“My company is making a loss but why still paying tax?”
This is the common question we get from the client, and the reason for such confusion is the perception that “ACCOUNTING LOSS = LOSS IN TAX”, which is not true.
Although tax computation begins from accounting profit or loss, it should be noted that accounting is prepared under a different set of rules such as MPERS, while tax computation is computed based on rules and regulations such as Income Tax Act 1967.
In tax, expenses that are not “wholly and exclusively incurred in the production of gross income” are not deductible, which means that the expenses will not be included in the tax computation, which, in effect, might cost the tax payable higher.
Therefore, a company with an accounting loss of RM20,000 might have an adjusted income of RM5,000 due to certain expenses that are disallowed in tax. In such cases, there might be a tax payable.
In contrast, a profitable company may not have any tax payable by reason of tax incentives such as investment tax allowance and pioneer status. However, such tax incentives are only available to every company. Only those eligible may claim such incentives.
In conclusion, an accounting loss or profit is not directly related to the tax liability. Consult your tax agent for more information.