ABC Costing - Very Interesting Worksheet for Understanding

It was amazing to find this Simple ABC Costing workfile with explanation for everyone's understanding!

Try download this from my Google Docs for your understanding and reference. It's a great piece!

Thanks to the Author - Matt H. Evans.

Managing Forex Risk: Hedging Technique - Netting

Whenever we buy or sell foreign goods and services while the payment or receipt date is not "now" but "future", we are exposed to foreign exchange transactional risk. The more transactions we have against foreign companies, the higher the risk is. This is especially crucial to Multi-National Company (MNC) when it involves intercompany buying and selling.

Why is there a risk? Risk simply means that we "do not know" or "do not able to forecast exactly" the forex rate in future. Whether it is higher or lower later, it is a risk now. By applying Netting, we can reduce the transactional risks. Let's see how it can help:-

For example, if company A has invoiced company B USD300 and at the same time company B has sold goods and invoiced company B for USD1,000, by netting off USD300 with company B's invoice of USD1,000, now the balance (the net receipt in this case) become USD700 to be received by company B from company A. In this way, the transactions of twice (payment from A to B AND from B to A) can be reduced to ONCE only (from A to pay B).

This can be further applied to MNCs when there are a lot of branches scattered worldwide and intercompany transactions are tremendous. By applying Netting, a local branch will only suffer ONE transaction risk for each of the foreign counterparties but not ALL foreign transactions. However, this depends on the frequency of payment as well: if payment is made monthly, then One transaction is exposed for each foreign counterparties; if payment is made half yearly, then One transaction is exposed for each counterparties every half a year.

There are other hedging techniques that can reduce or eliminate forex risk for a cost. However for internal transactions, Netting is still the best hedging technique to use as the net payment or receipt can still be rolled over to next cycle to knock off other transactions.

GST Model - Differences between GST and SST

It is proposed that Goods and Service Tax (GST) is replacing the current Sales Tax & Service Tax (SST). Although it has been postponed, there are quite a few things that you should understand it beforehand - especially for Corporates.

First of all, the concern for business persons is: Rate. The rate of 4% is proposed to replace different rates in different categories of SST. In short, the rate is fixed. The rule of thumb would be:

GST is charged on the taxable supply of goods and services made by a taxable person in the course or futherance of business in Malaysia.

 Of course, it applies to any important goods or services as well.

Despite the lower of tax rate, GST will be a multi stage consumption tax compare to SST. For example, under current SST system, if a taxable supply (goods or services) is sold by a taxable person, a tax of 5 - 10% of the invoice amount will be chargeable to the first buyer. First buyer will pay the tax and if he re-sale the item then no further SST to be imposed. This means that SST is a single stage of consumption tax compare to GST.

The differences were being summarized as following:

• Taxable Period - In SST it is always 2 months, but in GST it will varies between 1 month, 3 months or 6 months.
• Return filing deadline - 28th day after the end of taxable period for SST (i.e. for taxable period from Jan - Feb, filing deadline will be 28th of March). For GST, it will be the last day of the month after the end of taxable period (i.e. if taxable period is one month - March, deadline will be 30th April and so on).
• Penalty for late payment - SST will charge a penalty of 10% on originally overdue amount for every 30 days for the maximum of 50% (which max is 5 times) and GST will imposed a penalty for 5% on the originally overdue amount for the first 2 times and 3% for the next 5 times which represent a maximum of 25%.
• Tax free inputs - SST is allowed for raw materials and components only, but GST allowed for all business inputs and offset against output tax in the GST return.
• Treatment of exported goods: SST - no tax on exports, while GST - all exports are zero-rated.
• Compound: SST - maximum of RM5,000 and GST - Maximum half of the fine prescribed for offence.

The above will allow the public a brief understanding on how GST works and the differentiation compare to SST. There will be more to understand - i.e. When to charge GST, How to charge and pay GST, What to charge GST, and Who can offset the paid GST and received GST.

Tax information for Expatriate

1. Any income derived from Malaysia is subject to Malaysia income tax each year.
2. Income from sources outside Malaysia is exempted from tax , e.g. pension & dividend.
3. Types of income subject to tax :
• Business , trade or profession
• Employment
• Dividend , interest or discounts
• Rents , royalties or premiums
• Pensions , annuities or periodical payments
• Gains or profits not falling under any of the foregoing paragraph
• Income of a non resident in respect of technical advice, assistance or services rendered in connection with any technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme.
4. Tax rate :
• The tax rate for an individual will depend on his/her residence status. Generally , a non resident individual is taxed at a flat rated of 27% without any personal deductions. Income under (g) above is taxed at 10% on gross income.
• A resident individual is taxed at a scale rate of tax from 0% - 27% on chargeable income after personal deductions.
5. Residence status of an individual for tax purposes is determined not by nationality but by the length of stay in Malaysia. The status is determined for each calendar year. For example , the individual will be considered as a resident if he / she stay :-
• in a year amounting to 182 days or more in Malaysia; OR
• if less than 182 days in a year but that period is linked to another period of more than 182 consecutive days; e.g. from 01/03/2003 to 31/12/2003 = more than 182 days & from 01/01/2004 to 31/01/2004 = 31 days, therefore he is tax resident for 2003 and 2004 ; OR
• if 90 days or more in a year and stayed 90 days or more / resident for three out of four preceding years of assessment e.g. 2000 , 2001 , 2002 – stayed 90 days or resident 2003 – stayed 90 days or more. Therefore he is tax resident for year of assessment 2003 ; OR
• is stayed less than 90 days or did not stay in Malaysia at all in a year but stayed as resident for three preceding years and the following year e.g. 2000, 2001, 2002 as resident, therefore he is tax resident in the year 2003.
6. How to inform IRBM regarding the chargeability to tax? If you are in receipt of income, you must notify your chargeability to tax to the nearest tax office and request for the tax return form.Submit the following personal particulars:
• Full name as in passport
• Date of birth
• Passport number
• Nationality
• Sex
• Present correspondence address
• Statement of income earned / derived from Malaysia
7. The individual who does not carry on a business will need to submit the tax return by 30 April of the following year. The individual who carries on a business such as a sole proprietor or a partnership will need to submit the tax return form by 30 June of the following year.

Individual Income Tax Return Season - YA 2009 - Reliefs

Long time no see my friends!

Since now is reaching the Individual Income Tax Return season (for employment income earners only, like me!), I guess it's time to remind you, if you own a company, that you are obliged to distribute EA form to your employees by end of February 2010.

For individuals whom are still trying to find out the reliefs (only for residents!), here's a complete but simple table for you to know what can be exempted:-

• Personal relief  - RM8,000
• Further self relief - disabled - RM6,000
• Wife / Husband relief  - RM3,000
• Further wife/ husband relief - disabled - RM3,500
• Parents’ medical expenses (maximum)  - RM5,000 
• Disabled relief (maximum) - RM5,000 (for purchase of basic supporting equipment for self, wife, child or parent)
• Expenses on supporting unmarried children:
• Below 18 years of age - RM1,000
• Disabled child - RM5,000
• Over 18 years old (pursuing tertiary education at university or college) - RM4,000
• Life insurance and/or contributions to approved provident funds (maximum) - RM6,000
• Handicapped child reliefs - RM5,000
• Medical/education insurance (maximum) - RM3,000
• Annuity premium on annuity purchased through EPF Annuity Scheme - RM1,000
• Purchase of books & similar publication - RM1,000 (maximum)
• Fee of acquiring law, accounting, Islamic finance, technical, vocational, industrial, scientific or technological skills or qualification. In cases of post graduate studies, no restrictions on the field of study. - RM5,000
• Purchase of books, journals and magazines and other similar publication (excluding newspapers) - RM1,000
• Purchase of computer for once every three years with effect from the year of assessment 2007 - RM3,000

The tax charged on a resident individual is reduced by way of the following rebates:

1. An individual with a chargeable income not exceeding RM35,000 enjoys a rebate of RM350. Where the wife is not working or the wife's income is jointly assessed, she also enjoys a further rebate of RM350. Similarly, a wife who is assessed separately will also enjoy a RM350 rebate, provided her chargeable income does not exceed RM35,000. Effective year of assessment 2009, the rebate shall be increased from RM350 to RM400. 
2. Any fee paid to the government for the issue of an employment pass, visit pass or work permit.

Sole Proprietor's Tax and Individual Tax

It comes to my attention when one of my friend asked for help on his tax issue, showing how lack of understanding is dangerous enough for an individual unknowingly go against the law without doing anything, and yet he is obliged to do "something".

Most of us know that Sole Proprietorship means: a business owned by an individual with unlimited liability. Unlimited liability is actually a jargon that not many people know, that it means that whatever things go wrong in your business will be held responsible solely by you.

For instance, a loan that due for repayment but business was not good enough to cover. In private limited company, the worst situation is liquidate the company and payoff the liability. If the liquidation cannot payoff the debts totally, the creditors, bankers, government cannot charge the balance due to the shareholders.

However, it is not the case in Sole-proprietorship - any balance or tax due can lead you to legal proceedings under your individual name. Tax unpaid for your business, can be pursued by tax authorities under your individual tax. Loan unpaid by your business, can be pursued by bankers under your individual accounts.

Now we can see the danger if the accounting & tax issues are left unattended. Then, let us look into the responsibility of a sole-proprietor:-

1. Audited accounts - Sole proprietors are not required to audit their financial accounts and submit their financial accounts to the authorities annually. However, bankers may, or may not, required the financial accounts endorsed by auditor if you are applying for loan.
2. Installment payment of tax - a Notice of Installment Payment (CP500) will be issued to sole-proprietor at the beginning of each year indicating the amount and due month in total of 6 bi-monthly installments in the month of March, May, July, September, November of the relevant year and January of the following year.
3. Due date for tax installment is 1st day of the relevant month. An increase of 10% on that installment payment will be imposed upon failure to pay the tax installment within 30 days of the stated date.
4. If you think that the amount indicated as per the CP500 was not realistic, you can submit an application to request for variation not later than 30th June of the relevant year.
5. Request for variation will only be granted in respect of the amount of each installment and not changes in due dates.
6. If a request for variation of installment payments has been approved, and where actual tax payable exceeds total installment payments and the difference is more than 30% of the actual tax payable, then an increase of 10% of the difference will be imposed without further notice being served.

EXAMPLE :


(a) Actual tax payable as per notice of assessment RM 87,700

(b) Amount of installment payments approved RM 12,500

(c) Amount of actual tax payable exceeds amount of installments (a) - (b) RM 75,200

(d) 30% of actual tax payable [30% x (a)] RM 26,310

(e) Difference (c) - (d) RM 48,890

(f) Increase (10% x (e) RM 4,889
 
The submission of tax will need to be submitted together with the sole-proprietor's individual tax under business income, therefore the due date of submission is fall on 30th June of the following year together with the balance payment and penalty, if any.
 
The above should clarify the responsibilities of a sole proprietor, and wish you all the best in achieving goals in 2010 without worrying for the authority bodies to chase after you for your hard-earned money!