Guide on Accommodation

 The Royal Malaysian Customs Department has recently released a Guide on Accommodation - Version 2. This guide enlights mainly to service providers in the hospitality industry, specifically hoteliers and other providers of sleeping accommodation. 

The Guide illustrates the following:

• Examples of services subjected to service tax
• Imposition and Scope of tax and the service tax due 
• Registration and responsibility of a registered person

It is worth noting that this guide provides clarity on the determination of accommodation services and which services falls under the 'service tax' category. 

Lochana Nanthacumar

Content Management Analyst

Wolters Kluwer Malaysia

(Note: For further information about our Sales and Service Tax (SST) subscription, contact us at my-sales@wolterskluwer.com (Malaysia).

Guide on Digital Services by Foreign Service Provider (FSP)

The Royal Malaysian Customs Department has released a version 2 of their guide on Digital Services. The guide aims to provide better understanding to professionals and businesses on  ''Digital Service'' tax. The guide contain the following information:-

• Implementation of Service Tax on Digital Services
• Who is considered as a FSP
• Who is considered as a consumer in Malaysia 
• Digital Services provided within the same group of company 
• Registration for FSP
• Issuance of Tax invoice for FSP
• Furnishing of returns
• Duty to keep records for FSP

Lochana Nanthacumar

Content Management Analyst

Wolters Kluwer Malaysia

(Note: For further information about our Sales and Service Tax (SST) subscription, contact us at my-sales@wolterskluwer.com (Malaysia).

Case Spotlight: Tariff Classification for Sales Tax

This article is written by Lee Hishamuddin and Gledhill (LHAG) and was first published in their Trade & Customs e-Alert in July 2019. Reproduced with permission from LHAG.

 The reintroduction of sales tax highlights the need to be precise in the tariff classification of goods manufactured in or imported into Malaysia. Under the goods and services tax (GST) regime, a standard rate of 6% duty was imposed on all taxable goods (except for exempt and zero-rated supplies). However, under the sales tax regime, goods can be either exempted (0%) from sales tax or be subject to sales tax of 5%, 10% or 15%. This sales tax rate differentiation is entirely based on tariff classification. Tariff classification thus becomes a key aspect in determining the sales tax rate payable. 

The Australian High Court recently granted special leave to the appeal sought by Comptroller General of Customs (Australian Customs) against the Federal Court’s decision in ComptrollerGeneral of Customs v Pharm-A-Care Laboratories [2018] FCAFC 237. This case concerns the tariff classification of vitamin gummies (Vitamin Gummies) and weight loss gummies (Weight Loss Gummies) imported by the taxpayer.

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.

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)

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.

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.

Return of SST: Analysis of the new sales tax mechanism

By S. Saravana Kumar and Jason Tan

This article was first published in the Malay Mail website on 20 July 2018.

Malaysians are now so used to the term “SST,” as it has dominated headlines over the past few weeks. During a debate session in Parliament on July 18, 2018, the finance minister stated that on a full-year scale, SST collection will be RM21 billion, which is almost half of that collected from GST in 2017.

After much intense speculation in respect of the scope and mechanism of SST, the Royal Malaysian Customs Department (Customs) finally shed light on this matter by publishing a draft on July 19 (Proposed Mechanism). It turns out that the Proposed Mechanism mirrors that of the SST regime pre-April 2015.

In essence, although coined as SST, both sales tax and services tax are actually governed and charged independently by separate legislations, and therefore, the term could be misleading.

Although both are single-layer consumption-based taxes, one of the major differences is that sales tax operates on a negative list, where all goods manufactured or imported to Malaysia are taxable unless exempted.

On the contrary, services tax operates on a positive list, where only the specific and exhaustive list of services are taxable. This article focuses on the issues concerning sales tax.

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:

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.