𝐎𝐟𝐟𝐢𝐜𝐢𝐚𝐥 𝐌𝐚𝐥𝐚𝐲𝐬𝐢𝐚 𝐓𝐚𝐱 𝐆𝐮𝐢𝐝𝐞𝐥𝐢𝐧𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐒𝐭𝐨𝐜𝐤 𝐢𝐧 𝐓𝐫𝐚𝐝𝐞

Overview

On 03.06.2020, IRB issues a Public Ruling (PR) 2/2020 Tax treatment of stock in trade Part 1 – Valuation of Stock, to explain the valuation of stock in trade in relation to a business carried on by a person in Malaysia.

This public ruling is to replace Public Ruling 4/2006 Valuation of Stock in trade and work in progress, part 1.

Key takeaway

You will understand stock valuation for:

1. Opening stock and closing stock

2. Work in progress

3. Stock valuation on cessation of business

Summary of learning

You need to consider the following stock valuation for tax purpose:

1. The principles of first-in-first-out (FIFO) and the weighted average costs formula are acceptable costs methods. Please change the costs method if your company is using last-in-first-out (LIFO).

2. You must ensure the value of opening stock must always be the same with last year closing stock value unless there is change in valuation method.

3. You are allowed to value the stock (closing stock or work in progress) either at

i. Market value or

ii. Costs (for physically tangible stock).

4. The market value of the stock will equal to the fair value or estimated selling price.

5. The value of the sold or transferred stock at the time of business cessation or shortly after permanent cessation should be equal to price paid or value of the consideration (i.e. contract price), if the purchaser intends to use the stock in his business.

Notable point from PR 2/2020

Tax adjustment has to be made in the tax computation:

1. Net Realisable Value (NRV) is not an acceptable method under the view of IRB.

- If you valued the stock at NRV: -

The value of the inventory has to be reinstated to its market value; and

· The estimated cost to sell has to be added back in the tax computation. (Example of estimated cost to sell such as advertising, rental of store, sales commission and etc).

2. The stock valuation method should be applied consistently.

- If you change in the valuation method on the stock, the gain or loss after revaluation should be reflected in tax computation.

This PR shall read together with PR 3/2020 Tax Treatment of Stock in trade, Part II. Stay tune in our next eKTP.

Sources

PR 2/2020: Tax treatment of stock in trade, Part I

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𝐎𝐟𝐟𝐢𝐜𝐢𝐚𝐥 𝐌𝐚𝐥𝐚𝐲𝐬𝐢𝐚 𝐓𝐚𝐱 𝐆𝐮𝐢𝐝𝐞𝐥𝐢𝐧𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐕𝐚𝐥𝐮𝐚𝐭𝐢𝐨𝐧 𝐨𝐟 𝐒𝐭𝐨𝐜𝐤 𝐢𝐧 𝐓𝐫𝐚𝐝𝐞

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