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.

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 davetaxnz@gmail.com.

Introduction

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.

Tax in the digital age

by Laurence Todd & Connor Vance

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

Introduction

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.

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.

Judicial review as an appeal process under SST

By S. Saravana Kumar

This article was first published in the The Edge Malaysia, 6 August 2018. 

The Customs Appeal Tribunal was introduced in 2007 through an amendment to the Customs Act 1967 (CA 1967). Section 141B of CA 1967 established the Customs Appeal Tribunal to hear appeals from taxpayers who were aggrieved by the decision of the Director-General of Customs (DG). Prior to the establishment of the tribunal, such appeals were heard by the minister of finance. If taxpayers were dissatisfied with the minister’s decision, they could appeal to the High Court by way of judicial review.

Under the soon-to-be-implemented Sales and Services Tax (SST), taxpayers who are aggrieved by a decision of the DG on SST matters may also appeal to the tribunal.

Judicial review

Notwithstanding the existence of the tribunal, established multinational corporations have opted to bypass this appeal process and commence their appeal by of judicial review. Some of these cases, such as Levi Strauss (M) Sdn Bhd v Ketua Pengarah Kastam, Malaysia (Levi Strauss), were reported in the law journals. In Levi Strauss, the taxpayer challenged the imposition of additional customs duty and selas tax on it by way of adjustment of royalty pursuant to regulation 5(1)(a)(iv) of the Customs (Rules of Valuation) Regulations 1999. It was a technical issue that involved the interpretation of various provisions of the law and working papers of the World Trade Organization. However, under the old consumption tax regime, the tribunal did not allow the taxpayer to be represented by an advocate and solicitor, which then resulted in the taxpayer seeking legal remedy by way of judicial review.

At present, there is a proposed amendment to the CA 1967 before the parliament to remove this restriction by allowing taxpayers to be represented by any person of their choice.

This article highlights that on certain matters, taxpayers may proceed directly to the High Court by way of judicial review if they are dissatisfied with the DG’s decision under the soon-to-be-implemented SST regime. In other words, can taxpayers proceed directly to the High Court despite the existence of the tribunal or a similar tribunal under SST? It is anticipated that any appeal against the decision of the DG under the new regime will be forwarded to the tribunal.

The Levi Strauss case

In Levi Strauss, the taxpayer applied for leave from the High Court for an order of certiorari to quash the DG’s decision to raise a bill of demand for additional taxes and pending the leave application, the taxpayers sought to stay the enforcement of the decision.

The attorney-general (AG), however, raise a preliminary objection to the taxpayer’s application on the premise that the taxpayer’s application was premature and misconceived. The AG took the position that the taxpayer should have filed its appeal before the tribunal and not the High Court. The taxpayer disagreed with that position and both parties were instructed by the High Court to file their written submissions. However, at the eleventh hour before the hearing, the AG withdrew his objection. Consequently, the High Court granted the taxpayer leave to apply for judicial review and stayed the enforcement of the decision pending the determination of the application.

The crux of the taxpayer’s submission was that the availability of an alternative remedy (that is, the Customs Appeal Tribunal) does not exclude judicial review. The following grounds, which are discussed below, were raised by the taxpayer in support of its application for judicial review:

(a) The Sungai Gelugor case;
(b) The tribunal is not specialised;
(c) The tribunal is domestic;
(d) Section 141N of CA 1967; and
(e) The court's powers are not restricted by CA 1967.

Why the GST failed

Source: https://www.lowyat.net/2018

/162391/gst-malaysia-zero-rated-june-2018/

By Dr Suresh P.P. Narayanan

This article appeared originally as a policy comment in the Centre for Policy Research and International Studies (CenPris), Universiti Sains Malaysia column in the New Sunday Times of 12 August 2018.

THE argument that the Goods and Services Tax (GST) was a major factor in price increases found receptive ears among Malaysians.

The promise to abolish GST was a powerful card played successfully by then opposition Pakatan Harapan to wrest power from Barisan Nasional. The question that begs to be answered is why GST proved to be so unpopular in Malaysia.

GST is a tax on the value added at each stage of the production distribution chain and is generically known worldwide as Value Added Tax (VAT). GST has been prescribed as a panacea for all economies facing revenue shortfalls by the World Bank and the International Monetary Fund (IMF). About 160 countries have adopted the GST or some variation of it.

As a revenue generator, GST’s performance is unrivalled because of its broad consumption base. Since consumption cannot be hidden, even people who evade or avoid taxes on income are forced to pay taxes when they consume. Furthermore, because the tax is collected at multiple points in the production distribution chain, revenue loss is minimised. And in theory, an invoice trail is created by the invoices that have to be obtained and produced in order to subtract the taxes paid on inputs from the taxes owed on outputs. This enables the tax authorities to check on the tax revenue collected and forwarded by businesses and their claims for credit on taxes paid on inputs and minimise the scope for cheating. This is why economists describe GST as being “efficient”. Since the customer knows exactly how much he is being taxed on each purchase, GST is “transparent” as well.

GST will protect revenues when we become an aging society and the revenue from income taxes decline as more people drop out of the workforce. Being a tax on consumption, and because even the aged must consume, revenue from GST will continue to flow into government coffers. These features make it attractive to governments, especially ones that are strapped for funds.

There are, of course, downsides to the GST that are largely ignored. And it is when these concerns are sidelined that a groundswell develops against it.

Sales and Services Tax (SST) Mechanism

The article was written by TraTax, a firm of independent tax advisors ranked within Top 10 in Malaysia for transactional taxation. The article was first published in TraTax's e-Alert on 19th July 2018.

Background

As stated in our previous e-Alert, Malaysia has announced that Sales and Services Tax ("SST") would be implemented effective 1st September 2018. Today, the key information on the mechanics of SST has been revealed by the Government. In this e-Alert, we analyse the information, and make recommendations on actions that businesses should take.

Diagram One: Evolution of
consumption taxes in Malaysia

As an introduction, SST is a single-tier tax system that replaces the multi-tier Goods and Services Tax (“GST”) that was imposed at 6 percent until 31st May 2018. An overview of the history pattern on the SST-GST-SST is depicted in Diagram One.
In general, the design of the 2018 SST is broadly similar to the characteristics of the SST repealed on 31st March 2015. SST comprises Sales Tax and Services Tax, both of which are single-tier taxation – i.e. taxed only at a single point in the supply chain.

Sales tax applies on goods. If goods are manufactured locally, sales tax is generally 10 percent of the factory price. If goods are imported from outside Malaysia, sales tax is generally imposed at 10 percent of the value of goods (plus Customs' duties) at the point of importation. Some (limited) goods are subject to 5 percent sales tax, rather than 10 percent.

Services tax generally applies at 6 percent on prescribed services. At this juncture, it has been announced that the following services would be subject to the 6% service tax:

• Hotel (including service apartment and homestay)
• Insurance and Takaful (all B2B and certain B2C)
• Service of food and beverage preparation (restaurant, hawkers, catering, etc.)
• Club (night club, golf club, etc.)
• Gaming, (casino, gaming machines, lottery, etc.)
• Telecommunication
• Pay-TV
• Forwarding agents
• Legal
• Accounting
• Surveying
• Architectural
• Surveying
• Valuer
• Engineering
• Employment agency
• Security
• Management services
• Parking
• Motor vehicle service or repair
• Courier
• Hire and drive car
• Advertising
• Domestic flight (except for rural air services in East Malaysia)
• IT services
• Electricity.

Proposed Sales and Service Tax ("SST") Implementation Framework

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

(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.

Brief IDEAS No 9 – Post-GST Malaysia: Recommendations for Reformed Sales and Services Tax (RSST)

By Adli Amirullah & Ali Salman

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

Executive Summary

This Brief IDEAS recommends that the government utilize the opportunity of the GST abolition and replacement with SST, to implement a new tax system that is transparent and effective, called a Reformed SST.

Based on experience from the previous GST and SST, we recommend the framework of the new tax system include:

Revenue increase in Malaysia 2018

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 davetaxnz@gmail.com.

Taxes are the backbone of any government. It is important for a country to develop a stable tax policy that can withstand pressure and deliver revenue, especially during times of global uncertainty.

Malaysia has successfully diversified its economy from one that was initially agriculture and commodity-based, to now include robust manufacturing and services sectors. However, her economy is still reliant on agriculture and commodity-based industries. For example, Malaysia exported RM158.72 billion (17% of total exports) worth of mining and agriculture goods in 2017.[1] Reliance on such industries are inherently risky as commodity prices can be uncertain, due to external factors such as currency fluctuation, political and global demand.

The Sun Sets on GST

GST and the transition to SST

Goods and Services Tax (GST) came into effect in Malaysia on 1 April 2015, replacing the Sales Tax and Services Tax (SST) regime. Touted as an all-encompassing tool that has a wider tax base as well as being transparent and efficient, GST brought in RM44b to the government coffers in 2017. This enabled the narrowing of the fiscal deficit.

The introduction of GST coupled with external factors brought about increased prices of goods and services, even the essential ones. Compliance cost and disproportionate price increases contributed to the negative perception of GST.

The final 15 days of GST: FAQ

By Tratax - Thenesh, Renga & Associates.

This article was first published in in Tratax’s Tax e-Alert, 17 May 2018.

Q1: For purchases made in May, will I be entitled to claim input tax credit on the stock-in-hand as at 31st May 2018?

A1: Section 39 of GST Act grants credit in respect of input tax that is attributable made or to be made by the business. There is no need for the acquirer to make an onward taxable supply in the same taxable period. Any supply made in June is subject to zero GST, but is nevertheless a taxable supply. Hence, the entitlement for input tax credit in May 2018 (or earlier) pursuant to the normal mechanism of GST should not be disturbed.

Q2: Can a business continue to issue tax invoice after 31st May 2018?

A2: The business may issue “tax invoice” or “invoice” (or any equivalent document). However, no tax shall be charged on any tax invoice issued after 1st June 2018; given that section 33(10) of the GST Act stipulates that it is an offence to issue tax invoice with 6 percent GST on any zero-rated item.

GST to SST: Is it a simple journey?

By Thenesh Kannaa, a licensed GST Agent and author of Master GST Guide.
This article was first published in Tratax - Thenesh, Renga & Associates’ Facebook page, 11 May 2018.

The leaders of the present government have expressed commitment to abolish Goods and Services Tax (hereinafter “GST”), which was implemented effective 1st April 2015. Although no fixed dates have been announced, the momentum suggest that this would be sooner than later.

I firmly believe that enforcement bodies and the GST agents licensed by the government must assist in the implementation of the government’s policy, despite any differing views that one may have. There are many nitty-gritties involved in the process of dismantling GST. There are many potential technical issues which requires involvement of GST experts. Yes, that’s right - GST cannot be effectively dismantled without participation of accountants and GST agents.

The accountants and GST agents who passionately implemented GST in 2015 should now express the same passion to ensure the process of dismantling GST in 2018 is an effective one. Some may ask – “What is so difficult? – just revoke the GST Act la!”. Well, ponder upon the following ten matters.

The ECRL GST controversy: Have the floodgates been opened?

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 on Malaysian GST and a familiar speaker on the local Malaysian circuit. He also writes extensively on GST in Malaysia and other taxation issues in New Zealand.  He is a consultant for Wolters Kluwer on Malaysian GST. He can be reached at davetaxnz@gmail.com.

The revelation that the Government has granted GST relief to China Communications Construction (ECRL) Company Sdn Bhd (CCCC) on the East Coast Rail Link (ECRL) project has led to heated discussions throughout Malaysia. Some arguments are utterly flawed as it does not take into account the legislation surrounding reliefs. This project is worth RM55 billion hence the GST impact is substantial, regardless of how one looks at it.

The Government has found itself defending its position.

Singapore Budget 2018: Everything you need to know

Last Monday afternoon, the 2018 Singapore Budget was rolled out. I'm sure some of the announcements caught some of you by surprise, some good, some maybe not so good. 

Here's some of the areas that stood out for us here at Wolters Kluwer:

• The GST increase is happening, just not as quickly as we thought, with an increase of 2% expected to be implemented between 2021 and 2025, giving time for all to prepare.

• GST will be implemented on imported digital services from 2020, affecting B2B (via a reverse charge mechanism) and B2C (through an overseas vendor registration model) businesses. 

• After alluding to the carbon tax in the 2017 Budget, it has now been introduced for 2019 onwards, at a rate of $5 per 25,000 tonnes or more of emissions, encouraging companies to be more energy efficient.

Bitcoin and GST in Malaysia – Cryptic Times Ahead?

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 on Malaysian GST and a familiar speaker on the local Malaysian circuit. He also writes extensively on GST in Malaysia and other taxation issues in New Zealand.  He is a consultant for Wolters Kluwer on Malaysian GST. He can be reached at davetaxnz@gmail.com. 


Cryptocurrency, a form of digital currency is the new ‘digital money’ of the millennium. It is cash that you cannot see nor touch as it is not tangible. However, it is in the internet, mostly stored in a digital wallet and is being traded in many countries. Cryptocurrency is created by ‘miners’ using high powered computers using massive amounts of electricity.

If you have not heard about this digital currency, then you are lagging behind. It is the buzz word today with everyone jumping onto the bandwagon, and some not knowing what they are getting into.

Punters predict it will change the financial landscape completely, sceptics, on the other hand, believe it would not last, akin to the Dutch Tulip Mania in the 16^th century. Tulip mania was the first recorded financial bubble. Tulips became fashionable and there was a mad rush to purchase tulips – causing their prices to increase to monumental levels which after a period, dramatically collapsed. Many are cautious – with one of them being Richard Harris, who wrote a damning article equating bitcoins to speculative derivatives and why it could trigger the next global financial crash.

Some countries have banned this form of currency while others have gone ahead to recognise it, amending the law and regulations to suit. 

My intention in this article is not to advise potential investors. I do not have a crystal ball for that. Instead, this article discuss GST options for the Government to consider in giving life to Bitcoin, which is the best-known cryptocurrency. 

Thoughts for taxing the digital economy

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 and a familiar speaker on the local Malaysian circuit, spending considerable time in Malaysia with a consulting firm working on GST. He also writes extensively on GST in Malaysia. He can be reached at davetaxnz@gmail.com.

There has been a lot of hype about the digital economy recently.  The Director General (DG) of the Royal Malaysian Customs Department (RMCD) clearly stated on 18 September 2017 that the GST Act 2014 will be amended to capture the GST impact on the digital economy. In New Zealand, this tax, sometimes also called the “Netflix tax”, came into force 1 October 2016. This tax is paid by the consumers of the product and not by the company.

I note the changing nature of doing business – the standard way will eventually give way to the digital economy. Tax collection year-on-year is declining, and that is likely to do with this new e-commerce way of doing business and the permanent establishment requirement. Therefore, we must recognise that GST on digital services is yet another example of digital transformation. It is here to stay and will get more complex as the style of doing business evolves to the next level.  

GST has always been intended as a broad-based tax on the consumer which is intended to cover the vast majority of transactions[1]. Virtual goods are increasingly commonplace (eg, Netflix, Uber, Alibaba, etc.) so they should not be exempt. It should be noted that these companies providing goods did not come up with some cunning tax plan to avoid charging it; they were just operating within the way the rules worked until the recent law change[2]. No one would have thought the rules of the game will change this soon. However, the GST committee, when introducing the first draft of the GST Bill in Parliament in 2009, should have considered the fact that e-commerce was already in place and downloading of software was a common occurrence at that time. Even if that was too early, the drafters could have included it in 2014 when the Bill became law. We have been living in the digital age for some time and the government needs to catch up with times.

Should the government choose to tax digital services, these are some points to be considered:

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.

Recovery of Expenses: Disbursement vs Reimbursement

This article was written by Ivy Ling Yieng Ping of Lee Hishammuddin Allen & Gledhill.

1. It is common for a GST-registered business to incur expenses while making a supply of goods or services to clients. Generally, these expenses will be recovered subsequently from the clients. However, the commercial contract between the parties, more often than not, is silent on how the recovery of expenses should be treated for the purposes of GST.

2. This may create confusion, resulting in the recovery of expenses being given the wrong GST treatment (either GST is wrongfully charged or no GST has been charged when it should be) and ultimately resulting in the filing of an incorrect GST return.

Real Estate Transactions - GST Inclusive or Exclusive

This article was written by Ashley Lee Si Han of Lee Hishammuddin Allen & Gledhill. 

The goods and services tax (“GST”) has been with us since 1 April 2015 and we have seen its impact on various parts of our lives. In theory, it is a relatively straightforward tax regime that can nevertheless prove difficult in practice, especially in relation to GST on real estate transactions.

Since the introduction of GST in Malaysia, the parties to any real estate transactions have inevitably dealt with the insertion of GST clauses in their contracts. Judging from the precedents of GST disputes under real estate transactions in various Commonwealth jurisdictions, it is important to exercise vigilance in relation to all transaction documents by ensuring that you have the right GST clauses which reflect your intention. If you are relying on a standard “one size fits all” GST clause for all real estate transactions, it might contain several loopholes, which can be a costly mistake in the event of a dispute, given the significant financial impact of GST.