Wednesday, 17 October 2018

The obfuscation of GST refunds in Malaysia

Dave Ananth looks at the controversy of “missing” GST refunds in Malaysia.

by Dave Ananth

Dave Ananth is a senior lawyer, a former Magistrate and advocate in Malaysia before taking up a position with the Inland Revenue Department in New Zealand as a Prosecutor. He now practises as a Tax Barrister, based in Auckland. He is an expert in taxation and tax policy.  He also writes extensively on direct and indirect tax issues in Malaysia and New Zealand.  He is a consultant for Wolters Kluwer Malaysia. He can be reached at


GST refunds are part and parcel of any GST regime, like any other tax regime. A GST refund is usually triggered when the output tax remitted to the Royal Malaysian Customs Department (RMCD) exceeds the amount of input tax paid.

The GST Regulations 2014 provides, under normal circumstances, GST refunds are to be made within 14 working days from submission of online GST returns or 28 working days from submission of manual GST returns, or within a time that is practicable. However, it is common for GST refunds to be withheld for reasons such as incorrect calculations, suspected fraud, etc. while RMCD verifies the GST returns filed, by way of audits and investigations. In cases where further information is required, the GST Regulations 2014 provides that the refund be made within 90 days of receipt of all information. The audit or investigation usually involves a request for further information and supporting documents, typically communicated via the Taxpayer Access Point (“TAP”) or via a letter, an email or a phone call.

Overdue GST refunds

In April 2018, it was reported that while businesses were getting used to GST, a common grouse was the issue of late refund of GST credit. The RMCD director-general Datuk Seri T. Subromaniam admitted that it was a persistent issue but pointed out that 70% – 75% of the refunds were paid out promptly[1]. A survey conducted in July 2018 by the Federation of Malaysian Manufacturers (FMM) showed that more than RM220 million in input tax refunds are still owed to 100 of its members. In another case, a tax consultant says that one of his clients, who is building a factory and paid some RM50 million in input tax credits has yet to receive his refund[2].

Missing GST refunds

Then, in August 2018, Finance Minister Lim Guan Eng declared that about RM19 billion of GST refunds were not returned to taxpayers. This declaration was confirmed by RMCD director-general Datuk Seri T. Subromaniam, who informed that RMCD had requested from the monthly Trust Fund committee meetings, for RM82.9 billion be transferred to the GST Refunds Trust Account but only received RM63.5 billion, giving rise to the shortfall of RM19.25 billion. This amount was based on the GST-03 form, the refund form.

The finger pointing and blame shifting began while reassurances were made that the funds were not missing but were still in the Consolidated Fund.

Friday, 12 October 2018

Proposed Amendments to the Employment Act (2018)

Authors: Donovan Cheah (Partner) and Adryenne Lim (Legal Executive) (Donovan & Ho)

Amidst calls from the public to amend the Employment Act 1955 (“Act”) due to concerns about the inadequacy of the protections afforded under the law, the Ministry of Human Resources has finally released a list of proposed amendments, and is currently inviting members of the public to provide feedback on the proposals.
Here is a summary of some of the main changes to the Act that the Ministry is proposing. This article is based on the proposals released by the Ministry as at 4 October 2018 and may not address changes or amendments made to the proposals after this date.

Thursday, 4 October 2018


But the basics still apply

The phrase that gets bandied around all the time these days where auditing is concerned is “value-add”. In this case, your audit services must add more value to the customer. It’s why you now have items such as Key Audit Matters, why you now place emphasis on Other Information, why you now have Sustainability Reporting. It’s not just management letters these days.

Traditional audit is dead, long live audit.

That’s not to say that everything changes. The objective of an audit remains the same as defined under International Standards on Auditing ISA 200, as do the ethical principles governing an auditor’s professional responsibilities, and the core skillset an auditor should have still needs to be utilised.

Using a good example, in the Malaysia context, one could argue that the audit lapses with regards to 1Malaysia Development Bhd (1MDB) center around the use of that same core skillset, those same ethical principles. This is the case regardless of the fact that the nature of audit isn’t really designed to identify fraud.

However, it is widely acknowledged that today’s audit process continues to evolve. Technology advancements and changes in the information needs of financial statement users has meant that audit methodology and output must also adapt and an auditor’s skills must expand beyond what they ‘traditionally’ spend time doing.

Managing transfer pricing risks

Transfer pricing is a common topic for audits, given its inherent subjectivity. The Inland Revenue Authority of Singapore (IRAS) transfer pricing audit is termed “Transfer Pricing Consultation” where the IRAS generally reviews for:
  • The adequacy and timeliness of the taxpayers' transfer pricing documentation;
  • The appropriateness of the taxpayers' transfer pricing methods; and
  • The arm's length outcome of the taxpayers' transfer pricing studies.

Based on the IRAS Transfer Pricing Guidelines (TP Guidelines), the risk indicator upon which IRAS selects taxpayers for a transfer pricing audit are as follows:
  • The value of related party transactions;
  • The performance of the business over time; and
  • The likelihood that taxable profits may have been understated by inappropriate transfer pricing.

Slowly but surely, evolution of business laws takes place

It is common for governments to reform, amend and modernise laws to ensure relevancy, eliminate conflicting/redundant laws and simplify compliance. The Malaysian business environment has seen its fair share of changes made to its legal framework and will continue to do so in the future. Some of the notable changes include:

Financial Services Act 2013
The Financial Services Act 2013 (FSA 2013) consolidated rules governing the conduct and supervision of financial institutions in Malaysia. It consolidated and repealed the Banking and Financial Institutions Act 1989, Exchange Control Act 1953, Insurance Act 1996 and Payment Systems Act 2003.

Wednesday, 3 October 2018

Tax in the digital age

by Laurence Todd & Connor Vance

This paper was first published (September 2018) on the IDEAS website.


Advances in technology have led to radical changes in existing business models and the creation of radically new ones. With the advent of the internet, many corporations no longer need physical establishments or proximity to customers to do business. This new digital age has encouraged the emergence of an enormous variety of new products and services, easily accessed online.

However, there has been a growing sentiment within some governments that the reach and accessibility of new digital channels poses a challenge to the long-standing principles of taxation. In response to these concerns, the OECD has established a Task Force on the Digital Economy to seek to develop a global consensus and is due to report in 2020. But some countries want to move faster, and several jurisdictions are now considering new unilateral taxes targeting digital activity.

The emergence of digitalisation is of course not unique to any one country, and there are many different perspectives on how digitalisation changes the way we think about taxes – or even whether it should at all. In Malaysia, the previous government was actively looking into ways to raise revenue from digital activity; Second Finance Minister Datuk Seri Johari Abdul Ghani stated in January 2018 that the government had sought out “feedback from the OECD” on potential methods for imposing a new digital tax in Malaysia (The Malaysian Reserve, 2018). As the new Pakatan Harapan government develops its first budget, they too may consider targeting the revenue of digital companies. With this in mind, this Brief Ideas considers the main issues, domestically and globally, in the debate over digital tax.

The case for digital tax

Those countries arguing for new tax measures targeting digital activity often advocate two arguments in favour of this course of action:

  • First, that digital companies pay less tax than non-digital companies;
  • Second, that digitalisation has fundamentally altered the way value is generated.

Before we consider these two arguments, we should note the challenge in specifying a company as “digital” for the purpose of taxing it. Many, if not most businesses, will seek to use digital channels to some extent, including for sales and advertising. This includes many traditional “brick and mortar” companies that have adapted to the innovations provided by the internet and digital technology, but these cannot be classified as “digital companies”. Of course, many new predominantly digital business models have also emerged over the past few years, such as social media platforms, but even among these, there remains an enormous variety in size and function. In recognition of this, the OECD concluded that “because the digital economy is increasingly becoming the economy itself, it would be difficult, if not impossible, to ring-fence the digital economy from the rest of the economy for tax purposes.” This difficulty in defining exactly what it is that is going to be taxed makes policy development significantly more challenging and risks new taxes being unfairly targeted, which can in turn create market distortions. Any new digital tax would almost certainly have an inadvertent impact on traditional companies.

Friday, 28 September 2018

Still waters run deep

Examining GST implications for the financial services industry

Financial services are exempted from GST in Singapore as it was recognised that it was difficult to tax them. Its products and services are complex, and transactions can seem conceptual-like. Apart from that, Singapore is a key hub for financial services in the region and applying a different treatment would risk the viability of the financial services industry in Singapore.

GST is not chargeable on exempt supplies and therefore, GST-registered businesses do not need to collect and remit any GST to the IRAS on exempt supplies they make. However, from a reporting perspective, GST-registered businesses are still required to report the value of exempt supplies made in their GST return.

GST-registered businesses are generally not entitled to recover input tax credits for any GST paid on goods and services where the GST is directly attributed to exempt supplies. Where a GST-registered business makes both taxable and exempt supplies, only input tax directly attributable to the making of taxable supplies is recoverable in full. In cases like these, partial exemption recovery rules come into play. Such rules in Singapore can be complex and are subject to a number of concessions, requirements, etc. Therefore, unlike fully taxable businesses, GST incurred on purchases can become a cost for partially exempt businesses.

As such, though the GST law and principles appear to be straightforward, certain difficulties crop up when such laws and principles are applied to financial services.