Nay Lin Trading: Business Profit, Capital Gain and Withholding Tax
Nay Lin Trading Co. Ltd is a Myanmar company with a 31 March year end. For the year ended 31 March 2025, it reports accounting profit before tax of MMK 1,300 million. This figure includes a donation of MMK 100 million to a local monastery, fines and penalties of MMK 50 million, and depreciation of MMK 80 million. Tax depreciation for the year is MMK 110 million. The company also sold a warehouse in Yangon for MMK 6,000 million. The warehouse had originally cost MMK 3,000 million and had a tax written down value of MMK 2,000 million at the date of sale. The sale was a one-off disposal of a capital asset, not a trading transaction. During the year, Nay Lin paid a resident contractor MMK 500 million for renovation services. The finance manager has computed tax at 25% on the accounting profit of MMK 1,300 million and has not accounted for the warehouse sale or any withholding tax.
1. Compute taxable business profit and corporate income tax, explaining each adjustment.
Read the worked answer
Start with accounting profit before tax: MMK 1,300 million. Add back non-deductible items: donation to the monastery MMK 100 million (assuming no approved deduction), fines and penalties MMK 50 million, and accounting depreciation MMK 80 million. Deduct tax depreciation MMK 110 million. Taxable business profit = 1,300 + 100 + 50 + 80 − 110 = MMK 1,420 million. Corporate income tax at 25% = MMK 355 million. The finance manager's MMK 325 million (25% × 1,300) is wrong because it ignores the add-backs, the tax depreciation difference, and the capital gain.
2. Compute the tax on the warehouse sale and explain whether commercial tax applies.
Read the worked answer
The warehouse sale is a disposal of a capital asset, not a trading transaction. Capital gain = proceeds 6,000 − original cost 3,000 = MMK 3,000 million. Capital gains tax at the standard 10% rate = MMK 300 million. The tax written down value of MMK 2,000 million is relevant for the capital allowance history but not for the capital gains tax base, which uses original cost. The sale of the warehouse is not subject to commercial tax as a sale of an immovable capital asset; commercial tax applies to commercial sales of goods and services. The total tax on the sale is therefore MMK 300 million, separate from the 25% corporate income tax on business profit.
3. Explain the withholding tax obligation on the payment to the resident contractor and the consequences of the omission.
Read the worked answer
When Nay Lin paid the resident contractor MMK 500 million for renovation services, it should have withheld tax under the Income Tax Law. At the standard 2% rate for payments to resident companies for goods and services, the withholding is MMK 10 million. The company must remit the withheld tax to the Internal Revenue Department within the prescribed period and issue a withholding certificate. If it failed to withhold, it remains liable for the tax and may face penalties and interest. The payment should also be reviewed for commercial tax: if the contractor's service is a commercial-taxable service, the contractor should charge commercial tax, but the withholding obligation is separate. Nay Lin should correct the omission before filing.