Wednesday, 5 December 2018

MPERS check in

MPERS (based on IFRS for SMES) was designed to apply to entities that do not have public accountability. Malaysian Accounting Standards Board (MASB) adopted the MPERS framework of in February 2014 and it came into effect for private entities for financial period beginning on or after 1 January 2016.

The implementation period for MPERS could be considered as a juggling act. There were plenty of other things going around during the period of 2014 onwards – MPERS, GST, the Companies Act 2016, or the ever evolving direct tax environment – putting a strain on SMEs’ resources. This had led to SMEs prioritising – GST compliance, MPERS transition, finance cost management or just staying afloat in a challenging economic environment.

Tuesday, 13 November 2018

Budget 2019 Highlights (Tax)

The new government’s first budget was announced on 2 November 2018. The theme of the Budget speech was “A Resurgent Malaysia, A Dynamic Economy, A Prosperous Society” and focused on three areas:
  • To implement institutional reforms
  • To ensure the socio-economic well-being of Malaysians, and
  • To foster and entrepreneurial economy.
Below are the tax proposals which are based on the content of the Budget speech and its appendices.

Corporate income tax

Tax rate for SMEs

The preferential tax rate for SMEs in respect of the first RM500,000 of chargeable income is to be reduced from 18% to 17%.
(Effective YA 2019)

Review of group relief

The rules for group relief claims are to be amended as follows:
  • Companies surrendering losses must be in operation for at least 12 months
  • Surrendering of losses is restricted to three consecutive YAs, and
  • A company with unutilised investment tax allowance or unabsorbed pioneer losses will not be eligible to claim group relief.
(Effective YA 2019)

Time limit for carry forward of unabsorbed losses and allowances

A time limit of seven consecutive YAs is placed on the carrying forward of unabsorbed losses, unutilised capital allowances, unutilised reinvestment allowance and investment allowance, and unabsorbed pioneer losses and investment tax allowance.
(Effective YA 2019)

Personal income tax

EPF and life insurance premium relief

  • The combined relief of RM6,000 for EPF and takaful/life insurance premiums has been split - RM4,000 for EPF and RM3,000 for takaful/life insurance premiums.
  • For public servants under the pension scheme, the income tax relief on takaful/ life insurance premiums is given up to RM7,000.
(Effective YA 2019)

National Education Savings Scheme (SSPN) relief

The relief on the net annual savings in SSPN is to be increased from RM6,000 to RM8,000. 
(Effective YA 2019)

Investigation of unexplained extraordinary wealth

The Inland Revenue Board (IRB) will scrutinise and investigate unexplained extraordinary wealth, and use necessary measures to recover such monies, in the form of additional taxes, penalties or fines.
(Unknown effective date)

Indirect tax

Sales tax and service tax

  • Service tax exemption on specific B2B transactions between service tax registrants.
    (Effective 1 January 2019)
  • Imposition of service tax on imported services as follows:
    • Services imported by businesses
      (Effective 1 January 2019)
    • Services imported (e.g. downloaded software, music, video and digital advertising) by consumers)
      (Effective 1 January 2020)
  • Introduction of a credit system against sales tax payable for small manufacturers who do not purchase from registered manufacturers.
    (Effective 1 January 2019)

Import duty on bicycles
Reduction of import duty on bicycles under the tariff code of 8712.00.30.00, i.e. bicycles other than racing bicycles and children bicycles) from 25% to 15%.
(Effective 1 January 2019)

Sugar tax

Imposition of excise duty of RM0.40 per litre on sugary drinks as follows:
  • Fruit juices and vegetable juices under tariff heading of 20.09, which contains sugar exceeding 12 grams per 100 millilitres, and
  • Beverages under tariff heading of 22.02, which contains sugar exceeding 5 grams per 100 millilitres)
(Effective 1 April 2019)

Budget 2019 and Young Working Adults in Malaysia

by Shawn Ho and Ee Lyne Chong (Corporate, Property and Tax Practice Group, Donovan & Ho)

This article was first published on Donovan & Ho's website on 7 November 2018.

With the Budget 2019 tabled in Parliament by the Finance Minister on 2 November 2018, this article highlights the features of how this Budget will affect young working adults in Malaysia.

Transport – Petrol, Toll, Public Transport

If you own only one car or motorbike with an engine capacity of 1500cc and below, you will be able to enjoy a subsidy for RON95 petrol amounting to RM0.30 per litre. This subsidy will be capped at 100 litres per month for cars and 40 litres per month for motorbikes. It will be interesting to see how, among other considerations, one’s actual petrol consumption is monitored, and how local and foreign vehicles are distinguished.  

For those that have been feeling a pinch when your SMART TAG device beeps several times a day, there will be no toll hike in 2019! Tolls for motorbikes for the Penang Bridge, Second Penang Bridge and the Malaysia-Singapore Second Link will also be abolished.

To encourage the regular use of public transport, our government will be introducing a RM100 unlimited public transport monthly pass, for the rail and RapidKL bus networks from 1 January 2019; as well as a RM50 monthly pass for RapidKL bus services.

Thursday, 8 November 2018

Malaysian Tax Budget Conference 2019

The new government’s maiden budget announced last Friday indicates that they are trying to balance between being a socialist government and being pro-business to boost economic growth. They announced a creative host of subsidies, grants  and allocation of funds, and utilised tax measures to promote economic growth and well-being. 

The government proposed measures to increase tax revenue such as introducing new taxes (levy on international departures, soda tax) or increasing existing ones (taxes on gaming industry, RPGT for sixth year and beyond disposals, stamp duty on property transactions over RM1 million). They modified existing tax rules to curb income set-off – imposition of a 7-year time limit for businesses to utilise losses and allowances from tax reliefs. They also proposed to impose service tax on foreign services providers that provide online services (downloaded software or music) as well as on imported services acquired by Malaysian businesses, which should level the playing fields between local and foreign players. Apart from that, the government proposed a special voluntary disclosure programme where taxpayers who voluntarily disclosed unreported income are entitled to reduced penalty rates.

The government also proposed tax measures to improve social welfare. They widened the scope of donations – Donations to social enterprises are now qualified for deduction. They focused on employee welfare – a 100% deduction for PTPTN payments made by an employer on behalf of its employees and a 200% deduction on remuneration of full-time employees who are either senior citizens or ex-convicts. These deductions, however, are subject to conditions. They government also proposed a stamp duty exemption for first time home-buyers in respect of property valued between RM300,000 and RM1 million, subject to conditions, consistent with their promise of affordable housing.

The government also proposed tax measures to encourage green businesses. Companies producing environmentally-friendly plastics will be granted Pioneer Status (70% exemption of statutory income) or Investment Allowance (60% of qualifying capital expenditure) for five years. It also proposed to expand the list of green assets that qualify for green technology investment allowance from 9 to 40.

While many agree that the measures implemented are targeted at selective business industries, it is still important for the government to continue with the tax reform reviews with the aim of making the tax system more efficient, neutral and progressive while promoting the long-term productivity of the economy.

Find out more about these taxes, key trends, challenges and opportunities that may impact your business and influence your strategy in 2019, at our Malaysian Tax Budget Conference 2019.

Wednesday, 24 October 2018

Transition to SST – lessons learnt for future tax reforms

By Sim Kwang Gek

This article was first published in the Star Online on 23 August 2018.

MALAYSIA’s decision to abolish the goods and services tax (GST) and return to a sales and service tax (SST) regime after only a period of three years is not only significant in terms of changing the tax landscape, but also in terms of providing useful and critical lessons when significant tax reforms are contemplated in the future.
The return to the SST has happened at breakneck speed, understandably so as the government needed to meet the demands of the 100-day time-frame set in its manifesto. Just over a week after the election, there was an announcement on the reduction of the 6% GST rate to 0%, and then a few weeks later, that the SST would be reintroduced on Sept 1.
The decisive moves have been welcomed by the public, but it has not been without cost, in particular to businesses that have had to make significant adjustments to systems and processes in a limited time. Depending on the circumstances, it can take several months to make changes to critical systems, including those front-end systems that calculate the tax and generate invoices.
However, due to the limited time and information available, many will not be ready by Sept 1.

Adequate information on the framework is needed

Although it is only a matter of weeks before the new tax is to go live, there are still considerable details that are not yet made available. A broad framework has been introduced but that is still a work in progress, with new information being added on a daily basis.
We have started to see the beginnings of a consultation process and some hand-holding programmes, but this has come far too late to make a significant impact.
Some businesses, for example, have received notices saying they are registered to collect the SST, even though based on the information, it is not clear whether they should be registered. These businesses have been left to ponder whether they should charge tax or not.
One has to sympathise with tax regulators and administrators, as they have had to work tirelessly to draft legislation and then produce a multitude of information to help people understand how the new tax would operate.
There would have also been considerable discussions and debate before the final details can be released, and it is clear that there continues to be such debate as we are seeing a continued evolution of the new SST rules.
For example, as late as the middle of last week, there were a number of concerns that the SST would apply in most transactions between related companies in the same corporate group.
This would create significant costs for such groups, as there are considerable shared costs. Fortunately, confirmation was received by businesses in the latter half of last week that such transactions would now be given some form of relief or exemption.
Whilst we must acknowledge that we are dealing with unique circumstances, certainly not one seen before in Malaysia, we must still take note of this for future tax reforms. It is critical that the implementation of new taxes happens after an appropriate level of consultation with the public and business community, so that issues can be ironed out in advance.

Uncertainty or complexity in the system should be avoided

One of the biggest complaints with the Malaysian version of the GST was how complex it was and how difficult it was to comply with for many businesses. The GST system adopted in Malaysia was far more complex and administratively cumbersome than our neighbours in Singapore and many of the other countries in our region that have a GST/VAT system. However, these complexities are not limited to just the GST and we see this even within the rules relating to anti-profiteering.
The anti-profiteering measures are intended to protect consumers from businesses seeking to profiteer through unreasonable price increases. It was a measure brought in to curb prices prior to the GST and is being used in equal measure to control prices prior to the SST.
Unfortunately, the rules are written in such a way that do not make for easy reading, and certainly not for someone who does not have a good accounting background and preferably deep knowledge of cost accounting.
There are multiple formulas involved where businesses need to calculate costs based on particular dates and particular circumstances; even auditing such calculations is not easy. Add to this the current climate in which businesses are uncertain as to which of their costs would increase or stay the same, as the level of detail on the scope of the tax is still not yet known.
Even if this were clear, pricing decisions are not simple and tax is only one piece of the equation. Ultimately, whilst the intention and the desire are noble in seeking a reduction in prices and improving the cost of living for the rakyat, the complexity of the framework may work against achieving this outcome.

Final thoughts

Generally, businesses prefer to operate in a stable environment with immense certainty that is absent of frequent policy changes.
The transition from the SST to the GST in 2015 was a mammoth exercise; unwinding the GST and returning to the SST is no less laborious.
Nonetheless, the voice of the people on May 9, 2018 who asked for change precipitated the de-implementation of the GST; the decision has been made by the new government and hence we have to move forward.
In this respect, all the major stakeholders, including the authorities, businesses and professionals, should work together closely in the formulation and execution of the SST re-implementation programme so as to mitigate strain in the running of businesses.
Sim Kwang Gek is Deloitte Malaysia Country Tax Leader.

Should you use an external team when investigating sexual harassment?

Authors: Aaron Goonrey and Emma Lutwyche (Lander & Rogers)

This article was originally published in Lexology.

The recent Barnaby Joyce allegations show that sometimes an internal investigation into workplace sexual harassment is not the best idea.
When sexual harassment or misconduct allegations are made against someone in your organisation, your reflex may be to deal with complaints in-house (especially if the person is senior or high profile). However, the benefits of engaging an independent investigator can outweigh the seeming advantage of being able to more fully control the matter internally. This is perhaps especially true now that #metoo has shone a harsh light on many organisations lack of due diligence in dealing with workplace sexual harassment.

When internal investigations go wrong

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.