Monday, 9 October 2017

Talk before you punish, RMCD

Dave Namasivayam 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 on Malaysian GST, an author and a familiar speaker on the local Malaysian circuit. He writes extensively in Malaysia and New Zealand on taxation. He can be reached at davetaxnz@gmail.com.




The Malaysian Reserve recently published an article on 25 September 2017 highlighting that MLM businesses that do not comply with GST law will be blacklisted and banned from travelling overseas. Dave Ananth muses over the effectiveness of blacklisting errant taxpayers to protect GST collection.


Blacklisting is not the answer unless all avenues have been exhausted. In any tax or revenue system, you will have recalcitrant taxpayers. Revenue laws in Malaysia, just like in New Zealand, have adequate laws to punish and even incarcerate them. However, that approach is changing across Organisation for Economic Co-operation and Development (OECD) countries.


Multi-level marketing (MLM) companies are obliged to pay all relevant tax, GST including. The Director General (DG) is correct, there is no exemption for MLM companies. In fact, GST can also be accountable to commission agents if their personal turnover is more than RM500,000 a year, as they are not seen as employees but as contractors. Therefore, you need to be careful. If you are liable to be registered for GST, the supply of the product to the end consumer will be subject to GST.

Although Section 49 of the GST Act 2014 empowers the DG of Royal Malaysian Customs Department (RMCD) to notify the Director of Immigration of errant taxpayers, I would advocate the ‘dispute resolution’ approach be implemented in Malaysia. This is successful in other countries, more so in New Zealand. This involves a dialogue between the taxpayer and the Department concerned with an ‘independent facilitator’. In New Zealand, we use a senior manager of Inland Revenue Department as a ‘facilitator’, but that person has been trained for the job. This is a measure that does not incur more cost.

At the end of the day, what does the Department want? They just want to collect revenue. It is not about blacklisting or punishing people unless you are ‘top of the triangle’. I would advocate a task force or teams to be set up to administer collection. It should consist of experienced personnel from all backgrounds, preferably on a contract basis so as to not incur further government cost. There also must be money spent on training to understand MLM business model, so that proper advice can be given to companies.

The collection of taxes should always be balanced with the resources available to the Department. The importance of promoting compliance is not only for the Department but also for the taxpayer. The cost of the taxpayer’s compliance must be considered in implementing any law.

Part V of the GST Act 2014 has some relevant provisions for recovery of debt but I do not think this is enough for a dispute resolution process to be made mandatory and in place.  

If there are over 7000 traders, as reported, who failed to pay their GST, then you need to know why. GST is collected from customers who pay that tax. In other words, it belongs to the government, at the end of the day. My view is that it is government’s money – collecting and not paying it to the RMCD is theft. So, why have they not paid? If there is clear evidence, charge them in Court. Otherwise, sit down, create a dialogue, and settle the core tax and impose penalties where applicable.

Another option is to give these recalcitrant taxpayers an amnesty period to come in and own up. In my view, if I was the Revenue, my aim as a collector of government revenue, considering resources that I have, would be to ‘maximise’ recovery as opposed to pouring resources and more money into staff. 

Also, there appears to be an emphasis on ‘collection’ every time, with the authorities. I think to be balanced, the authorities also need to exercise their powers with fair play, reasonableness and justice. I am not saying they are not but this must be also in the authorities’ minds always. Another consideration would be the compliance cost to the taxpayers. Having practised in both governments in Malaysia and New Zealand, and the private sectors, most people want to pay and will pay, given they have the right information from the authorities. Most want to comply, that is for sure.

The article also reported that 200 over MLM companies have yet to register under Direct Selling Association of Malaysia (DSAM), probably due to having issues with fulfilling requirements under the Direct Sales Act 1993.

If you are operating any business, even a MLM one, without a license, and you have a turnover of over RM500,000, you must register for GST. This tax, like in all revenue law, does not recognise legality of your business but is based on turnover and the definition of supply.

I must state, however, the former DG and current DG Datuk Seri Subromaniam Tholasy, have done a great job, considering, the enormous new tax system placed upon them.

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