by Wong & Partners (Member firm of Baker & McKenzie International)
This article was first published in Wong & Partners’ Client Alert dated 23 July 2018.
On 16 July 2018, the Minister of Finance announced that SST
will be introduced with effect from 1 September 2018. Following the
announcement, the Royal Malaysian Customs Department ("RMCD") has
published the following details[1]
on the implementation framework for the SST regime on 19 July 2018:
(a) Proposed Sales Tax Implementation Model;
(b) Frequently
Asked Questions (FAQ) - Sales Tax 2018;
(c) Proposed
Service Tax Implementation Model; and
(collectively referred to as
"RMCD Guidance").
This
alert provides a general overview of the scope of the proposed SST regime,
including details on exempted supplies and registration thresholds, as set out
in the RMCD Guidance. Kindly note that the final SST framework is subject to
the legislation that will be tabled before Parliament and published in the
Federal Gazette.
Key Features of the SST Regime
Proposed Sales Tax Framework
The
key features of the proposed sales tax regime are as follows:
Based on the RMCD Guidance, it is
noted that the previous sales tax exemption process (i.e., applications through
the Forms CJ5, CJ5A and CJ5B) for raw materials and components acquired by
licensed manufacturers will be replaced with a general exemption under the
proposed Sales Tax (Persons Exempted From Sales Tax) Order 2018. This change
will likely alleviate the historical compliance burdens faced by manufacturers
relating to the filing of the exemption application forms, but could result in
more RMCD audits to ensure that registered manufacturers have properly utilized
the general exemption.
It would also be of interest to
note whether a sales tax exemption for low-value goods (not exceeding RM500)
imported into Malaysia will be granted, in line with the import duty exemption
granted under the Customs Duties Order 2017.
Proposed Service Tax Framework
The proposed service tax will be
chargeable on taxable services made in the course or furtherance of any
business by a taxable person in Malaysia. The proposed service tax rate shall
be 6%, save for the rate for credit/charge cards which shall be a specific rate
of RM25 for each card.
The scope of taxable services includes the following:
Based on the
RMCD Guidance, imported services and exported services will not be subject to
the proposed service tax. The exact scope and definition of "imported
services" in the proposed Service Tax Act 2018 will be crucial, to
determine whether non-resident service providers providing services to
Malaysian customers will be impacted by the SST regime. Likewise, the scope of
exported services will be important to determine whether the proposed service tax will increase of the cost of
services acquired by non-resident customers from Malaysian suppliers.
Registration
Businesses will be required to
register for the proposed sales tax or service tax if the value of taxable
goods or taxable services exceeds RM500,000 within a 12- month period. This is
in contrast to the previous SST regime, whereby the threshold for sales tax was
RM100,000 and the thresholds for service tax varied between RM0 to RM300,000
depending on the category of taxable services and taxable persons.
There is also a voluntary
registration regime available under the SST framework, for businesses which do
not meet the annual turnover thresholds. There is no group registration under
the new SST regime.
Registrations will be processed
online on the RMCD MySST system. Existing GST-registered businesses that are
liable to be registered under the SST framework will be automatically
registered under the MySST system.
Filing and Invoicing Requirements
The filing of the sales tax and
service tax returns can be made either manually or through the online MySST
portal. The returns are required to be filed on a bi- monthly basis, with the
first returns due by 30 November 2018 for the taxable period of September -
October 2018.
Registered manufacturers
are required to issues invoices which contain the relevant prescribed
particulars. At present, the prescribed particulars that are required to be
contained in the invoices were not set out in the RMCD Guidance.
Designated Areas and Special Areas
Designated areas (i.e., Labuan,
Langkawi and Tioman) and special areas (i.e., free zones, licensed warehouses,
licensed manufacturing warehouses and the joint development area) are treated
as places outside of Malaysia under the proposed sales tax framework. The RMCD
Guidance provides further clarification on the proposed sales tax treatment for
manufacturing activities within the designated areas and special areas, as well
as the removal of goods between these areas and the principal customs area.
In contrast, designated
areas and special areas are not deemed as places outside Malaysia for service
tax purposes. Notwithstanding that, the RMCD Guidance indicates that services
provided within / between designated areas and special areas will not be
subject to the proposed service tax, unless specifically prescribed to be
taxable. The RMCD Guidance also provides further clarification on the proposed
service tax treatment between the special areas / designated areas and the
principal customs area.
Transitional Rules
Final GST Returns
Based on the RMCD Guidance, it is noted that the final GST returns should
be filed within 120 days from the date on which the Goods and Services Tax Act
2014 is repealed (which is anticipated to be 1 September 2018). Businesses
should ensure that all input tax claims are included in the final GST return.
The RMCD Guidance indicates that GST audits will be conducted from 1 September 2018 for the closure of GST files. Businesses are therefore advised to carry out a GST review or health
check to determine any potential non- compliance or audit issues, in advance of
the RMCD audits.
Supplies Spanning 1 September 2018
For supplies spanning the proposed
effective SST date of 1 September 2018, it appears from the RMCD Guidance that
SST will be applied for goods made available and services rendered from 1
September 2018 onwards, regardless of the timing of the payment or the issuance
of the invoices.
In instances where prepayments or
advance billing arrangements have been effected, revisions to the invoices may
be required to take into account these transitional provisions. Businesses may
also need to consider the use of separate GST invoices and SST invoices for
supplies spanning the effective date, given that there may be different
particulars which are required to be set out in the invoices depending on which
tax is applicable.
Further, businesses should
also carry out a legal review of all on-going contracts with vendors and
customers, to determine the implications of the SST on the purchase prices.
Ongoing contracts with existing indirect tax clauses may impact the ability to
charge SST and pass on the SST burden to customers.
What should Businesses Do?
Given the very short timeframe
until 1 September 2018, businesses should immediately start preparing for SST
implementation. Amongst the first steps includes ascertaining whether SST would
be applicable to their business operations. Price adjustments may need to be made
with the introduction of SST and this should be done carefully to ensure that
anti-profiteering laws are adhered to. It is expected that anti-profiteering
enforcement will increase with the implementation of SST, as the public will be
more vigilant in relation to prices of goods and services.
There may be impact to supply
chain compliance and structuring moving forward especially for companies
located in designated areas and special areas. Legal advice should be sought to ensure
that the existing supply chain structure is efficient and that the appropriate
SST treatment is applied.
Contracts that will be signed will
need to be considered and drafted carefully, to ensure that issues relating to
the transition from GST to SST are adequately addressed and that prices take
into account the change from GST to SST.
Training for employees will also be key to ensure that the SST is implemented correctly in the company's systems and also in pricing decisions to be made.
For further information, please contact:
Adeline Wong
Partner
+603 2298 7880
Yvonne Beh
Partner
+603 2298 7808
Yi Lyn Tan
Senior Associate
+603 2298 7847
Wong & Partners
Level 21
The Gardens South Tower
Mid Valley City
Lingkaran Syed Putra
59200 Kuala Lumpur
© 2018 Wong & Partners. All rights reserved. Wong & Partners is a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
[1] The publications can be obtained from the RMCD website at
www.gst.customs.gov.my.
On 16 July 2018, the Minister of Finance announced that SST
will be introduced with effect from 1 September 2018. Following the
announcement, the Royal Malaysian Customs Department ("RMCD") has
published the following details[1]
on the implementation framework for the SST regime on 19 July 2018:
(a) Proposed Sales Tax Implementation Model;
(b) Frequently
Asked Questions (FAQ) - Sales Tax 2018;
(c) Proposed
Service Tax Implementation Model; and
(d) Frequently
Asked Questions (FAQ) - Service Tax 2018,
(collectively referred to as
"RMCD Guidance").
This
alert provides a general overview of the scope of the proposed SST regime,
including details on exempted supplies and registration thresholds, as set out
in the RMCD Guidance. Kindly note that the final SST framework is subject to
the legislation that will be tabled before Parliament and published in the
Federal Gazette.
Key Features of the SST Regime
Proposed Sales Tax Framework
The
key features of the proposed sales tax regime are as follows:
Based on the RMCD Guidance, it is
noted that the previous sales tax exemption process (i.e., applications through
the Forms CJ5, CJ5A and CJ5B) for raw materials and components acquired by
licensed manufacturers will be replaced with a general exemption under the
proposed Sales Tax (Persons Exempted From Sales Tax) Order 2018. This change
will likely alleviate the historical compliance burdens faced by manufacturers
relating to the filing of the exemption application forms, but could result in
more RMCD audits to ensure that registered manufacturers have properly utilized
the general exemption.
It would also be of interest to
note whether a sales tax exemption for low-value goods (not exceeding RM500)
imported into Malaysia will be granted, in line with the import duty exemption
granted under the Customs Duties Order 2017.
Proposed Service Tax Framework
The proposed service tax will be
chargeable on taxable services made in the course or furtherance of any
business by a taxable person in Malaysia. The proposed service tax rate shall
be 6%, save for the rate for credit/charge cards which shall be a specific rate
of RM25 for each card.
The scope of taxable services includes the following:
Based on the
RMCD Guidance, imported services and exported services will not be subject to
the proposed service tax. The exact scope and definition of "imported
services" in the proposed Service Tax Act 2018 will be crucial, to
determine whether non-resident service providers providing services to
Malaysian customers will be impacted by the SST regime. Likewise, the scope of
exported services will be important to determine whether the proposed service tax will increase of the cost of
services acquired by non-resident customers from Malaysian suppliers.
Registration
Businesses will be required to
register for the proposed sales tax or service tax if the value of taxable
goods or taxable services exceeds RM500,000 within a 12- month period. This is
in contrast to the previous SST regime, whereby the threshold for sales tax was
RM100,000 and the thresholds for service tax varied between RM0 to RM300,000
depending on the category of taxable services and taxable persons.
There is also a voluntary
registration regime available under the SST framework, for businesses which do
not meet the annual turnover thresholds. There is no group registration under
the new SST regime.
Registrations will be processed
online on the RMCD MySST system. Existing GST-registered businesses that are
liable to be registered under the SST framework will be automatically
registered under the MySST system.
Filing and Invoicing Requirements
The filing of the sales tax and
service tax returns can be made either manually or through the online MySST
portal. The returns are required to be filed on a bi- monthly basis, with the
first returns due by 30 November 2018 for the taxable period of September -
October 2018.
Registered manufacturers
are required to issues invoices which contain the relevant prescribed
particulars. At present, the prescribed particulars that are required to be
contained in the invoices were not set out in the RMCD Guidance.
Designated Areas and Special Areas
Designated areas (i.e., Labuan,
Langkawi and Tioman) and special areas (i.e., free zones, licensed warehouses,
licensed manufacturing warehouses and the joint development area) are treated
as places outside of Malaysia under the proposed sales tax framework. The RMCD
Guidance provides further clarification on the proposed sales tax treatment for
manufacturing activities within the designated areas and special areas, as well
as the removal of goods between these areas and the principal customs area.
In contrast, designated areas and special areas are not deemed as places outside Malaysia for service tax purposes. Notwithstanding that, the RMCD Guidance indicates that services provided within / between designated areas and special areas will not be subject to the proposed service tax, unless specifically prescribed to be taxable. The RMCD Guidance also provides further clarification on the proposed service tax treatment between the special areas / designated areas and the principal customs area.
Transitional Rules
Final GST Returns
Based on the RMCD Guidance, it is noted that the final GST returns should
be filed within 120 days from the date on which the Goods and Services Tax Act
2014 is repealed (which is anticipated to be 1 September 2018). Businesses
should ensure that all input tax claims are included in the final GST return.
Supplies Spanning 1 September 2018
For supplies spanning the proposed effective SST date of 1 September 2018, it appears from the RMCD Guidance that SST will be applied for goods made available and services rendered from 1 September 2018 onwards, regardless of the timing of the payment or the issuance of the invoices.
In instances where prepayments or
advance billing arrangements have been effected, revisions to the invoices may
be required to take into account these transitional provisions. Businesses may
also need to consider the use of separate GST invoices and SST invoices for
supplies spanning the effective date, given that there may be different
particulars which are required to be set out in the invoices depending on which
tax is applicable.
What should Businesses Do?
Given the very short timeframe until 1 September 2018, businesses should immediately start preparing for SST implementation. Amongst the first steps includes ascertaining whether SST would be applicable to their business operations. Price adjustments may need to be made with the introduction of SST and this should be done carefully to ensure that anti-profiteering laws are adhered to. It is expected that anti-profiteering enforcement will increase with the implementation of SST, as the public will be more vigilant in relation to prices of goods and services.There may be impact to supply chain compliance and structuring moving forward especially for companies located in designated areas and special areas. Legal advice should be sought to ensure that the existing supply chain structure is efficient and that the appropriate SST treatment is applied.
Contracts that will be signed will
need to be considered and drafted carefully, to ensure that issues relating to
the transition from GST to SST are adequately addressed and that prices take
into account the change from GST to SST.
Training for employees will also be key to ensure that the SST is implemented correctly in the company's systems and also in pricing decisions to be made.
Training for employees will also be key to ensure that the SST is implemented correctly in the company's systems and also in pricing decisions to be made.
For further information, please contact:
Adeline Wong
Partner
+603 2298 7880
Yvonne Beh
Partner
+603 2298 7808
Yi Lyn Tan
Senior Associate
+603 2298 7847
Wong & Partners
Level 21
The Gardens South Tower
Mid Valley City
Lingkaran Syed Putra
59200 Kuala Lumpur
© 2018 Wong & Partners. All rights reserved. Wong & Partners is a member firm of Baker & McKenzie International, a global law firm with member law firms around the world. In accordance with the common terminology used in professional service organizations, reference to a "partner" means a person who is a partner or equivalent in such a law firm. Similarly, reference to an "office" means an office of any such law firm. This may qualify as "Attorney Advertising" requiring notice in some jurisdictions. Prior results do not guarantee a similar outcome.
[1] The publications can be obtained from the RMCD website at
www.gst.customs.gov.my.
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