Monday, 22 April 2019

Reforms relating to tax compliance and tax incentives


There are two aspects to consider in improving the Malaysian tax system – tax compliance and tax incentives.

Tax compliance

Tax compliance needs to be made a way of life. However, media advertisements can only do so much to educate. There should be a focus on the educational role so as to be able to disseminate tax information. The website could be used more effectively, for example, listing all tax case law decisions, etc. as the public needs to know it all in the self-assessment world. The need for information also extends to officers of tax authorities, where they should be trained via contributions from the private sector to develop staff with a broader mind-set and enhanced business knowledge.

Tax compliance is a multi-faceted issue, hence there are many facets to consider. Examples include improvement of the tax consultation process, utilisation of technology in holistic manner, improvement of the tax authorities’ technical capabilities.

Tax incentives

The roll-back of certain tax incentives that commenced in 2012 has stalled. It is important to carry out a review and decide which tax incentives are important and cease pandering to vested interests. The tax incentives legislation needs to be revamped to remove certain incentives while simplifying others.

The development of tax incentives in Malaysia has not really gone through a focused review. Instead, an approach of “add-ons and tinkering” was adopted rather than taking a step back and reviewing the rationale for the need for tax incentives and having a clear measurement tool to evaluate the effectiveness of tax incentives.

The Tax Reform Committee set up in September 2018 aims to address some of the issues mentioned above. It is not undertaking a public review of the tax system which will require a significant amount of time and resources. Rather, it acts as an advisory committee to the MoF by engaging with various stakeholders for suggestions on improvements, and provide recommendations to the MoF.

Dr Veerinderjeet Singh, Chairman of Axcelasia Taxand Sdn Bhd discusses examples of tax reforms to better the Malaysian tax system.



Friday, 12 April 2019

The accounting profession: On the cusp of a technological revolution


Accounting professionals need lifelong learning to keep pace with evolving business needs. Data and analytics will be the critical skills for practitioners to stay ahead of the curve.

RICHARD CROWLEY AND JIWEI WANG

This article was first published in The Business Times, 11 April 2019. Reproduced with permission from the authors.

ACCOUNTING is experiencing more disruption than ever before. Manual or repetitive tasks will be replaced by automation, robotics and machine learning in the near future. However, this does not mean that the accounting profession is a sunset industry. In fact, with the rise of the technological applications in the workplace, there is an increase in demand for talent who are adept at bridging data technology and the accounting function.



Tuesday, 19 March 2019

Sugar tax in Malaysia: Sweet idea or bitter pill?




by Dave Ananth

Dave Ananth, Senior Tax Counsel with Stace Hammond Lawyers, is based in Auckland, New Zealand. He 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 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 davea@shg.co.nz.



The usage of tax to change “unhealthy behaviour” is not uncommon. Examples include “sin taxes” on cigarettes and alcohol, tax on high fat food (Denmark) and a “metabo” law (Japan) which was introduced to overcome obesity through annual measurement of waist circumference, provision of weight loss classes and the imposition of fines[1].

Malaysia’s sweet tooth

In August 2018, Damanasara MP Tony Pua floated the idea of a “soda tax” to kill two birds with one stone – to increase government revenue and encourage healthy living. A few weeks later, Prime Minister Dr Mahathir Mohamad says the government is considering implementing a soda tax to encourage healthy living and reduce sugar consumption as the diabetes rate in Malaysia is very high.

It cannot be denied that Malaysians are eating and drinking too much sugar. Not just from soft drinks, but from other sweetened drinks (teh tarik), local kuih (cakes) and biscuits. Per the chart below, the estimated daily consumption of sugar is the highest among Malaysians[2] in Southeast Asia (SEA).

It was reported that in 2017, about 16.74% of adults in Malaysia have diabetes. While it is not the highest in the world (Malaysia ranks 12), Malaysia still has the highest number of diabetes sufferers in SEA[3]. It is also worth noting that Malaysia has the highest levels of obesity sufferers in SEA, at 15.6%. Again, while Malaysia is not the highest in the world[4], it is still a cause for concern. Total (direct and indirect) costs of obesity are highest in Malaysia, amid SEA, where it is estimated to be between 10% and 19% of national healthcare spending[5].

Wednesday, 13 February 2019

Managing Sustainability Reporting

In 2015, Bursa Malaysia launched its Sustainability Framework, making it mandatory for all public-listed companies (PLCs) to prepare sustainability reporting. Companies listed on the Main Market and ACE Market were required comply, depending on their market capitalisation, with the framework requirements in 2017, 2018 or 2019, where the sustainability reports are to be published alongside the annual reports.

Listed companies
Annual reports issued for financial year ending on or after
Reports
Main Market with market capitalisation
RM2b or more
31 December 2016
General and Detailed Sustainability Statement
RM1b to RM2b
31 December 2017
General and Detailed Sustainability Statement
Others
31 December 2017
General and Detailed Sustainability Statement
ACE Market
31 December 2018
General Sustainability Statement

Bursa Malaysia’s Sustainability Framework was developed in response to the United Nation’s 2030 Agenda for Sustainable Development. Under the 2030 Agenda, 17 goals consisting of 169 targets were set. They cover social and economic development issues such as poverty, hunger, health, education, global warming, gender equality, water, sanitation, energy, urbanisation, environment and social justice.

Prior to the issuance of the Sustainability Framework, both Main and ACE Market listed companies are required to disclose their CSR activities in their annual report. However, this tended to skew towards social/philanthropic activities which has minimal impact on a company’s business operations or value creation process. As such, the Sustainability Framework aims to, among others, encourage companies to integrate sustainability into their business models by taking into consideration the economic, environmental and social (EES) risks and opportunities alongside financial implications as well as report such non-financial information.

Tuesday, 12 February 2019

Evolution of Tax and Investment Incentives in Malaysia

The granting of tax incentives is one of the methods used to develop a particular economic activity. If designed and implemented properly, it attracts businesses (local or foreign) to invest in a country. Apart from that, it should also lead to increased employment, knowledge transfer, technology development and development to rural areas. Thus, this should lead to increased economic growth and tax revenue (after the expiration of the tax incentive period).

In Malaysia, tax incentives are granted in several ways:
  • Exemption of statutory income
  • Additional relief for qualifying capital expenditure
  • Double deduction
The three major tax incentives in Malaysia are as follows:

Tax incentive
Description
Pioneer Status
Companies in the manufacturing, agricultural, hotel, and tourism sectors, or any other industrial or commercial sector that participate in a promoted activity or produce a promoted product may be eligible for the pioneer status incentive.

It involves the granting of a partial exemption (of up to 70% of a company’s statutory income), or in limited cases, full exemption from income tax for a period of five years or 10 years.
Investment Tax Allowance
Companies in the manufacturing, agricultural, hotel, and tourism sectors, or any other industrial or commercial sector that participate in a promoted activity or produce a promoted product may be eligible for investment tax allowance.

It involves the granting of an allowance of 60% or 100% of qualifying capital expenditure incurred which can be deducted against 70% or 100% of statutory income.
Reinvestment Allowance
A resident company in operation for not less than 36 months that incurs capital expenditure to expand, modernise, automate, or diversify its existing manufacturing business or approved agricultural project may be eligible for reinvestment allowance.

It involves the granting of an allowance of 60% of qualifying capital expenditure incurred which can be deducted against 70% of statutory income.

The abovementioned investments serves to strengthen Malaysia’s key economic activities and encourage inflow of foreign capital. However, there were no targeted incentives provided for labour-based companies, especially, the manufacturing sector) to embrace digital transformation. Only the reinvestment allowance provides some incentive for companies to be more technologically-inclined. With digitalisation transforming the business landscapes, creating both new opportunities and challenges, it was important for the manufacturing sector to transform, considering that it contributed 23% to Malaysia’s GDP (Q3 2018).

Tuesday, 29 January 2019

The Three Standards: Revenue, Financial Instruments and Leases


Recently, we saw a trio of standards come into effect – MFRS 15 Revenue from Contracts with Customers and MFRS 9 Financial Instruments on 1 January 2018, and MFRS 16 Leases on 1 January 2019. Companies have undoubtedly gone through a tremendous amount of work and change to implement those three standards – changes to the business and reporting models, processes and systems, pricing strategies, compensation, etc.

MFRS 15 Revenue from Contracts with Customers

The new MFRS 15 set out a new model of revenue accounting. The core principle is that an entity recognises revenue to reflect the transfer of goods or services in an amount that reflects the consideration the entity expects to be entitled in exchange for those goods or services.

There were practical issues to consider during the implementation. For example, for a contract to exist under MFRS 15, it must fulfill five criteria as follows:

  • Parties to the contract have approved the contract.
  • Each party's rights can be identified.
  • Payment terms can be identified.
  • The contract has commercial substance.
  • It is probable that the entity will collect consideration it is entitled to in exchange for the goods and services.
Contracts would have needed to be reviewed to ensure important information such as payment terms are included and that they are clearly worded to make the identification of the contract’s commercial substance and each parties’ rights easier.

MFRS 9 Financial Instruments

The new MFRS 9 replaced earlier versions of MFRS 9 and introduced a host of improvements which includes a classification and measurement model, a single forward-looking “expected loss” impairment model and a substantially-reformed approach to hedge accounting.

Thursday, 24 January 2019

Service Tax and Management Services


A person that provides management services and exceeds the registration threshold is liable to charge service tax, pursuant to the Sales Tax Regulations 2018. The Regulations (prior to Budget 2019) provide the following:

Taxable Person
Taxable Services
Any person who provides management services, excluding the management services provided by—
 (a) any developer, joint management body or management corporation to the owners of a building held under a strata title;
 (b)any person who is licensed or registered with the Securities Commission Malaysia for carrying out the regulated activity of fund management under the Capital Markets and Services Act 2007; or
 (c) any person, Government agency, local authority or statutory body for the purposes of religious, welfare, bereavement, health or public transport services.
Provision of all types of management services including project management or project coordination, excluding provision of such services in connection with:
(i) goods or land situated outside Malaysia; or
(ii) other than matters relating to matters specified in (i) outside Malaysia.




The Regulations seems broadly worded, with little specifics regarding the definition of management services and the type of management services that are subject to service tax.

RMCD guidance on management services


The Royal Malaysian Customs Department (RMCD), in its Guide on Management Services, provided its interpretation and clarification of the abovementioned legislation as follows:
Management services covers the organisation and coordination of activities of a business in order to provide services to the clients and these services are not categorised under any specific taxable services (i.e. prescribed services). These activities consist of organising, supervising, monitoring, planning, controlling and directing business’s resources in terms of human, financial, technology, physical and other resources. 
The written contractual agreement between the person and client will be used to determine whether the services provided can be classified as management services. In a situation where no contractual agreement exists, the services may be treated as management services if such services meet the abovementioned definition.