AirAsia's deferred taxes issue.

I think this issue is rather .. err ... strange.

http://sahamas.net/forum39/1273.html

• Solid theoretical backing for AirAsia’s accounting policy. We believe that AirAsia has a strong case for its non-provision of deferred taxes. With capital allowances and investment allowances likely to come to RM18bn in total, the company will not have to pay cash taxes for decades. In these circumstances, a deferred tax liability provision will not be a true and fair reflection of the company’s financial position. With the MOF now seeking input from the "big four" audit firms, we think that a solution in favour of AirAsia will be found soon.
  

Capital allowances and investments totalling rm18billion??

Incredible.

Isn't this such a wonder, wonderful allowance to have?

And then...

The issue now is whether AirAsia’s treatment of deferred taxes is true and fair.

We generally agree with AirAsia that unless the crystallisation of cash taxes is probable, there is no need to make deferred tax provisions. AirAsia has committed to take delivery of 100 Airbus A320s for delivery until 2012. At a cost of approximately RM135m each, it will be entitled to:

• capital allowances (CA) totalling RM13.5bn, and

• investment allowances (IA) of approximately RM4.5bn in total. Investment allowances are provided on 60% of the capex incurred until Jun 09 only. So, total CA and IA amount to RM18bn. Given AirAsia’s pretax profit of only RM115.6m in FY6/06, the company has a very long time to go before actually having to pay cash taxes. Both unutilised capital and investment allowances can be carried forward into perpetuity until they are fully used up.

A deferred tax provision of approximately 28% of pretax will be not be true and fair, in our opinion, since no cash taxes will be payable for the foreseeable future. AirAsia’s arguments are strengthened by the fact that the company has committed to 100 A320s. We believe that professional accountants and auditors will concur with our opinion.

See hor... the end result is because of this accounting thingy...

• Restatement of accounts. The SC may deem that AirAsia has not complied with the law under Section 27 of the Financial Reporting Act and may require it to restate its accounts for FY6/06. This would reduce reported net profit for that year from RM126.9m to only RM87.2m.

Thing is... less one forget that AirAsia was SOLD to the investing public based on a REPEATED promise of rm160 million. And now we have this issue of whether AirrAsia accounting is fair or not... wow... strange or what? ( see http://everything27.blogspot.com/2005/11/airasia.html )

And that CIMB wrote the following paragraph.. surely is rather disturbing for an AirAsia investor..

What can AirAsia do?

Delisting from Bursa Malaysia is a possibility. We believe that AirAsia is very determined not to provide for deferred taxes, especially as it disadvantages it in fundraising exercises, whether for debt or equity. If the decision is unfavourable, the company may consider delisting from Bursa Malaysia and seeking a listing elsewhere. This could be negative for the short term as some funds cannot or do not want to invest in unlisted shares. But we think that the likelihood of a delisting is relatively low as the Malaysian authorities are likely to accommodate AirAsia.

How?