in the international markets. Income from the trading of CERs is currently taxable. It is proposed that tax exemption be given to income derived from the trading of CERs certificates by companies that have been successful in reducing emission of GHG. This will be effective for the years of assessment 2008 to It is hoped that the tax exemption will encourage Malaysian companies to venture into activities which can reduce GHG, as part of fulfilling Malaysia s commitment under the United Nations Framework Convention on Climate Change (UNFCCC) to mitigate climate change. Expediting Investment for Selected Activities Presently, companies involved in an Industrial Linkage Program (ILP) are eligible for the following incentives: (i) Small and Medium Industries (SMEs) that supply components, technology or R&D:- (a) pioneer status with 100% tax exemption on statutory income for a period of 5 years; or (b) investment tax allowance of 60% on the qualifying capital expenditure incurred within a 12 The Malaysian Accountant October

15 period of 5 years with the allowance to be set-off against 100% of statutory income for each year of assessment. (ii) SMEs capable of achieving world class standards in terms of pricing, quality and capacity:- (a) pioneer status with 100% tax exemption on statutory income for a period of 10 years; or (b) investment tax allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years with the allowance to be set-off against 100% of statutory income for each year of assessment. The above incentives are effective for applications received from October 25, However, in order to expedite investments in this sector which are currently not encouraging, it is proposed that the above tax incentives will only be effective for applications received by MIDA before December 31, Extending Incentive to Recipients of Export Excellence (Services) and Brand Excellence Awards The Export Excellence and Brand Excellence Awards are given by the Ministry of International Trade and Industry (MITI) annually. The Export Excellence Award is given to a company in recognition of its commitment and efforts in penetrating export markets and achieving excellent performance. The Brand Excellence Award is a special recognition given to companies having excelled in the development of Malaysian brands and are committed to promoting the brand abroad. Presently, a manufacturing company receiving the Export Excellence Award (Merchandise) is given 100% tax exemption on the value of increased exports. This incentive is however, not granted to a company that receives the Export Excellence Award (Services) or the Brand Excellence Award. In recognition of the commitment and efforts of Malaysian companies to develop Malaysian brands, it is proposed that the 100% tax exemption on the value of increased exports given to recipients of the Export Excellence Award (Merchandise) be extended to recipients of the Export Excellence Award (Services) and the Brand Excellence Award. This incentive will be effective from the year of assessment Enhancing Tax Incentives for the Generation of Renewable Energy Presently, companies undertaking the generation of energy using biomass, hydropower (not exceeding 10 mega watts) and solar power that are renewable and environmentally friendly are eligible for tax incentives as follows: (i) Companies generating renewable energy:- (a) pioneer status with income tax exemption of 100% of statutory income for 10 years; or (b) investment tax allowance of 100% on the qualifying capital expenditure incurred within a period of 5 years with the allowance to be set-off against 100% of statutory income for each year of assessment; and (c) import duty and sales tax exemption on equipment provided that the equipment are not produced locally and sales tax exemption on equipment purchased from local manufacturers. If any one of the companies within the same group has been granted the incentive in (a) or (b) above, other companies within the said group undertaking the same activities are then not eligible for those incentives; (ii) Companies generating energy for own consumption are entitled to accelerated capital allowance on qualifying equipment, in which case, the cost of the equipment will be fully written off within a period of one year. To further encourage the generation of renewable energy, it is proposed that existing tax incentives be enhanced as follows: (i) Companies generating renewable energy:- Other companies in the same group be given the same incentive as (a) or (b) above although one company in the same group has been granted the incentive. (ii) Companies generating energy for own consumption:- October 2007 The Malaysian Accountant 13

16 Accelerated capital allowance be replaced with ITA of 100% on the qualifying capital expenditure incurred within a period of five years and the allowance is to be set-off against 100% of statutory income for each year of assessment. These incentives will be effective for applications received by MIDA from September 8, 2007 until December 31, Encouraging Investment in Selected Activities Presently, tax incentives are given for the following activities:- (i) Incentive for transforming the chicken and duck rearing system from opened house system to closed house system:- Reinvestment allowance (RA) is given for a period of 15 consecutive years commencing from the first year of reinvestment. For projects located in promoted areas, Eastern Corridor of Peninsular Malaysia, Sabah, Sarawak, Federal Territory of Labuan and Perlis, RA of 60% on qualifying capital expenditure incurred is allowed to be set-off against 100% of statutory income of each year of assessment. For projects located outside the promoted areas, RA of 60% on qualifying capital expenditure incurred is allowed to be set-off against 70% of statutory income of each year of assessment. (ii) Incentive for non-rubber plantation company that plants at least 10% of the plantation with rubber wood trees:- Accelerated agriculture allowance is given on capital expenditure incurred for land preparation, planting and maintenance of rubber wood cultivation whereby such expenditure will be fully written off within a period of one year. These incentives are currently effective for applications received from September 21, In order to spur and expedite investment in these sectors, it is proposed that these incentives be given up to the year of assessment 2010 only. Tax Exemption for Companies Managing Islamic Funds Presently, local and foreign companies managing funds of foreign investors established under Syariah principles are granted income tax exemption on management fees for the years of assessment 2007 to 2016, subject to such funds being approved by the Securities Commission. In line with the Government s continuous efforts to position Malaysia as a leading International Islamic Financial Centre, Islamic fund management activities are being promoted. In this connection, it is proposed that for the years of assessment 2008 to 2016, all fees received by local and foreign companies from managing the Islamic funds for both local and foreign investors will be tax exempt. C. PERSONAL TAXATION Tax Exemption on Early Retirement Benefits for Private Sector Employees Currently, income tax exemption of up to RM6,000 for each completed year of service is given if retirement takes place on reaching the compulsory age of retirement pursuant to a contract of employment or collective agreement at the age of 50 but before 55 and that employment has lasted for ten years with the same employer or with companies in the same group. It is proposed that any sum received by way of gratuity on reaching the compulsory retirement age of 50 but before 55 will be fully exempt from tax. The exemption is subject to the conditions that the compulsory retirement age is provided for in the employment contract or collective agreement between the employer and employee and that the person has served at least 10 years with the same employer. This amendment will take effect from the year of assessment 2007 and is aimed at providing equal tax treatment especially for female employees in certain sectors who are required to retire earlier. Deletion of Tax Relief for Interest Expended for Purchase of Residential Property Section 46A of the ITA provides a tax deduction for interest expanded to finance the purchase of a first residential property during the period June 1, 2003 to May 31, 2004 and costing between RM100,000 to RM180,000 as follows:- a. RM5,000 for the year of assessment 2003; b. RM3,000 for the year of assessment 2004; and c. RM2,000 for the year of assessment It is proposed that Section 46A be deleted with effect from the year of assessment 2006 since the deduction is no longer available under the ITA. Tax Relief for the Purchase of Sports Equipment Presently, no tax relief is given for the purchase of sports equipment for use by individuals. In order to promote a healthy lifestyle amongst the citizens through participation in sports activities, it is proposed that a relief of up to RM300 be given for each year of assessment for the 14 The Malaysian Accountant October

17 purchase of sports equipment (such as racquets and balls, treadmill, exercise bikes and airwalkers) for any of the 39 sports activities currently listed in the First Schedule of the Sports Development Act These sports activities include athletics, racquet sports (such as badminton, tennis and squash), rugby, golf, football, hockey, bowling, cycling, automobile sports, weightlifting and martial arts. The proposal will take effect from the year of assessment 2008 and the claim for the relief must be supported by a receipt. Extension of Tax Relief for Post Graduate Studies Under the current legislation, individuals pursuing studies at the tertiary level in selected fields at any institution or professional body in Malaysia recognised by the Government or approved by the MOF are eligible for tax relief of not exceeding RM5,000 per annum. The selected fields of studies are law, accounting, technical, vocational, industrial, scientific, information and communication technology, and Islamic financing. To encourage life-long learning among Malaysians, it is proposed that from the year of assessment 2008, the annual relief of RM5,000 be extended to all fields of studies at post graduate level i.e. masters or doctorate level. Tax Exemption on Gift of Computer and Broadband Subscription Fee from Employers to Employees Presently, gifts of computers from employers to employees are treated as benefits in kind and subject to income tax under Section 13(1)(b) of the ITA. It is proposed that gifts of new computers from employers to employees and payment of broadband subscription fees by the employers on behalf of the employees be exempt from income tax. This proposal is in line with the Government s aspiration of increasing broadband penetration rate and will be effective for the years of assessment 2008 to Tax Exemption on Dividend Under the current imputation system, dividends received are taxed at the gross amount and the tax deducted at source from that dividend is available as a tax credit to be set off against the tax payable of the recipient. If the tax credit is higher than the tax payable, the excess amount will be refunded to the taxpayer. With the introduction of the single tier tax system, dividends received by individuals will be exempt from tax and accordingly, the individuals are no longer entitled to claim the tax credit in respect of the tax deducted at source. This proposal is to take effect from the year of assessment Extension of Tax Exemption for Expatriates Presently, expatriates working in Operational Headquarters (OHQ) and Regional Offices (RO) are taxed only on that portion of employment income attributable to the number of days spent in Malaysia. However, this tax treatment is not given to expatriates working in International Procurement Centres (IPC) and Regional Distribution Centres (RDC) who are currently subject to tax on their entire employment income. For the purposes of streamlining the income tax treatment for expatriates working for IPC and RDC with those working for OHQ and RO and to attract foreign investments, it is proposed that expatriates working for IPC and RO be accorded the same tax treatment i.e. only employment income attributable to the number of days spent in Malaysia will be taxable. This proposal takes effect from the year of assessment Tax Exemption on Income Received by Non-resident Experts in Islamic Finance Currently, there is no tax exemption given to income derived by a non-resident expert in Islamic financing. It is now proposed that income received by non-resident experts in Islamic finance be exempt from tax, for the period September 8, 2007 to December 31, To be eligible for the exemption, the experts have to be verified by the Malaysian Islamic Financial Centre Secretariat. The objective of this proposal is to attract leading experts in Islamic finance to participate in the development of Malaysia as a premier International Islamic Financial Centre. Tax Deduction for Amount Deposited into Skim Simpanan Pendidikan Nasional Presently, no tax deduction is given for any amounts deposited into the Skim Simpanan Pendidikan Nasional. To encourage higher savings among Malaysians and to ensure adequate funds are set aside for the educational needs of the future generation, it is proposed that effective from the year of assessment 2007, an annual deduction of up to RM3,000 will be given to an individual for deposits made by that individual for his child in a Skim Simpanan Pendidikan Nasional account established under the Perbadanan Tabung Pendidikan Tinggi Nasional Act October 2007 The Malaysian Accountant 15

18 Tax Exemption on Interest Income Received by Non-resident Individual The current legislation does not provide for any tax exemption for interest paid or credited to a non-resident individual in respect of Islamic securities. It is proposed that tax exemption be given to interest paid or credited to a non- resident individual, other than such interest accruing to a place of business in Malaysia of such individual in respect of Islamic securities, other than convertible loan stock:- a. issued in any currency other than the Ringgit; and b. approved by the Securities Commission This proposal will take effect from the year of assessment It is hoped that the proposal will encourage greater participation from non-resident individual investors in Islamic securities, in line with Government s continuous efforts to position Malaysia as a leading International Islamic Financial Centre. D. PETROLEUM INCOME TAX The four proposals to the Petroleum Income Tax Act 1967 followed similar proposals to the ITA i.e. (i) Expenditure incurred for renovation of workplace for disabled workers (effective from the year of assessment 2009); (ii) Expenditure incurred for community projects (effective from the year of assessment 2009); (iii) Power of access to buildings and documents including objects, articles, materials and things (effective upon the coming into operation of the Finance Act 2007); and (iv) Appeals to the Special Commissioners (effective upon the coming into operation of the Finance Act 2007). E. STAMP DUTY Stamp Duty Exemption for Mergers and Acquisitions of Listed Companies Currently, stamp duty exemptions are given to companies listed on Bursa Malaysia that undertake mergers and acquisitions approved by the Securities Commission from October 1, 2005 until December 31, In an effort to encourage more mergers and acquisitions of listed companies in the face of globalisation, it is proposed that the exemption be extended for another 3 years i.e. until December 31, 2010, provided that such mergers and acquisitions are completed not later than December 31, Stamp Duty Exemption for Mergers of Petronas Vendors There are presently more than 1,000 vendors licensed with Petronas carrying out services related to the oil and gas industry, mostly operating in the domestic market. In an effort to encourage the mergers of companies licensed with Petronas to be competitive globally, it is proposed that stamp duty exemption be given on all instruments relating to mergers of such vendors involved in upstream activities. This incentive is applicable to mergers completed not later than December 31, Payment of Stamp Duty Using Private Valuation All instruments of transfer of real property must be stamped to enable the transfer to be completed. Currently, the assessment of the amount of stamp duty payable is based on the official valuation issued by the Valuation and Property Services Department (JPPH). To expedite urgent transfer of real property prior to obtaining official valuation from JPPH, it is proposed that effective from January 1, 2008, a private valuation by a practicing valuer be accepted as an alternative for the determination of an initial duty payable. The payment of the initial duty must be made together with a bank guarantee valid for a period of not less than 6 months. The amount of the bank guarantee is computed based on the difference in stamp duties payable between the JPPH valuation and the private valuation, with the JPPH valuation being deemed to be 35% higher than the private valuation. The following prescribed formula is to be used to determine the bank guarantee amount:- Bank guarantee amount, C = A B Where A is the amount of stamp duty levied based on the value of property as determined by the following formula:- Y x 100/65, where Y is the value of the property based on private valuation B is the amount of stamp duty levied based on private valuation If the proper stamp duty as per the subsequent JPPH valuation is higher than the initial duty paid, the Collector may within 3 months after payment of the initial duty, issue an additional assessment for the additional duty payable. Where the additional duty is not paid within 30 days of the service of the additional assessment, the Collector shall call upon the bank guarantee and if the bank guarantee amount is insufficient, the remaining duty unpaid shall be increased by 10%. 16 The Malaysian Accountant October

19 service tax are accounting, legal, engineering, architecture, survey, valuation, appraisal and real estate agency. It is proposed that the above current sales turnover threshold of RM150,000 for professional, consultancy and management services be abolished, effective from January 1, This amendment will require licensing for service providers who commence the business of providing taxable services as well as those who have yet to reach the RM150,000 sales turnover threshold. The proposal is aimed at removing the uncertainty over the interpretation of when a taxpayer exceeds the licensing threshold as well as to promote healthy competition amongst providers of the same services. In addition, where the proper duty chargeable exceeds the sum of the initial duty plus the bank guarantee ( the amount ) by more than 30% of the proper amount of duty chargeable, the difference between the amount and 30% of the proper duty chargeable shall be increased by 10% of the difference. An appeal against the additional assessment may be made within 30 days of date of the additional assessment. Stamp Duty Exemption for Purchase of Residential Property Presently, the rates of stamp duty are as follows: On the first RM100,000 On the next RM400,000 RM500,000 or more RM1.00 for every RM100 or part thereof RM2.00 for every RM100 or part thereof RM3.00 for every RM100 or part thereof In a move to encourage more ownership of private homes, it is proposed that an instrument of transfer for the purchase of a house not exceeding RM250,000 be given a 50% stamp duty exemption. This exemption is granted to only one house per individual and is applicable to sale and purchase agreements executed from September 8, 2007 to December 31, F. INDIRECT TAXES Abolishment of Service Tax Threshold for Professional, Consultancy and Management Services Presently, the licensing threshold for service tax purposes in respect of professional, consultancy and management service providers is RM150,000 within a period of 12 months or part thereof. Professional services that are subject to Composite Customs Forms Presently, different customs forms are used for various customs purposes. In an effort to improve the service delivery of the Customs Department, it is proposed that effective from January 1, 2008, customs forms with similar information be combined and the forms involved are as follows:- Current Forms Proposed Forms CJ3 Sales Tax Return JKED No. 3 CP3 Service Tax Return (Internal Tax Returns) K13 Warehouse License K14 Manufacturing Warehouse License K21 Duty Free Shop License CJ2 License under the Sales Tax Act Manufacturing License CJ7 Certificate of Exemption JKED No. 4 from Sales Tax Licensing (License/Certificate) CP2 Service Tax License E1 Manufacturing License (Excise Act) E2 Warehouse License (Excise Act) Schedule 1 Bottling and Movement of Intoxicating Liquors (Excise Regulation) K4 Inward Manifest K5 Outward Manifest JKED No. 5 (Manifest) K6 Transhipment Manifest K19 Permit to Go Alongside A Legal Landing Place or Alongside An JKED No. 6 Ocean-Going Vessel Within (Permit For Landing/ the Ports Limits Permit to Carry Goods) K20 Permit to Carry Dutiable or Prohibited Goods by Local Craft October 2007 The Malaysian Accountant 17

20 G. Labuan Presently, income derived from offshore business activities by Labuan offshore companies are subject to preferential tax under the Labuan Offshore Business Activity Tax Act 1990 (LOBATA) as follows:- (i) offshore trading activity taxed at 3% based on net profit per audited accounts or RM20,000 upon election (ii) offshore non-trading activity tax exempt Income from non-offshore activities will be taxed at the normal corporate tax rate under the ITA. It is proposed that Labuan offshore companies may elect for their income from offshore business activities to be taxed under the ITA or under the existing options pursuant to the LOBATA. Such an election is irrevocable and shall be made under S. 3A of the LOBATA and furnished to the IRB 3 months prior to the beginning of the basis period for a year of assessment. For the basis period ending on a day in the year of assessment 2008, the election may be made and furnished before February 1, This proposal is effective from the years of assessment 2009 and 2008 under the LOBATA and ITA respectively. This proposal is aimed at providing Labuan offshore companies with an option to be taxed under the provisions of the ITA and to avail of tax treaty benefits, particularly since several countries have excluded Labuan from the scope of their treaties signed with Malaysia. This change achieves the unique position whereby such companies remain as offshore companies for Malaysian domestic purposes but continue to enjoy treaty benefits provided under the relevant tax treaty. Clearly, a company would elect for this option if the domestic tax under the ITA does not exceed the tax benefits under the relevant treaty provisions. Conclusion The move away from the imputation system, with its inherent bias against non-resident shareholders, is the most significant change to our tax system. It is a progressive move and should be followed by the implementation of the GST system which could provide the Government with the main source of revenue in the future. However, a major disappointment is that personal tax rates remain unchanged particularly when there is a need to align the top marginal rate with the corporate rate. The most significant economic schemes launched this year are the Iskandar Development Region (IDR) in Johor and the Northern Corridor Economic Region (NCER) covering the States of Perlis, Kedah, Penang and Northern Perak. Whilst the development of the IDR is focused on 6 promoted service-based sectors (i.e. creative, education, financial advisory and consulting, healthcare, logistics and tourism), the NCER will accelerate the growth in the agricultural sector and to elevate income levels in the relevant States. In ensuring that the economic well-being is shared throughout the nation, the Government has also recently launched the East Coast Economic Region (ECER). The ECER master plan maps out the development of the east coast over the next 12 years focusing on key industries such as tourism, agriculture, petrochemicals and manufacturing. It is aimed at improving the standard of living of the 3.9 million residents in the area and a significant portion of the estimated investment cost of RM112 billion would be spent on improving the infrastructure in the east coast. Not to be missed out, the States of Sabah and Sarawak will also be undertaking major development projects. It was reported that the Government will launch the Sarawak Regional Corridor Development (Recorda) at the end of the year, which will be implemented under the 9th and 10th Malaysia Plans. The Sabah Corridor will focus on identifying the State s key growth sectors apart from rectifying weaknesses in the economic system. Public announcement will be made once the concepts and details of the master plan for the Sabah Corridor are finalised. It is hoped that with proper planning and efficient implementation, these initiatives will successfully yield the desired investment and business growth as well as employment opportunities, in line with the Government s aspiration of nation building and sharing of prosperity. Ms. Thang Mee Lee is a Director of TAXAND MALAYSIA SDN BHD, a tax advisory firm which is a member firm of the TAXAND Global Alliance. For further details please refer to Sources/References: Budget Commentary & Tax Information prepared by the MIA, MICPA and MIT 2. The 2008 Budget Speech 3. Finance Bill Economic Report 2007/2008 Note: This article is developed from the 2008 Budget Commentary & Tax Information for MICPA. 18 The Malaysian Accountant October

21 FEATURE Customs Advance Rulings BY THOMAS SELVA DOSS The Royal Malaysian Customs Department recently launched the Customs Advance Rulings in April 2007 in line with the requirements of the World Customs Organisation to enable the Malaysian Customs to become more transparent. With the launching of this system, businesses and companies are now in a better position to seek clarification from Customs on issues regarding sales tax, service tax, excise duty and certain aspects of import-export procedures. What is a Customs Ruling? A Customs Ruling is an opinion given by Customs, upon written application by a business or company, regarding areas which are uncertain under the Customs Act 1967, the Sales Tax Act 1972, the Service Tax Act 1975 and the Excise Act Application for a Customs Ruling Any person can apply for a Customs Ruling, in the prescribed form known as Schedule A and upon payment of a fee of RM200.00, in respect of any one or more of the following matters: A. Customs Act 1967 i. the classification of goods ii. the principles to be adopted for the purposes of determining the value of goods B. Sales Tax Act 1972 i. the classification of goods ii. the determination of a taxable person iii. the principles to be adopted for the purposes of determining the value of goods C. Service Tax Act 1975 i. the determination of a taxable service ii. the principles to be adopted for the purposes of determining the value of a service D. Excise Act 1976 i. the classification of goods ii. the principles to be adopted for the purposes of determining the value of goods and any other matters to be prescribed by the Director- General under any of the above mentioned Acts. All applications for Customs Rulings can be made to the Technical Services Division of the Customs Branch in each State or directly to the Secretariat of Customs Rulings at the Customs Headquarters in Putrajaya. The applications must contain complete information regarding the subject concerned and submitted together with the relevant documents. Sometimes, the subject matter in the application may require an analysis by a third party, in which case an extended period will be required. However, once the results of the analysis are forwarded to Customs, a ruling will be issued within sixty days from the receipt of the analysis report. In normal situations, a Customs Ruling will be issued in the prescribed form within ninety days from the date of receipt. An applicant may withdraw his application at any time before a Customs Ruling is issued, in which case, the payment made relating to the application will be forfeited. Amendment or Modification of Customs Rulings The Director-General may amend, modify or revoke the ruling if (a) it contains an error which needs to be corrected; (b) the customs ruling was based on an error of fact or law; (c) there is a change in law relating to customs; or (d) there is a change in the material fact or circumstances on which the ruling was based. After making the amendment, modification or revocation, the Director-General will issue a notice to the applicant notifying him of the amendment, modification or revocation. The new Customs Ruling will take effect from the date stated in the notice. In situations where the ruling was obtained by fraudulent means the Director will declare the ruling to be null, void and of no effect. Validity and Renewal of Customs Ruling A Customs Ruling is binding on the applicant and will be valid for a period of three years from the date stated in the ruling after which an application for a renewal has to be made. The renewal has to be made in the prescribed form not later than three months before the expiry date of the ruling. A renewed Customs Ruling will be valid for a period of two years from the date of issuance. After this, the applicant is required to make a new application. This article first appeared in BizDo, issue 18, August 2007, the newsletter of BDO Binder. Produced with kind permission. Thomas Selva Doss is a Senior Customs Consultant at BDO Binder Tax Services Sdn Bhd. October 2007 The Malaysian Accountant 19

22 INSTITUTE NEWS Presentation of 2007 MICPA Excellence Awards, Examination Certificates, Prizes & Membership Certificates The Institute held its annual presentation of Excellence Awards, Examination Certificates, Prizes and Membership Certificates at a special ceremony held on Saturday, August 25, 2007 at Seri Pacific Hotel Kuala Lumpur. The presentation ceremony was officiated by YBhg Datuk Ali Abdul Kadir, Chief Executive Officer and Head of Asia, Dubai Investment Group Asia Sdn Bhd and was witnessed by over 230 guests including students, their family members, friends and guests of the MICPA. The Excellence Awards represents an important part of the Institute s efforts to promote accountancy as a career among young Malaysians, and the CPA qualification as a Number 1 Business Professional. The Excellence Awards accord honour and public recognition to young graduates who have achieved all-round excellence in the pursuit of an accounting education. The Excellence Awards are divided into two categories namely: Excellence Award for the Most Outstanding CPA Student This award is bestowed on the best allround CPA student who has recently completed the MICPA examinations; Excellence Awards for Best Accounting Graduates This award is presented to the top accounting graduate from each of the local universities that offer the Bachelor of Accountancy qualification Eligibility for the awards is by nomination and the criteria for the awards include academic achievements, involvement in extra-curricular activities, personal attributes and career advancement in the case of the Most Outstanding CPA Student Award and the candidate s performance at an interview session. Certificates of Meritorious Achievement were also presented to all the finalists for the two categories of Excellence Awards. At the same ceremony, the Vice-President of the Institute, YBhg Dato Ahmad Johan Mohammad Raslan presented examination certificates to all successful candidates of the November 2006 and May 2007 MICPA examinations. A total of six gold medals were also presented to students who had passed the examinations with high distinction. Dato Ahmad Johan Mohammad Raslan also presented membership certificates to newly admitted members of the Institute. The MICPA provides for two streams of training. The MICPA students may undertake their training in accounting firms or in approved training organisations in commerce, industry or the public sector. At the same ceremony, an Appreciation Award was presented to West Synergy Sdn Bhd in recognition of the organisation s commitment and support for the MICPA training programme under Stream II. Mr Ng Hock Pin from West Synergy received the Appreciation Award on behalf of the organisation. This year, a token of appreciation was presented to two kind-hearted individuals in recognition of their support towards the accountancy profession by donating all the royalties collected from the sale of their newly published book titled Practical Auditing in Malaysia to the MACPA Educational Trust Fund. The recipients were YBhg Puan Sri Datin Mary Lee Siew Cheng and Ms Tong Seuk Ying. The MACPA Educational Trust Fund was set up in 1981 to promote education and research in accountancy and related fields. The Trust Fund continues to provide financial assistance to young Malaysians with outstanding academic record but who are financially disadvantaged to pursue a higher accountancy qualification. Winner of Most Outstanding CPA Student Award ROSALIND TAY SWEE PEI The Most Outstanding CPA Student Award is bestowed on a student with these leading attributes: The recipient s excellent performance in the MICPA Professional examinations; The recipient s exemplary career development; and The recipient s outstanding personality. It is hoped that the recipient through the acceptance of this award will stand to represent MICPA s aspiration to always inculcate excellence in all endeavors. Rosalind Tay Swee Pei has performed with excellence not only in her studies but also in extra-curricular activities and career development. She graduated with a First Class Honours degree of Bachelor of Accounting from Universiti 20 The Malaysian Accountant October

23 Sains Malaysia in 2005 with a CGPA of She was in the Dean s List for excellent performance throughout her degree programme and won the Best Student Award for three consecutive years. She also won the MICPA Excellence Awards for Best Accounting Graduates in Rosalind is a model student, who is conscientious, hardworking, intelligent and very critical in her learning process. She has a warm personality and exhibits a strong sense of responsibility and good leadership skills. Rosalind joined the MICPA training programme in August 2005 under articleship with Ernst & Young. She passed each Module of the Advanced Stage Examination of the MICPA examination at the first attempt. Rosalind has varied interests. She enjoys travelling and playing the piano. She is also active in sports, especially track and field and tennis and is also quite adventurous - she climbed Mt Kinabalu in Rosalind is also actively involved in church activities. Rosalind is currently working with Ernst & Young, Kuala Lumpur. Winners of 2007 Excellence Awards for Best Accounting Graduates The Excellence Awards for Best Accounting Graduates is bestowed on the recipient in recognition of his or her outstanding academic performance, exemplary leadership qualities and zealous desire to strive for excellence which have proved an inspirational beacon to others. performance throughout her degree programme. Zety Haida has participated actively in extracurricular activities during her school and university days. She participated in the 6th Inter-Varsity Accounting Quiz in 2007 and was a member of the Entrepreneurship Club and a Member of the Archery Club at IIUM. During her school days, she was President of the Hockey Club, Secretary of the Scout Society, Peer Counseling Club and the Malay Language Society just to name a few. Her hobbies include reading, archery and hockey. Zety Haida is currently attached to PricewaterhouseCoopers, Kuala Lumpur. ABDUL HADI GONAWAN Universiti Kebangsaan Malaysia (UKM) Abdul Hadi Gonawan graduated with a First Class Honours degree of Bachelor of Accountancy from Universiti Kebangsaan Malaysia. He scored a CGPA of 3.71 and was in the Dean s List for excellent academic performance for five semesters. He was also awarded Best Student Award by UKM for the years 2004, 2005, 2006 & Abdul Hadi does not believe in all work and no play. He has always been selected to represent his faculty in student activities such as debates, quiz, investment games and has proven his leadership qualities and capabilities through his co-curricular activities. His highest achievement was being chosen to represent UKM and Malaysia to the European International Model United ZETY HAIDA ZAIMIDIN Universiti Islam Antarabangsa Malaysia (UIAM) Zety Haida Zaimidin graduated with a First Class Honours Bachelor of Accountancy degree from Universiti Islam Antarabangsa Malaysia with a CGPA of Throughout her studies, Zety Haida has maintained an excellent academic record and has shown great interest in her work. She was in the Dean s List for excellent academic October 2007 The Malaysian Accountant 21

24 Nations Conference held in Hague, The Netherlands in In his spare time, Abdul Hadi loves to travel and go fishing. He is also a part-time motivator speaker for secondary school students and is actively involved in NGO work, being a member of Sahabat Penyayang and Yayasan Budi Penyayang, Malaysia. Abdul Hadi is currently attached to Ernst & Young, Kuala Lumpur in the Assurance and Advisory Business Services Department. CHEAH KAM FEI Universiti Malaya (UM) Cheah Kam Fei is a Shell Scholar and graduated from Universiti Malaya with a First Class Honours degree of Bachelor of Accountancy. He scored a CGPA of 3.77 and was in the Dean s List for excellent performance for 3 consecutive academic years during his degree programme. Kam Fei is active participant in extra-curricular activities. During his university days, he was an active member of the Accounting Club and was a facilitator for the new undergraduates during orientation week and participated in many activities organized by the Club, including a Charity Drive to Ti-Ratana Orphanage home. and was in the Dean s List for outstanding performance throughout her degree and diploma programme for 12 consecutive semesters. Her lecturers describe her as a dedicated student who is eager to learn and is motivated to excel in her studies. She exhibits a strong sense of responsibility and good leadership skills. Apart from her exceptional academic results, she has also shown great enthusiasm in student activities. Sze Tiing took part in the Inter-varsity Accounting Quiz in 2005 which is held annually and was part of the organizing committee for the University s Career Fair in In her spare time, Sze Tiing enjoys travelling, reading novels and is committed to saving the environment with her involvement in re-cycling activities. Tan Sze Tiing is currently working in Singapore. CHIA SOOK TUAN Universiti Putra Malaysia (UPM) Chia Sook Tuan graduated with a First Class Honours degree of Bachelor of Accounting from Universiti Putra Malaysia with a CGPA of She was in the Dean s List for excellent academic performance for 7 semesters. Chia Sook Tuan is described by her lecturers as a matured young woman who is conscientious, resourceful and constantly striving for excellence. She has represented her Universiti in various activities including being the 2nd Runner-up winner in UTAR Inter-varsity Biz Whiz Challenge She was also a member of the Golden Key International Honor Society. To keep fit, Cheah Kam Fei enjoys playing badminton and futsal and has taken part in the Kuala Lumpur Run and the Kuala Lumpur International Marathon in He also has a fond interest in collecting stamps and old coins and is a member of the Philately and Numismatic Club. As testimony to his interest, he assisted in the organisation of an exhibition in 1999 with the participation of collectors all over the country. Cheah Kam Fei is currently attached to Shell Malaysia Trading Sdn Bhd. TAN SZE TIING Multimedia Universiti Malaysia (MMU) Tan Sze Tiing graduated from Multimedia University Malaysia with a First Class Honours Bachelor of Accountancy degree. She scored a CGPA of 3.92 out of 4.0, Sook Tuan has varied interests. She enjoys reading, jogging, surfing the internet and loves adventure and outdoor activities such as water rafting and has successfully climbed to the Low Peak of Mount Kinabalu. Chia Sook Tuan is currently attached to BDO Binder. LEONG JING YNG Universiti Sains Malaysia (USM) Leong Jinq Yng graduated from Universiti Sains Malaysia with a First Class Honours degree of Bachelor of Accountancy. She scored a CGPA of The Malaysian Accountant October

25 Khairunnisa has proven to be active in extra-curricular activities. She was actively involved in the ABACSS Sports Carnival, MEDIA Sports Carnival and participated in conferences and has been involved in motivational programs with SPM students. She has also participated in the Inter-Varsity Accounting Quiz organized by MMU. Khairunnisa speaks and writes Mandarin and plays volleyball to keep fit in her spare time. Khairunnisa is currently working with Perbadanan Ketua Menteri Melaka. Jinq Yng is active in co-curricular activities. During her university days, she was the President of the Management Society in 2004/2005 and has been active in the society s activities including the Management and Accounting Week and the Management and Accounting Night. She also represented USM in the Business Simulation Game in 2005 and was a Member of the Golden Key International Honour Society from Jinq Yng received the Golden Key International Honour Society Chapter Scholarship Award in 2004 and was also a recipient of the Dato Alex Lee Excellence Award in In her spare time, Jinq Yng enjoys playing badminton, tennis, reading, swimming, travelling and listening to music. Leong Jinq Yng is currently attached to Pricewater housecoopers Penang. MOHD FAIRUZ A GANI Universiti Tenaga Nasional (UNITEN) Mohd Fairuz A Gani graduated from Universiti Tenaga Nasional with a First Class Honours degree of Bachelor of Accountancy. He scored a CGPA of Mohd Fairuz has proven to be an all-rounder who has accolades in extra-curricular activities. He was the President of the Student Representative Council of UNITEN, President of the Islamic Student Society and President of the Student Committee Board. He was also actively involved in the Student in Free Enterprise (SIFE) and was the Vice President of SIFE from He emerged as 1st Runner-Up of SIFE National Competition for 2006 & He also emerged as Champion in the entrepreneurship in NUR KHAIRUNNISA ABU HASAN Universiti Teknologi MARA (UiTM) Nur Khairunnisa Abu Hasan graduated from Universiti Teknologi MARA with a First Class Honours degree of Bachelor of Accountancy. She scored a CGPA of 3.80 and was in the Dean s List for excellent academic performance for 4 Semesters. She also received the Anugerah Naib Canselor in Her lecturers describe her as one of their best students and besides her achievements in the academic field, Nur youth and learning competition organized by AIESEC, UKM & General Electric (M) Sdn Bhd. In his spare time, Mohd Fairuz reads and also loves to indulge in gardening. Incidentally, his favourite flower is the orchid. Mohd Fairuz is currently working with Bank Negara Malaysia as a Senior Executive, Banking Supervision Department. AGNES NG HUI PIN Universiti Utara Malaysia (UUM) Agnes Ng Hui Pin graduated from Universiti Utara Malaysia with a First Class Honours degree of Bachelor of Accountancy. She scored a CGPA of 3.90 and was in the Dean s List for excellent academic performance for all the October 2007 The Malaysian Accountant 23

26 semesters during her degree programme. She also received the Excellence Awards for the Faculty of Accountancy in Agnes is active in sports and co-curricular activities. She has participated in various sports competitions such as the UUM Marathon and the Starwalk in Penang in 2006 as well as in badminton and volleyball competitions. In her spare time, Agnes enjoys playing basketball, volleyball, badminton and reading. Agnes Ng is currently attached to Ernst & Young, Penang as an Audit Assistant in the Assurance and Advisory Business unit Most Outstanding CPA Student Award Recipients of Certificates of Meritorious Achievement NAME ANG LAI FERN CHAN CHOOI HAN CHONG MEI YEE LIM HOOI MAY KANG SEOK PING LIM SING LIN SHENG HUI LIM WAI SEE LOONG MEI SEE TAN POAY LIN TONG SHEAU SHAN WAN SAFARINA W. ZULKIFLI WONG SHYAN FEN LIM CHU GUAN FIRM Ernst & Young PricewaterhouseCoopers KPMG PricewaterhouseCoopers PricewaterhouseCoopers Ernst & Young Ernst & Young PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers PricewaterhouseCoopers KPMG PricewaterhouseCoopers 2007 Excellence Awards for Best Accounting Graduates Recipients of Certificates of Merit NAME ARDI BALQIS BTE DAROS LEE YANN YANN NG LAI LENG NG XIANG YIN NURHAZRINA MAT RAHIM NUR HUDA BINTI ADRIS RADHIAH BTE ABD JALIL SITI NOORBANI BTE HUSSAIN SOO WENG KONG TAJRUL SHAMEER TAJUDIN TAN LIAN YIN TAN MING PEI TEO HUI LING VERNIE GOH PEI SIAN UNIVERSITY Universiti Sains Malaysia Universiti Kebangsaan Malaysia Universiti Sains Malaysia Multimedia Universiti Malaysia Universiti Teknologi MARA Universiti Kebangsaan Malaysia Universiti Teknologi MARA Universiti Islam Antarabangsa Malaysia Universiti Utara Malaysia Universiti Tenaga Malaysia Universiti Malaya Universiti Utara Malaysia Universiti Malaya Universiti Putra Malaysia Continuing Professional Development Programme November - December 2007 Courses Type of Programme Date Venue Impact of Financial Reporting One-Day Seminar November 29, 2007 Evergreen Laurel Hotel, Standards on Taxation Penang Key Amendments and Forum November 30, 2007 Berjaya Times Square Developments to the Hotel, Kuala Lumpur Companies Act 1965 Audit Guide for Practitioners Two-Day Workshop December Best Western Premier Seri Pacific Hotel, Kuala Lumpur An Update of the Financial One-Day Seminar December 17, 2007 Best Western Premier Seri Pacific Reporting Standards Hotel, Kuala Lumpur For further information, please contact: Mr Joseph Leong/Cik Salmiah Aliyas Tel: Fax: joseph.edu@micpa.com.my or salmiah.edu@micpa.com.my 24 The Malaysian Accountant October

27 INSTITUTE NEWS MEMBERSHIP UPDATE MICPA WELCOMES NEW MEMBERS ADMISSION TO MEMBERSHIP IN SEPTEMBER Chung King Keong 2. Devinder Kaur a/p Dayal Singh 3. Ho Phei Suan (Ms) 4. Hoo Yau Fook 5. Hor Soo Chin (Ms) 6. Hwang Wee Wee (Ms) 7. Jasmin Tan Ai Ti (Ms) 8. Kong Shon Fong (Ms) 9. Lee Wan Chyi (Ms) 10. Lim Pui Yoke (Ms) 11. Lim Swee Geok (Ms) 12. Louisa Hanim binti Amir (Cik) 13. Lui Lee Ping (Ms) 14. Muni Azuin Binti Azmi (Cik) 15. Nor Hafizah binti Ghazali (Cik) 16. Raja Anuar bin Raja Abu Hassan 17. Sam Siow Cheng 18. Wong Yoke Mun (Ms) 19. Zuraidah binti Abu Sarin (Cik) ADMISSION AS PROVISIONAL MEMBER IN SEPTEMBER Cheong Ai Ling (Ms) 2. Chew Lay Yen (Ms) 3. Lim Chu Guan 4. Lim Peck Kuan (Ms) 5. Mohd Faizal bin Mohd Fadilah 6. Ong Soon Bee RESIGNATION OF MEMBERSHIP 1. Chew Earn Huen 2. Chung Khiun Fatt 3. Goh Kim Leong 4. Joyce Lim Sok Hoon DISCIPLINARY October 2007 The Investigation Committee found a prima facie case established against two members of the Institute in that the members had been engaged in public practice without holding a practising certificate issued by the Institute and were, therefore, in breach of bye-law 55 of the Institute s bye-laws within the meaning of Article 22(1)(d) of the Institute s Articles of Association. The Investigation Committee has, in accordance with the provisions of bye-law 102 (consent orders), ordered that the members be reprimanded and fined a sum of Ringgit Malaysia one thousand five hundred and seventy-five (RM1,575) each. 49th MICPA Anniversary Commemorative Lecture cum Luncheon We wish to inform that the Institute's 49th Anniversary Commemorative Lecture cum Luncheon originally scheduled for December 13, 2007 has been postponed until further notice. The Institute will keep members informed of the revised date upon confirmation from the Guest of Honour, YBhg Dato' Zarinah Anwar, Chairman of the Securities Commission. ERRATUM In the June/August issue of The Malaysian Accountant, the name of Choo Choon Beng was inadvertently printed under Cessation of Practice wef April 2007 at Choo & Associates instead of under Commencement of Practice. The error is regretted. October 2007 The Malaysian Accountant 25

28 PROFESSIONAL NEWS IASB Update IASB issues revised standard on the presentation of financial statements are given due consideration by the Board. (Source: IASB Press Release/ September 2007) The International Accounting Standards Board (IASB) on September 6, 2007 issued a revised version of IAS 1, Presentation of Financial Statements. The revision is aimed at improving users ability to analyse and compare the information given in financial statements. The changes made are to require information in financial statements to be aggregated on the basis of shared characteristics and to introduce a statement of comprehensive income. This will enable readers to analyse changes in a company s equity resulting from transactions with owners in their capacity as owners (such as dividends and share repurchases) separately from non-owner changes (such as transactions with third parties). In response to comments received through the consultation process the revised standard gives preparers of financial statements the option of presenting items of income and expense and components of other comprehensive income either in a single statement of comprehensive income with subtotals, or in two separate statements (a separate income statement followed by a statement of comprehensive income). The revisions include changes in the titles of some of the financial statements to reflect their function more clearly (for example, the balance sheet is renamed a statement of financial position). The new titles will be used in accounting standards, but are not mandatory for use in financial statements. The revised standard will come into effect for the annual periods beginning on or after 1 January 2009, but early adoption is permitted. The publication of IAS 1 marks the completion of the first phase of the IASB s joint initiative with the US Financial Accounting Standards Board (FASB) to review and harmonise the presentation of financial statements. The second phase, which has already begun, is examining more fundamental questions about the presentation of information in financial statements and the IASB expects to publish a discussion paper on the subject within the next six months. Introducing the revised IAS 1, Sir David Tweedie, Chairman of the IASB, said: Any changes to the way financial information is presented will quite rightly attract much interest. With the first phase of this project now completed we look forward to addressing the more fundamental questions as part of a broad consultation that will start at the beginning of next year. I would strongly encourage all those who have an interest in financial reporting to participate in this consultation in order to ensure that the best ideas available The IASB proposes additional guidance on hedge accounting The IASB on September 6, 2007 published for public comment an exposure draft of proposed amendments to IAS 39, Financial Instruments: Recognition and Measurement. The amendments are intended to clarify what can be designated as a hedged item in a hedge accounting relationship. The exposure draft specifies the risks that qualify for designation as hedged risks when an entity hedges its exposure to a financial instrument. In addition it clarifies when an entity may designate a portion of the cash flows of a financial instrument as a hedged item. The proposals respond to requests for additional guidance on what IAS 39 permits to be designated as a hedged item. Although the IASB is undertaking research that will ultimately lead to the replacement of IAS 39, that work is at an early stage. The IASB, therefore, decided to propose the amendments contained in the exposure draft. The exposure draft of proposed amendments to IAS 39 Exposures Qualifying for Hedge Accounting is available for eifrs subscribers from September 6, 2007 and will be freely available on the Website from September 17, It is open for comment until January 11, About the exposure draft The main two issues in the exposure draft on which the IASB hopes to receive respondents comments are: whether they agree with the proposed amendments regarding qualifying risks for designation as hedged risks of a financial instrument, and the situations that an entity can designate a portion of the cash flows of a financial instrument as a hedged item; and whether they believe that the proposed amendments would result in a significant change to existing practice, and if so, what those changes would be. (Source: IASB Press Release/ September 2007) IASB proposes improvements to the accounting for joint arrangements The IASB on September 13, 2007 published for public comment a proposal to improve the accounting for joint arrangements. ED 9, Joint Arrangements proposes a replacement to the existing standard IAS 31, Interests in Joint Ventures, and 26 The Malaysian Accountant October

29 represents the first major revision to the standard since it was first issued in The review also forms part of the IASB s short-term project with the US Financial Accounting Standards Board (FASB) to reduce differences between International Financial Reporting Standards (IFRSs) and US generally accepted accounting principles (US GAAP). The main focus of the proposals is on the two aspects of the current accounting for joint arrangements that the IASB considers are an impediment to high quality reporting. The current accounting for joint arrangements follows the legal form in which the activities take place. This does not always reflect the contractual rights and obligations agreed to by the parties. Shifting the focus to these rights and obligations will provide a more realistic reflection of the joint arrangement in the financial reports of the parties involved. The existing standard gives preparers a choice when accounting for interests in jointly controlled entities, making it difficult to compare financial reports. ED 9, Joint Arrangements proposes to remove that choice by requiring parties to recognise both the individual assets to which they have rights and the liabilities for which they are responsible, even if the joint arrangement operates in a separate legal entity. If the parties only have a right to a share of the outcome of the activities their net interest in the arrangement will be recognised using the equity method. The proposals are designed to provide users with more information about the operations an entity conducts through joint arrangements including a description of the nature of joint arrangements and summarised financial information relating to its interests in joint ventures. ED 9, Joint Arrangements is available for eifrs subscribers from September 13, 2007 and will be freely available on the Website from September 27, It is open for comment until January 11, Printed copies of the proposed IFRS Joint Arrangements (ISBN ) will be available shortly, at 10, from the IASC Foundation Publications Department. Notes History ED 9, Joint Arrangements proposes changes to accounting for interests in joint arrangements, and would replace IAS 31, Interests in Joint Ventures. IAS 31 was published by the International Accounting Standards Committee (IASC), the IASB s predecessor body, in The requirements of IAS 31 have not changed to any great extent since it was first published in What is a Joint Arrangement? A joint arrangement is a contractual arrangement whereby two or more parties undertake an economic activity together and share decision-making relating to that activity. Joint arrangements include joint assets, joint operations and joint ventures. What was the purpose of a review of IAS 31? The main aim of ED 9 Joint Arrangements is to remedy two aspects of IAS 31. The first is that the form of a joint arrangement is the main determinant of the accounting and the second is that there is a choice of accounting for jointly controlled entities. As well as improving the accounting for joint arrangements the Board took the opportunity to review and improve the requirements for disclosing information about joint arrangements, subsidiaries and associates. Who will be affected by the proposals? For the majority of entities the new standard is unlikely to reshape their balance sheet. This is because in most circumstances accounting for individual assets and liabilities gives the same outcome as proportionate consolidation. If an entity has rights to individual assets and responsibility for liabilities (and related revenue and expenses) of a joint arrangement, the new standard will have little effect on its financial statements if that joint arrangement is not a legal entity or if it is a legal entity that was previously accounted for using proportionate consolidation. In a similar manner, if an entity has rights only to a share of the outcome of the activities of a joint arrangement, there will be little change if that joint arrangement is a legal entity and was previously accounted for using the equity method. Where entities have been using proportionate consolidation and are recognising assets and liabilities in their financial statements even though they have no rights to the assets or responsibility for the liabilities, or where those entities that have rights to assets and responsibility for liabilities but are not recognising those rights and responsibilities because they are using the equity method of accounting then the change may be more significant. Why do we need enhanced disclosure requirements? Currently, it can be difficult to tell the nature and extent of an entity s operations that it conducts through joint arrangements. As well as enhancing the disclosures about joint arrangements, the Board is also proposing amending its IFRSs on subsidiaries (IAS 27, Consolidated and Separate Financial Statements) and associates (IAS 28, Investments in Associates) to provide more consistent disclosure requirements across that range of investment types. Are we adopting US GAAP with the reviewed IAS 31? No. Whilst proposals in the exposure draft are consistent with those in US GAAP, differences remain because of industry specific guidance that exists in US literature for joint arrangements. IFRSs do not generally provide industry specific guidance for activities that span many sectors. (Source: IASB Press Release/ September 2007) October 2007 The Malaysian Accountant 27

30 ASBJ and IASB make continued progress towards goal of convergence in accounting standards by 2011 The Accounting Standards Board of Japan (ASBJ) and the International Accounting Standards Board (IASB) have held their first two-day meeting since the announcement of an initiative to accelerate convergence between Japanese generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRSs), known as The Tokyo Agreement. At the meeting in London on September 27 & 28, 2007 members of the ASBJ and the IASB had two objectives. First, to review the convergence programme and the shared goal of eliminating major differences between IFRSs and Japanese GAAP by 2008, with the remaining differences being removed on or before June 30, And second, to discuss the arrangements for the ASBJ to input its views into the IASB s current work programme. The discussions included a review of short-term convergence projects, where major differences are to be eliminated towards the goal of 2008, as well as other major projects including segment reporting, intangible assets, special purpose entities and business combinations. In addition, the representatives of the boards exchanged views on the current status of their work on consolidation, liabilities and equity and revenue recognition. The boards also agreed on future arrangements for interaction both by board members and by staff in order to achieve convergence within the agreed timetable. Commenting on the meeting, Sir David Tweedie, Chairman of the IASB, said: There remains much work ahead of us but I am pleased to report that we are on schedule to achieve convergence between Japanese GAAP and current IFRSs by Ikuo Nishikawa, Chairman of the ASBJ, said: We are pleased with the close co-operation of staff from both boards and the good progress we have jointly made during the meeting in pursuit of an accelerated convergence programme. The next joint meeting is scheduled for April 2008 in Tokyo, Japan. Notes The Tokyo Agreement, a joint declaration announced by the ASBJ and the IASB on August 8, 2007, sets out an initiative to accelerate a convergence programme between IFRSs and Japanese GAAP first announced in March The aim of the initiative is to eliminate major differences between Japanese GAAP and current IFRSs (as defined by the July 2005 CESR assessment of equivalence) by 2008, with full convergence between Japanese GAAP and current IFRSs in use by (Source: IASB Press Release/ October 2007) IASB publishes proposals for minor amendments under the first annual improvements project The IASB on October 11, 2007, published for public comment an exposure draft of proposed miscellaneous amendments to 25 International Financial Reporting Standards (IFRSs) under its first annual improvements project. The proposals range from a restructuring of IFRS 1, First-time Adoption of International Financial Reporting Standards, mainly to remove redundant transitional provisions, to minor changes of wording to clarify the meaning and remove unintended inconsistencies between IFRSs. The IASB discussed the individual proposals during the past year and posted near final drafts of them on the Website when it had reached decisions on them. The collective publication of the proposals in a single exposure draft is intended to streamline the standard-setting process, with benefits both for interested parties and for the IASB. Introducing the exposure draft, Sir David Tweedie, Chairman of the IASB, said: Changes to standards, however small, are timeconsuming for the Board and burdensome for others. The annual improvements process eases the burden for all concerned by packaging non-urgent, but necessary, minor amendments to standards into a single document, rather than involving a series of piecemeal changes. The exposure draft is available for eifrs subscribers from October 11, 2007 and will be freely available on the Website under IASB projects/annual Improvements from October 22, The IASB requests comments on the exposure draft by January 11, The proposed effective date for the proposed amendments, if confirmed, is from January 1, Notes About the annual improvements process The IASB has adopted an annual process to deal with nonurgent, minor amendments to IFRSs (the annual improvements process ). Issues dealt with in this process arise from matters raised by the International Financial Reporting Interpretations Committee (IFRIC) and suggestions from staff or practitioners, and focus on areas of inconsistency in IFRSs or where clarification of wording is required. The process will involve an annual project in which the IASB discusses and decides on proposed improvements to IFRSs as they arise throughout the year. In October each year, an omnibus exposure draft of the collected proposals will be published for public comment, with a comment period of 90 days. After the IASB has considered the comments received, it will aim to issue the amendments in final form in the following April, with an effective date of 1 January of the following year. (Source: IASB Press Release/ October 2007) 28 The Malaysian Accountant October

31 IFAC Update IFAC Update IFAC's Public Sector Accounting Standards Board Proposes Updates to Improve the Clarity of Foreign Exchange Rates Standard The International Public Sector Accounting Standards Board (IPSASB), an independent standard-setting board within the International Federation of Accountants (IFAC), is seeking comments on an exposure draft (ED) developed as part of its project to enhance the clarity and usability of its International Public Sector Accounting Standard (IPSAS) that addresses accounting for fluctuations in exchange rates. ED 33, Amendments to IPSAS 4, The Effects of Changes in Foreign Exchange Rates, proposes updates to IPSAS 4 to reflect, as appropriate for the public sector, the latest revisions to the corresponding International Financial Reporting Standard (IFRS) issued by the International Accounting Standards Board (IASB). Key proposals in ED 33 reflect amendments made by the IASB to International Accounting Standard 21, The Effects of Changes in Foreign Exchange Rates. "Converging IPSASs with IFRSs, where appropriate for the public sector, is one of the key objectives of our standards development program," states Mike Hathorn, Chair of the IPSASB. "This exposure draft proposes a number of changes to IPSAS 4, most notably, to clarify and amend the existing guidance for situations where the public sector entity has an interest in a foreign operation." Comments on the ED are requested by December 31, The ED may be viewed by going to /EDs. Comments may be submitted by to publicsectorpubs@ifac.org. They can also be faxed to the attention of the IPSASB Technical Director at +1 (416) , or mailed to the IPSASB Technical Director at 277 Wellington Street West, 6th Floor, Toronto, Ontario M5V 3H2, Canada. All comments will be considered a matter of public record and will ultimately be posted on the IFAC website. (Source: IFAC Press Release/ September 2007) IAASB Announces Effective Date for Its Clarified International Standards The International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), has determined that its complete set of clarified International Standards on Auditing (ISAs) will be effective for audits of financial statements for periods beginning on or after December 15, In announcing the definitive date, the IAASB hopes to eliminate uncertainty about when the new standards will apply. This will allow standard setters, regulators and auditors to plan for the adoption and implementation of the standards. In setting the date, we have balanced the desire to benefit from improvements in the standards as soon as practicable against the necessity for implementation to be effective. The date may seem a long way off, but there is much to be done to ensure that implementation is smooth. This is clearly understood by auditors and others who have asked us to allow a reasonable time for implementation. We have listened to their concerns and have done so, explains John Kellas, IAASB Chairman. Mr. Kellas continued, We are making the final standards available as soon as they have been approved by IAASB and, in respect of appropriate due process, by the Public Interest Oversight Board. This is intended to allow all concerned to take such steps as are necessary for effective implementation, including national adoption, translation, amendment of manuals and processes and training. I urge everyone to take advantage of the time available for implementation to ensure that it is a success. The IAASB continues to advance the clarification of its auditing standards and is on track to complete its Clarity project by the end of 2008 as planned. For more information about the IAASB s Clarity project and its timetable, see the October 2007 communiqué, Effective Date for IAASB s Clarified International Standards on Auditing, which is posted on the IAASB website at (Source: IFAC Press Release/ October 2007) International Auditing and Assurance Standards Board Consults on Proposed Future Technical Strategy The International Auditing and Assurance Standards Board (IAASB) is seeking comments on its proposed future strategy October 2007 The Malaysian Accountant 29

32 as a basis for its work program. The consultation paper proposes that the IAASB s future strategy focus on: Contributing to the effective operation of the world s capital markets; Assisting with the implementation of standards; and Addressing the needs of small- and medium-sized enterprises. The proposed strategy, developed after initial consultations, confirms the IAASB s public interest role by responding to the needs of users of financial information by promoting quality in auditors work, says IAASB Chairman John Kellas. Recognizing that the effective operation of the world s capital markets remains a matter of high public interest, the IAASB intends to continue to make auditing standards its first priority. A significant theme arising from the initial consultations has been the need to encourage effective implementation of the International Standards on Auditing. The IAASB recognizes the importance of this and is proposing not to issue further new auditing standards until auditors have had two years experience in applying the standards redrafted under the Clarity project, which is due for completion in late Over the last few years, the focus of the IAASB has been on the development of high quality International Standards on Auditing (ISAs) that are accepted globally and that facilitate convergence. This included significant revisions to the audit approach to risk assessment, together with responses to accounting developments such as the greater use of fair values in financial reporting, and enhanced audit requirements for group audits and using the work of experts. Furthermore, efforts to enhance the consistent application of the standards around the world gave rise to a project to improve the clarity of ISAs. The IAASB plans to complete the Clarity and other current projects by the end of To prepare for the period after 2008, the IAASB embarked on an extensive consultation process to obtain the widest possible input into determining its future strategy and to gauge the needs and concerns of the public and the profession. This consultation paper forms the final stage of the consultation process. It presents the proposed strategy for , possible actions to implement the proposed strategy, and the basis for those actions. The proposed strategy and possible actions, amended in the light of comments received, will form the basis for the IAASB s work program for Comments on the consultation paper are requested by November 30, The consultation paper may be viewed by going to Comments should be submitted by to EDComments@ifac.org. They may also be faxed to IAASB ED Comments at or mailed to IAASB ED Comments at 545 Fifth Avenue, 14th Floor, New York, NY 10017, USA. All comments will be considered a matter of public record and will ultimately be posted on the IFAC website. (Source: IFAC Press Release/ October 2007) Requirements for the Audit of Group Financial Statements New requirements designed to enhance the quality of audits of group financial statements were released on October 3, 2007 by the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC). International Standard on Auditing (ISA) 600 (Revised and Redrafted), Special Considerations - The Audit of Group Financial Statement, including the Work of Component Auditors, assists the group engagement partner in taking responsibility for the direction, supervision and performance of the group audit and the issue of an auditor's report that is appropriate in the circumstances. To assist the group engagement team to obtain sufficient appropriate audit evidence on which to base the group audit opinion, the ISA specifies the types of work that the group engagement team, or component auditors on its behalf, should perform on the financial information of significant components. It also requires the group engagement team to be appropriately involved in the work that component auditors perform. The ISA is effective for audits of financial periods commencing on or after December 15, This date is consistent with the effective date for all the standards being redrafted under the IAASB's Clarity project. The ISA, which was developed over a period of five years, was influenced by the responses to three exposure drafts. The new ISA takes account of regulatory and standard-setting developments around the world, the interests of small entities, and the expectations of various stakeholders, including those represented on the IAASB Consultative Advisory Group. John Kellas, Chairman of the IAASB, explains: "The new standard clearly explains the responsibility of the group engagement partner to direct and control the group audit, even when component auditors may be involved. It responds to public expectations for continuous improvement in auditing standards. The project has not 30 The Malaysian Accountant October

33 been an easy one, but we are confident that the standard will enhance current practice and promote consistency worldwide." ISA 600 (Revised and Redrafted) can be downloaded free-of-charge from the IFAC online bookstore at (Source: IFAC Press Release/ October 2007) IFAC's International Accounting Education Standards Board Releases New Practice Guidance on Ethics Education and IT Knowledge Requirements To promote high quality education and training of current and future members of the accountancy profession, the International Accounting Education Standards Board (IAESB), an independent standard-setting board within the International Federation of Accountants (IFAC), has released two new International Education Practice Statements (IEPSs). The new practice statements assist IFAC members, associates and other educators in developing ethics education programs and in implementing the information technology (IT) knowledge component of a professional accounting education program. Ethics Education The first practice statement, IEPS 1, Approaches to Developing and Maintaining Professional Values, Ethics, and Attitudes, provides guidance to IFAC members and associates on how to achieve good practice in developing and maintaining professional values, ethics and attitudes in accordance with the requirements in International Education Standard 4, Professional Values, Ethics and Attitudes. The practice statement identifies a number of methods for the delivery of ethics education, stressing the importance of workplace learning and assessment. It also identifies continuing professional development as the means for member bodies to ensure that professional accountants continue to develop professional values, ethics, and attitudes throughout their careers. "Ethics education is a lifelong commitment that starts when an individual begins training to become an accountant and continues throughout a professional accountant's career," emphasizes Henry Saville, IAESB Chair. "Ethics education programs enhance professional accountants' ethical judgment and decision making. This practice statement meets the challenge of assisting member bodies to develop these skills in current and future professional accountants." IT Knowledge Requirements IEPS 2, Information Technology for Professional Accountants, outlines the knowledge and skills necessary to prepare professional accountants to perform competently in the IT environment. All professional accounting candidates are expected to have a knowledge and understanding of at least one of three roles - manager, evaluator or designer of information systems, or a combination of these roles. The practice statement identifies the competency elements that IFAC member bodies can include in the IT knowledge component of prequalification professional accounting education programs. It also provides guidance on teaching and assessing IT at the prequalification stage, as well as implementing post-qualification development of IT knowledge and competences. "The new practice statement addresses the ongoing challenge that professional accountants worldwide experience, that of maintaining competence to keep pace with the rapid changes occurring in the IT environment," emphasizes Mr. Saville. "The guidance provides details of the knowledge and skills required of professional accountants in the IT environment to prepare them to use information technology, work in the information technology environment, and rely on information technology." The two practice statements can be downloaded freeof-charge from the IFAC online bookstore at /store. For more information on the work of the IAESB, visit its home page at (Source: IFAC Press Release/ October 2007) IFAC's Education Standards Board Adopts New Strategy The International Accounting Education Standards Board (IAESB), an independent standard-setting board of the International Federation of Accountants (IFAC), has issued its Strategic and Operational Plan which is designed to advance accounting education worldwide. The IAESB's strategy focuses on the measurable implementation of its International Education Standards (IESs). It also supports IFAC's members and associates in enhancing the level of competence of their members and in promoting a strong ethical culture within the accountancy profession. October 2007 The Malaysian Accountant 31

34 "A commitment to accounting education and continuing professional development ensures that accountants develop and maintain the competence to serve the public interest," states Henry Saville, IAESB Chair. "The IAESB Strategic and Operational Plan describe the IAESB's role in helping all stakeholders involved in developing high quality accounting education programs." The focus of IAESB activities will be on the following: Conducting a fundamental review of the Framework for International Education Statements, which considers recent developments in accounting education and the accountancy profession; Developing guidance to help IFAC members and associates and others achieve the measurable implementation of the IESs; and Reviewing existing IESs to determine areas where the clarity of standards could be improved and/or additional guidance most usefully developed. The direction of further activities during the period will be conditional on the outputs from these three high priority projects. The IAESB's Strategic and Operational Plan, can be downloaded free-of-charge from the IFAC online bookstore at For more information on the work of the IAESB, visit its home page at (Source: IFAC Press Release/ October 2007) IAASB Issues Exposure Drafts on External Confirmations and the Use of the Work of an Audit Expert At its most recent meeting in Madrid, Spain in September, the International Auditing and Assurance Standards Board (IAASB), an independent standard-setting board under the auspices of the International Federation of Accountants (IFAC), approved two sets of new proposals. The first exposure draft addresses concerns about the use and reliability of external confirmations as audit evidence. External confirmations are written responses to the auditor from a third party. The second exposure draft proposes stricter requirements when an auditor uses an expert to obtain audit evidence. "The proposed standards represent significant steps by the IAASB designed to enhance auditor performance in important areas of the audit of financial statements. Confirmations have sometimes proved to be less reliable than expected and the proposals are intended to assist in making them effective when an auditor decides to use them. In a more complex world, especially where fair values feature in financial reporting, the auditor may have more need of the assistance of experts in other disciplines for the purposes of the audit. The new proposals are, therefore, timely," explains John Kellas, IAASB Chairman. These proposed International Standards on Auditing (ISAs) are drafted in accordance with the IAASB's new conventions designed to improve the clarity of its pronouncements. They may be viewed by going to External Confirmations Recent experience has indicated that external confirmations may not always be as reliable as expected as audit evidence, giving rise to requests for more rigorous requirements governing the auditor's use of external confirmations. The auditor's decision about whether to use external confirmation procedures is based upon the identification and assessment of risks of material misstatement in accordance with other ISAs. Proposed ISA 505 (Revised and Redrafted), External Confirmations, is directed at the effective performance of external confirmation procedures when the auditor determines that such procedures are an appropriate response to an assessed risk of material misstatement. Use of the Work of an Auditor's Expert Proposed ISA 620 (Revised and Redrafted), Using the Work of an Auditor's Expert, deals with the auditor's use of the work of a person or organization possessing expertise in a field other than accounting or auditing, employed or engaged by the auditor to assist the auditor to obtain sufficient appropriate audit evidence. It places particular emphasis on the need for the auditor to evaluate the expert's objectivity, and to establish a proper understanding with the expert of the expert's responsibilities for the purposes of the audit. How to Comment Comments on the exposure drafts are requested by February 15, Comments should be submitted by to EDComments@ifac.org. They may also be faxed to IAASB ED Comments at or mailed to IAASB ED Comments at 545 Fifth Avenue, 14th Floor, New York, NY 10017, USA. All comments will be considered a matter of public record and will ultimately be posted on the IFAC website. (Source: IFAC Press Release/ October 2007) 32 The Malaysian Accountant October

35 CASE LAW HIGHLIGHTS ANDREW CHRISTOPHER CHUAH CHOONG ENG CHUAN v. OOI WOON CHEE & ANOR COURT OF APPEAL (PUTRAJAYA) CIVIL APPEAL NO. W OF 2003 ABDUL KADIR SULAIMAN, RICHARD MALANJUM AND AUGUSTINE PAUL JJCA 10 OCTOBER 2006 Companies and Corporations Liquidation Proof of debt Whether company was debtor of appellant Loan taken by company was for benefit of third parties Whether company was the real borrower Companies (Winding Up) Rules 1972 The appellant (plaintiff in the High Court) was a client of Labuan Securities Sdn Bhd ( LSSB ), a stock broking company, and had given several loans to LSSB. On February 12, 1999, a Special Administrator was appointed for LSSB to settle LSSB s financial problems with its creditors. As a result, all of LSSB s liabilities to its creditors as of September 2, 1999 were transferred to Balforn Holdings Sdn Bhd ( Balforn ) as Special Purpose Vehicle for the purpose of the proposal for settlement. Subsequently, Balforn was wound up and on January 17, 2001, the respondents were appointed as the liquidators at the creditors meeting. On March 1, 2001, the respondents at Balforn s liquidators invited the creditors to submit proof of debt through an advertisement placed in the New Straits Times. The appellant then submitted a proof of debt in Form 55 of the Companies (Winding Up) Rules 1972 for the amount of USD5,169,154.76, SGD3,664, and RM 42,165. The appellant s proof of debt was rejected by the respondents on the ground that the money received was for the benefit of third parties and that LSSB was not the real borrower. The appellant was dissatisfied with the respondents decision and thus filed an originating summons against the respondents seeking an order to reverse or vary the respondents decision. The trial in dismissing the appellant s application held that the appellant had failed to prove that LSSB was the real borrower and that the respondents had not acted arbitrarily nor did they reject the application without reasons. The appellant appealed. The respondents submitted that it was the understanding between all parties that the loan was taken for the benefit of third parties and that LSSB s role was only to act as an intermediary to arrange for the loan. Pursuant to this understanding, the appellant would furnish loans to the clients of LSSB and the clients were required to charge the shares purchased by them to the appellant. The appellant was aware that the loan facilities were for the benefit of third parties. This was supposed by a letter from Tan Eam Thong addressed to Steuben Capital Investment (Singapore) Pte Ltd which stated in clear terms that he was the true beneficiary of the loan facilities. Held, dismissing the application with costs: (1) The learned judge had taken into consideration the various documents tendered by both parties to support his conclusion that LSSB did not take the loan for its own benefit. Thus, the real borrowers were the third parties of which the appellant was aware. (2) It was therefore clear that LSSB acted only as an agent for the real borrowers to the knowledge of the appellant. There was, therefore, privity of contract between the real borrowers, who were the principals, and the appellant. (3) Such a contract is the contract of the principal, not that of the agent, and prima facie at common law the only person who can sue is the principal and the only person who can be sued is the principal. The rule is embodied in Section 183 of the Contracts Act LSSB was thus not a debtor of the appellant. (Source: Malayan Law Journal [2007] 2 MLJ 1-100) Produced with kind permission October 2007 The Malaysian Accountant 33

36 GLOBAL INSIGHT NEWS from Down Under A O FERRERS, AUSTRALIAN CORRESPONDENT World Accountancy Week is to be celebrated from December 2-8, This is the initiative of the International Federation of Accountants (IFAC). It is 30 years since the organisation was founded and it is thought appropriate to mark this anniversary. The three Australian accounting professional bodies will support this initiative. In a joint statement they said, Demand for accounting services is outstripping supply the world over. In Australia, it is estimated that for every accountant there may be as many as four vacancies to fill, depending on the nature of the job. Creating greater awareness of what accountants do, the value they add to business and the stringent professional conduct that is required of them is very much in the public interest. At the heart of IFAC s endeavours is the public interest. CEO Ian Ball says that the Week aims to: Raise awareness of the role of the international accountancy profession and the contributions it makes to economic development and social wellbeing worldwide Communicate key initiatives taken by IFAC, its associated bodies, members and 120 member firms to strengthen the accountancy profession and protect the public interest Enhance the attractiveness of the accountancy profession Encourage greater financial and management accountability by governments throughout the world. It is interesting to note that the tenth International Accounting Conference was held in Sydney in The success of this conference led to the setting up of IFAC five years later. Since then, Australian accountants have been much involved in that body and many have taken leading roles in its endeavours. There are some 2.5 million accountants in all parts of the world in 118 countries. Ian Ball sees they are united by the common goal of supporting the development of a strong profession dedicated to the public interest. Development The Australian Bureau of Statistics has found that there are 150,000 Australians who undertake bookkeeping work and 10,000 self-employed bookkeepers providing services to small business clients on a fee for service basis. Many of these people belong to the Association of Accounting Technicians. Association members have now voted to accept a development proposal and financial assistance from Australia s three accounting bodies, the National Institute of Accountants, CPA Australia and the Institute of Chartered Accountants. This will mean a new internal structure for the Association. It is a major step forward. The Association President, Glenn Mann is thrilled. News that Australia s accounting bodies are working with AAT as their body of choice to represent the accounting para-professional sector will have a major impact on our sector of the profession. With the support of our development bodies, AAT will act as the advocate for the entire accounting technician sector on matters affecting its members. Everybody who is familiar with the bookkeeping and tax agent sector of the profession is aware the sector is fragmented in terms of representation. Now, clearly, in AAT there is a strong and growing voice for all accounting para-professionals. Almost at once to demonstrate its new strength, the Association is holding information sessions on the new tax agents services legislation for its members in the major and regional centres. These have proved popular with members who have attended in large numbers. It is interesting to note that many who attended these sessions were in fact not members of the Association. This would indicate that these people now see the Association as a key source of accurate information, recognising they will learn how this legislation will impact on their working lives. Mr Mann summed up the new situation in these words: It is important from the employers and employees perspectives to have a strong, respected body offering a recognised accreditation, shaping standards and representing members. Co-Operation In June, CPA Australia announced that it has signed a Memorandum of Understanding with three other bodies: the Vietnam Association of Certified Public Accountants, Swinburne University in Australia and the National Economics University in Vietnam. It is intended that the three will work together in the areas of training, research, international affiliation and the mutual recognition of qualifications. There should be a number of opportunities for the three participants working together in profession 34 The Malaysian Accountant October

37 development, knowledge sharing and collaboration in international forums. Standing ought to be enhanced as a result in ASEAN Federation of Accountants and IFAC. In the view of CPA s then President, Paul Meiklejohn, the mobility and international recognition of the designations of members and graduates should be vastly improved. He maintained, CPA Australia has a long and proud tradition of helping to advance the profession internationally. We have been actively supporting our members across the Asia Pacific region for more than 50 years. More than a quarter of CPA Australia s members are based in 97 countries outside Australia, the majority of these in Asia. We recognised many years ago that opportunities for accounting professionals are not constrained by national borders. Our ongoing belief is that, as a region, we can achieve much more working together than as individual nations and that the profession can build bridges that complement the efforts of governments and standard setters. Such relationships enhance the knowledge and understanding of CPAs and provide exciting new avenues through which we can progress and develop the accounting profession at many levels. We believe that by building strong regional relationships, we can collectively deliver valued outcomes for our members, whether working within or outside their home country. We are, therefore, looking forward to engaging with other organisations in the region in the future. Election As I write, Prime Minister Howard has called a General Election. This is to be held on November 24. The law constrains that this be held at this time of the year. The government has been well behind in the polls for some months and it hopes to reverse this by its electioneering during the next six weeks. It began its campaign with a big bang, announcing large income tax cuts over the next few years if it is re-elected at a cost of $34 billion. This has caught the Labor Opposition on the wrong foot and it has announced that it will take its time over a response. Mr Howard recently challenged Mr Rudd, the Opposition leader, to a one and a half hour televised debate. An answer on tax may be forthcoming at that time. However, as I write, the challenge has not been accepted. No doubt, as with all elections, money promises will come thick and fast and the public will be deluged. Travel The Institute of Chartered Accountants in Australia has commissioned a survey of young accountants. This has shown that almost half of them intend to travel overseas in the next two years. Every young graduate, accounting and others, always seek o/e - overseas experience. This is a good thing in that it broadens the outlook of every one of them and gives them a real view of the world. These days, the young jump on and off of planes without thinking too much about it. In my young days, it was buses and trains and an overseas trip was a major undertaking. Not so today. When a young accountant these days goes abroad, it leaves a hole where he or she has been. Because of the shortage of accountants, that hole may be difficult to fill and extra work is cast on fellow employees. My accountant tells me that it is commonplace for young accountants to come and go and the firm is constantly looking for others to fill the vacancy left by the one who has departed. Many of those who go travelling return to Australia looking to take up positions and, because of their experience, are a much better employee than when they went away. However, some do not return and find excellent work in Europe and elsewhere. Dear Readers, If you have any article, which in your view, is suitable for inclusion in our columns, please send the article to the Editorial Board at the address below or via . We will be happy to review the article for publication in this journal. Kindly contact: Public Affairs & Communications Manager The Malaysian Institute of Certified Public Accountants 15 Jalan Medan Tuanku Kuala Lumpur vic.pr@micpa.com.my October 2007 The Malaysian Accountant 35

38 GLOBAL INSIGHT WORLD NEWS CANADA UNITED KINGDOM SOUTH AFRICA Canada Reporting Revenue Gross versus Net Non Profit The Emerging Issues Committee has released the following draft abstract for comment by November 25, 2007: D71: Reporting Revenue Gross as a Principal Versus Net as an Agent for Not-for-Profit Organisations Proposed changes to "EIC-123, Reporting Revenue Gross as a Principal Versus Net as an Agent," to expand its scope to include not-for-profit organisations. The Accounting Standards Board (AcSB) Exposure Draft Not-for-Profit Organisations includes a proposed change to Section 4400, FINANCIAL STATEMENT PRESENTATION BY NOT-FOR PROFIT ORGANISATIONS, to clarify that revenues and expenses must be recognised on a gross basis when a not-for-profit organisation is acting as a principal in the subject transactions and on a net basis when the organisation is not acting as a principal. The proposed changes to EIC-123 are consistent with the Exposure Draft proposal. The scope of EIC-123 is expanded to include not-forprofit organisations by removing the scope exclusion from the Basis of Application and changing the term enterprise in the body of the Abstract to entity, where appropriate. The existing Illustrative Examples are unchanged (and are not reproduced in this Draft Abstract); however, Examples 14, 15 and 16 are added to provide examples of circumstances specific to not-for-profit organisations. The proposed changes to EIC-123 would become effective at the same time as the changes to Section 4400 proposed in the AcSB Exposure Draft. (Source: South Africa SME GAAP Statement Issued The South African Statement of Generally Accepted Accounting Practice (GAAP) for Small and Medium-sized Entities (SMEs) [the Statement], has been issued. The South African Accounting Practices Board (APB) approved the issue of the Statement in response to market needs and differential reporting allowed by the Corporate Laws Amendment Act, 2006 (CLAA). The Statement may be used by companies defined as 'limited interest' in the CLAA and other entities with no public accountability. These companies and entities will now have a choice of reporting in terms of the Statement of GAAP for SME's or in terms of full Statements of GAAP or IFRS. (Source: 36 The Malaysian Accountant October

39 United Kingdom Investors find IFRS hard to understand Around half of investors find it harder to understand financial statements following the switch to International Financial Reporting Standards accounting, new research from the ICAEW reveals. A report prepared for the European Commission on the first year of implementation across the EU of IFRS and the Fair Value Directive, revealed that although investors find the majority of accounting areas easier to understand under IFRS, they struggle to get their heads around some specific accounting treatments, particularly those relating to financial instruments. On a more positive note, there was widespread agreement that IFRS has made financial statements easier to compare across countries, across competitors within the same industry sector and across industry sectors. Overall 63% of investors thought that IFRS had improved the quality of consolidated financial statements against 24% who thought that IFRS had made it worse. Preparers were similarly divided, with 60% giving IFRS the thumbs-up compared with 14% who disapprove of the new accounting regime. But auditors were overwhelmingly in favour of IFRS. Around 80% said the new standards had improved the quality of financial statements and only 8% believed they had caused the quality of statements to deteriorate. The report was based on an online survey of 51 investors, 162 preparers and 141 auditors across 23 member states. Supplementary telephone interviews and roundtables were also conducted. (Source: FRC publishes final report on improving audit choice The Financial Reporting Council has published final recommendations to improve choice in the audit market amid accusations of institutionalised prejudice against non-big Four firms. Following 12 months of consultation, which saw the FRC's Market Participants Group sift through more than 100 possible recommendations, the FRC has produced a final list of 15 proposals that it hopes will provide a marketled solution to concerns over an apparent lack of auditor choice. The FRC has now undertaken to provide a six-monthly update on progress and set out a timetable for implementation. But the recommendations have not met with universal approval. Jeremy Newman, BDO Stoy Haywards' outspoken managing partner, said: 'There was an opportunity to make real change, and give a strong signal to the market about unacceptable institutionalised prejudice by taking stronger measures to deal with the requirement of banks and others to use certain audit firms.' Gerald Russell, a senior partner at Ernst & Young and chairman of the Audit Quality Forum, said: 'We believe that some of the recommendations could bring valuable improvements to the overall effectiveness of the audit market, but they are unlikely to have any significant impact on the MPG's stated objectives to improve choice, and some may prove to have no effect at all on choice.' Russell emphasised the need to find solutions on a global basis, saying: 'This will help to avoid the risk of one country placing itself at a disadvantage by introducing more regulations than another country.' The 15 proposals are: 1. The FRC should promote wider understanding of the possible effects on audit choice of changes to audit firm ownership rules, subject to there being sufficient safeguards to protect auditor independence and audit quality. 2. Audit firms should disclose the financial results of their work on statutory audits and directly related services on a comparable basis. 3. In developing and implementing policy on auditor liability arrangements, regulators and legislators should seek to promote audit choice, subject to the overriding need to protect audit quality. 4. Regulatory organisations should encourage participation on standard setting bodies and committees by appropriate individuals from different sizes of audit firms. 5. The FRC should continue its efforts to promote understanding of audit quality and the firms and the FRC should promote greater transparency of the capabilities of individual firms. 6. The accounting profession should establish mechanisms to improve access by the incoming auditor to information relevant to the audit held by the outgoing auditor. 7. The FRC should provide independent guidance for audit committees and other market participants on considerations relevant to the use of firms from more than one audit network. 8. The FRC should amend the section of the Smith Guidance dealing with communications with shareholders to include a requirement for the provision of information relevant to the auditor selection decision. 9. When explaining auditor selection decisions, boards should disclose any contractual obligations to appoint certain types of audit firms. 10. Investor groups, corporate representatives, auditors and the FRC should promote good practices for October 2007 The Malaysian Accountant 37

40 shareholder engagement on auditor appointments and re-appointments. 11. Authorities with responsibility for ethical standards for auditors should consider whether any rules could have a disproportionately adverse impact on auditor choice when compared to the benefits to auditor objectivity and independence. 12. The FRC should review the Independence section of the Smith Guidance to ensure that it is consistent with the relevant ethical standards for auditors. 13. Regulators should develop protocols for a more consistent response to audit firm issues based on their seriousness. 14. Every firm that audits public interest entities should comply with the provisions of a Combined Code-style best practice corporate governance guide or give a considered explanation. 15. Major public interest entities should consider the need to include the risk of the withdrawal of their auditor from the market in their risk evaluation and planning. (Source: magazine.com) Draft Guidance on Money Laundering Regulations will help Practitioners keep abreast of New Legislation The UK's Consultative Committee of Accountancy Bodies (CCAB) has published an exposure draft of new guidance on Anti-Money Laundering in advance of the Money Laundering Regulations 2007 which become effective from December 15, The draft guidance is intended to provide the accountancy profession with an interpretation of the requirements of these new regulations as well as primary legislation relating to money laundering and terrorist financing. It also provides practical guidance on good practice for matters not prescribed in law. The guidance has been completely refreshed and expanded, drawing not only on changes in law but the experience of practitioners. Said Karen Silcock who led the drafting of the guidance on behalf of the CCAB: It is important that practitioners are prepared for the introduction of the new Money Laundering Regulations and understand their responsibilities as there are some new requirements. Whilst these changes may not seriously affect those firms that already comply with existing CCAB guidance, I would urge them to review this draft guidance and send us any comments by November 12, After all, non-compliance with any of the provisions of the Money Laundering Regulations could represent a criminal offence. Approval of the guidance is currently being sought from HM Treasury. If granted, this will mean that the Courts must consider the content of the guidance when determining whether an accountant s conduct gives rise to an offence under either the Proceeds of Crime Act 2002 or the Money Laundering Regulations The draft guidance can be downloaded from (Source: education.com) MICPA Practising Certificate The Membership Affairs Committee of the Institute in considering applications for practising certificates, has frequently come across cases where a member has commenced public practice before he is issued with a practising certificate by the Institute. The Committee would like to remind members that in accordance with bye-law 56 of the Institute s bye-laws, a member shall be entitled to engage in public practice in Malaysia only if he holds a practising certificate issued by the Institute. If members need clarification on the above, kindly contact the Institute s Membership Services Department: Cik Adzlyn / Cik Ruhaizah The Malaysian Institute of Certified Public Accountants No.15 Jalan Medan Tuanku, Kuala Lumpur. Tel: Fax: membership@micpa.com.my 38 The Malaysian Accountant October

41 LIFESTYLE The Lure of Emerald Isle BY KAVALYN KREER Kinsale, picturesque, popular and fashionable, is famous for its trendy yachting. The first thing that strikes one about Ireland is its vast acres of verdant green fields. The large tracts of lush farmland interspersed with picturesque channels of waterways cutting through the land dotted with charming cottages, exuding a quiet sense of tranquillity. After its capital, Dublin, Cork is the second largest city in Ireland and like most cities around the world, it has countless and varied attractions. However, it s the Irish countryside that beckons and a half an hour drive from the city will easily take one far away from the madding crowd to one of the most famous towns in County Cork Kinsale, the much-acclaimed Riviera of Ireland. Nestled between hills and the shoreline, Kinsale is one of the most picturesque, popular and fashionable resorts of the south-west coast of Ireland. The ancient harbour town is famous for its trendy yachting, deep-sea angling, the renowned Old Head Golf Links and a number of highly commendable gourmet restaurants. The Kinsale town centre is an interesting maze of narrow streets lined with colourful eye-catching historic buildings that give the entire ancient town a charming feel. Its reputation as a gourmet capital of Ireland is evident from the number of international restaurants. Aside from the western fare and the local Irish specialty, Kinsale also has two Indian restaurants, one Thai and one Chinese eatery. It s interesting to note that these restaurants are well-patronised by the locals as well as the numerous tourists. Kinsale was historically a bustling port but now however, it enjoys a continental ambience. The yachts moored along the waterfront with the quaint dwellings on the hills as the backdrop exudes an impression of sophisticated Europe, hence the Riviera tag. For over 300 years, Kinsale was also known as a garrison town, leaving a legacy of Georgian and Victorian architecture. There are several other attractions in Kinsale such as the Desmond Castle International Museum of Wine, St. Multose, one of the oldest churches in Ireland, the historic Courthouse and the Almshouses and the star-shaped Charles Fort built in There are also daily walking October 2007 The Malaysian Accountant 39

42 LIFESTYLE The Kinsale town centre has interesting maze of narrow streets and shops that sells interesting trinkets and souvenirs. tours that take one to all the interesting nooks and crannies of the town. But no visit to Kinsale is complete without a stopover at the Old Head of Kinsale for the magnificent panoramic scenery and the splendour of the vast Atlantic Ocean, which is truly breathtaking. The Old Head of Kinsale is a place of outstanding historical, archaeological and scientific interest. According to legend, the area was once occupied by the Eireann Celtic tribe that eventually gave their name to the whole of Ireland. For the avid golfer, a visit to Old Head also means a round of golf at the most spectacular course on earth the Old Head Golf Links. Rated as one of the top 100 courses in the world, Old Head Golf Links unique location on a promontory jutting out defiantly over the Atlantic Ocean makes for some of the most dramatic scenery ever seen on a golf course. There are no words to describe the breathtaking ocean vistas, the rugged 300-foot cliffs, and the mystical remnants of Dun Mac Padraig Castle and the old farm walls. There is a sense of ancient medieval history that permeates the whole area. The Old Head lighthouse, built in 1853 is a prominent sentinel on the course. There are many interesting historical anecdotes linked to the Old Head before it became a links course. It seems that during the French Revolution, the Spaniards and the French smuggled guns at the caves near the second hole hence the name Gun Hole. If you were standing at the 12th hole, you would have witnessed the sinking of the Lusitania ocean liner by the Germans in And talking about sinking ocean liners, approximately 40 minutes from Kinsale and 20 minutes from Cork, lies the pleasant prosperous town of Cobh (pronounced Cove) which have steep and slopping streets and a French Gothic St Colmans Cathedral dating back to 1868 as one of its attractions. But what really makes this town famous, is the fact that Cobh was the last port of call for the ill-fated RMS Titanic, which anchored at the mouth of the harbour on April 11, It was from here that the ship weighed anchor for the last time and sailed west towards her tragic fate in the icy waters of the North Atlantic. A total of one hundred and twenty three passengers left from Cobh that day. Formerly known as the Cove of Cork, it was renamed Queenstown and later renamed Cobh in The history of Cobh is largely intertwined with great ships, majestic liners and adventurous tales of the sea. As Ireland s most strategic port of call for transatlantic liners, it became the foremost port of emigration in the mid 19th century. Interestingly, the old jetty from where boats departed to board passengers on to the Titanic has been preserved though it looks like it could simply crumbled away into tiny bits. There is a memorial to the victims of the Lusitania, and the Cobh Heritage Centre, tells one the story of the town and its colourful emigration history. There is still a White Star Line (the owners of the Titanic) signage on a building, below, which is a restaurant called Titanic Bar. The old jetty is just outside, through the restaurant. To experience the peaceful serenity of the Irish countryside, one simply has to take a drive further away from the town. It is there that one will encounter robust looking farm animals and cute little farm houses and coupled with the clear blue skies and greenery as far as one can see, the true wonder of the emerald isle is realised. This article was written by Kavalyn Kreer, who writes lifestyle articles for publication on the web and print. The old jetty from where boats departed to board passengers on to the Titanic 40 The Malaysian Accountant October

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