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.

Case Spotlight: Arbitrary Transfer Pricing Assessments Successfully Set Aside

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

OSB v Ketua Pengarah Hasil Dalam Negeri

In a landmark ruling, the Special Commissioners of Income Tax (SCIT) unanimously allowed a tax appeal against transfer pricing tax assessments raised by the Director General of Inland Revenue (DGIR). The assessments were raised consequent to a transfer pricing audit. Our Tax, SST & Customs lawyers, led by senior partner Datuk D P Naban together with partner S Saravana Kumar, and senior associate Jason Tan Jia Xin, successfully represented OSB.

Case Spotlight: Transfer Pricing - DGIR’s Power To Vary Transactions

This article is written by Lee Hishamuddin and Gledhill (LHAG) and was first published in their Transfer Pricing e-Alert in June 2019. Reproduced with permission from LHAG.

 In the recent Indian case of Pr Commissioner of Income Tax vs M/S Aegis Ltd (Case No 1248 of 2016), one of the issues was whether the Indian Revenue Service (IRS) can re-characterise a share subscription transaction as an advance of unsecured loans. The High Court held that the IRS is not entitled to do so and dismissed its appeal against the decision of the Income Tax Appellate Tribunal (Tribunal).

Brief Facts

The taxpayer, a company based in India, was subjected to a transfer pricing audit for the years of assessment 2009 and 2010. It was dissatisfied with the decision of the IRS to deem interest income and raise tax assessments.

During the said years of assessment, the taxpayer had subscribed to redeemable preferential shares of its associated enterprise and redeemed some of the shares at par on a later date. The IRS took the position that the preference shares were equivalent to an interest-free loan advanced by the taxpayer and accordingly, imputed deemed interest.

Two key issues that arose were whether:

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.

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.

Powers of the Customs investigator

 By Aaron Bromley, Dave Ananth

Source: https://nevadasmallbusiness.com/wp-content/
uploads/2015/06/How-to-Survive-a-Tax-Audit.jpg

The powers of the Royal Malaysian Customs Department (“RMCD”) to enforce the GST legislation are specifically provided for in Part X of the GST Act 2014 (“GSTA” or “the Act”). This article explores the enforcement powers of RMCD in investigating GST offences. It is acknowledged that Customs officers also have powers under the Customs Act 1967 and Excise Act 1976, but these are not within the purview of this article.

GST offences are complex in nature. Tax agents and legal advisors dealing with this relatively new regime in Malaysia need to fully understand the potential offences and the implications. Unlike the powers of the police, the extent to which RMCD can investigate potential offences and enforce the law is not as well-published in the local media, though we expect this will change in the near future. Sometimes, there is a perception that GST offences do not carry any period of incarceration or that Customs officers do not have adequate powers under the GSTA. Such a perception is clearly misplaced.

Pursuant to the GSTA, RMCD has a wide range of powers to enforce the law. There are offences which require mens rea and also strict liability offences. Non-payment of GST amounts and other offences can result in incarceration.  The Revenue Prosecutor in New Zealand calls it, “theft of government money”. We expect a similar approach in Malaysia.

GST Update - Challenging the Royal Malaysian Customs on Director General of Customs' Decisions

This article is reproduced with permission, from the March 2017 Client Alert of Wong & Partners, member firm of Baker & McKenzie International.

Introduction

The Goods and Services Tax Act ("GST Act") 2014 came into force on 1 April 2015. Since its implementation almost 2 years ago, issues that surfaced in the early stages still remain with respect to the enforcement by the Royal Malaysian Customs Department ("Customs"), resulting in significant challenges for a number of taxpayers to comply with the GST requirements.

While Customs has made some effort to address some of the issues faced by taxpayers, the number of cases litigated on GST issues continues to rise.

Many of these issues pertain to differing interpretations of the GST Act, the role of guidelines ("Guidelines") and Director General's ("DG") Decisions issued by Customs, in aiding the interpretation of the law. Many aspects and details relating to the GST regime are not provided for expressly under the GST Act or subsidiary legislation, but are instead found in these various Guidelines and DG's Decisions. Are they absolute? Can they be challenged?

Wong & Partners have successfully represented clients before the GST Tribunal on this issue, and drawing from the Firm's experience, this client alert will focus on the viability of challenging the DG's Decisions.

What ‘device’?

By Aaron Bromley and Dave Ananth, Ernst & Young Tax Consultants Sdn Bhd

The GST Act 2014 will have two new sections - Sections 34A and 34B - introducing the potential application of a device to monitor sales activity. Internationally, such a device is commonly known as an ‘Electronic Fiscal Device’ (EFD). The application of such a device, for any registered person as prescribed by the Minister, comes into effect on 1 January 2017.

Section 34A of the GST Act states that a registered person may be required to provide information on supplies made and payments received by way of a prescribed device, to be installed at the taxpayer’s business premises. Presumably this will be integrated or configured with the Point of Sale (PoS) system (eg cash till).

With the installation, RMCD will have access to information on all sales made by the company and the payments received, on a "real-time" basis. The purpose would appear to be to capture transactions potentially not reported in the GST returns filed by the person (or in the case of a person not registered, but required to be so, those transactions not reported at all). Hence, RMCD is targeting undisclosed supplies and potential fraud.

It should be noted that the Director General of Customs may approve any person to install, configure and integrate this device. This means an independent contractor can be given permission to install this device into the taxpayer’s system, and may be responsible for the support and maintenance of the device. That person may also be authorised to carry out an inspection where there is cause to suspect interference, damage, destruction or manipulation of the data stored, or obstruction of the lawful use of the device.

Getting updated on terminations at our HR knowledge clinic

Last week, Wolters Kluwer Singapore ran one of our knowledge clinics in Singapore, in the area of human resources, focusing specifically on terminations. We invited our Asia Pacific Employment Law Online subscribers to join us for the session, titled Managing Terminations of Employment in Asia.

Our speaker for the day was Fatim Jumabhoy from Herbert Smith Freehills. Her expertise and wealth of experience was evident throughout, not to mention her exceptional delivery of information.

She went through the legal requirements for disciplinary and dismissal handling when terminating employees across Asia, looking specifically at Singapore, Hong Kong, Malaysia, Indonesia, Japan and Korea. She also highlighted particular areas of concern that our attendees needed to be aware of, as well as discussing such topics as notice periods and severance payments.

Scenes from the launch of the GST Consumer Business module

It was a buzzing morning yesterday at Concorde Hotel as our guests turned up for the launch of the latest addition to our GST Knowledge Centre, the GST Consumer Business module, Our authors from Deloitte were on hand for an interesting knowledge sharing session, providing fresh insights into GST issues involving the consumer business sector.

Various issues were covered relating to the industry, from challenges arising from recent law changes, differentiating between goods and services, the direct selling industry,  internet business, and even virtual currency, a topic not really covered in the official RMCD Guides.

Costly GST Mistakes that Businesses should Avoid - Part 4 - Services Invoiced to Foreign Customers

This is the final instalment of a 4 part series on GST written by Thenesh Kannaa, Partner of TraTax Malaysia
(Speaker for the upcoming Wolters Kluwer workshop, GST Health Check: Ensure Compliance - Avoid Costly Mistakes held in Kuala Lumpur on the 21st of July 2016)

The previous three instalments can be viewed here:

• Part one: Contractual terms
• Part two: Price displays
• Part three: Property investors

Services invoiced to foreign customers

When a GST-registered business invoices a foreign customer for a service, the structure of the GST Act 2014 suggests that the fee would be subject to GST at the standard rate of 6% unless the criteria to apply the rate of zero is met. There are 27 different provisions pursuant to which a service fee may be zero-rated. One such provision is paragraph 12, Second Schedule, GST (Zero-Rated Supply) Order 2014. Para 12 allows a service fee to be zero-rated where all of the following criteria are met:

4 Costly GST Mistakes that Businesses should Avoid - Part 3 - Property Investors

This is the third of a 4 part series on GST written by Thenesh Kannaa, Partner of TraTax Malaysia
(Speaker for the upcoming Wolters Kluwer workshop, GST Health Check: Ensure Compliance - Avoid Costly Mistakes held in Kuala Lumpur on the 21st of July 2016)

The previous two instalments can be viewed here:

• Part one: Contractual terms
• Part two: Price displays

For our third instalment today, we discuss GST implications with regards to property investors. 

Property Investors

GST applies only when a person makes a taxable supply in the course or furtherance of a business carried on by him. It is vital for property investors to determine whether their property-related activities constitute a business. Often property investors do not occupy premises, employ staff or register themselves with the Companies Commission of Malaysia as carrying on a business. Nevertheless, they may be treated as carrying on a business for the purposes of GST.

4 Costly GST Mistakes that Businesses should Avoid - Part 2

This is the second of a 4 part series on GST written by Thenesh Kannaa, Partner of TraTax Malaysia
(the first part can be accessed here).

(Speaker for the upcoming Wolters Kluwer workshop, GST Health Check: Ensure Compliance - Avoid Costly Mistakes held in Kuala Lumpur on the 21st of July 2016)

For today's Part 2 instalment, we discuss GST implications with regards to contacts. 

Contractual Terms

Where contracts are entered into, GST implications must be taken into account. The primary consideration is who bears the GST. The general principle is that the price agreed is treated as inclusive of GST, unless the contract clearly states otherwise. This principle applies to contracts entered into before 1^st April 2015 as well as those entered into from and after that date.

New Website. Not Just a Makeover.

Our newly redesigned website has a clean uncluttered design, enhanced content and improved search functionality to allow you connect better with us online.
 

Key features of the website include:

• Interactive & Mobile-Friendly – We want to encourage more use of the online platform to deliver efficient, friendly and responsive service to you. With our interactive website you can reach us and access information and services easily and quickly on any mobile device.
• Integrated – From software solutions to online subscription services to authoritative and accurate content, you will find it a breeze to browse through our offerings and what you need.
• User-Friendly eStore – We present a new online store so that you can purchase books, ebooks and make bookings for our popular seminars and workshops easily.

Visit us at:
Malaysia l  www.wolterskluwer.com.my    
Singapore  l  www.wolterskluwer.com.sg

4 Costly GST Mistakes that Businesses should Avoid

This is the first of a 4 part series on GST written by Thenesh Kannaa, Partner of TraTax Malaysia

(Speaker for the upcoming Wolters Kluwer workshop, GST Health Check: Ensure Compliance - Avoid Costly Mistakes held in Kuala Lumpur on the 21st of July 2016)

Despite the Royal Malaysian Customs (RMC) conducting many hand-holding programs and issuing many guidelines, including numerous industry guides, mistakes continue to be made by businesses with regards to GST. The purpose of this series of articles is to highlight four of the costly GST mistakes that both SMEs and larger businesses can and should avoid. Today's instalment highlights the aspect of price display.

Display of prices including GST

It is a statutory requirement that if a GST-registered business displays, advertises, publishes or quotes the price of any goods or services that it offers for sale, such prices must be GST-inclusive unless the RMC has approved otherwise. The intention of the law is to ensure that customers pay no more than the price they see. 

Spotlight on - Tan Liong Tong

Those of you in the Malaysian accounting world no doubt know of Professor Tan Liong Tong. Whether it's his reference books or his technical seminars, Professor Tan has dedicated a significant portion of his life to imparting accounting knowledge to students and working professionals alike.

He has been involved in many of our recent accounting-related publications here in Malaysia, and his books are constantly in high demand. Not only does he covers standards as a whole, such as the Malaysian Financial Reporting Standards and the Malaysian Private Entities Reporting Standard, he also zeroes in on specific complex topics such as financial instruments and deferred taxation.


At the same time, he is one of our key speakers for accounting related events, covering many topics from implementing new standards and adapting to the latest changes in existing standards.

Companies Bill 2015 – Doing business will not be the same anymore

A comment by Dr Aiman Nariman Binti Mohd Sulaiman, Professor at the International Islamic University Malaysia and author of Malaysian Company Law: Principles and Practices:

(Speaker for the upcoming Wolters Kluwer (WK) seminar, “Companies Bill 2015 – Doing Business Will Not Be The Same Anymore” to be held at Concorde Hotel, Kuala Lumpur)

The Companies Bill 2015 contains wide ranging reforms including the introduction of several provisions that impact on shareholders’ right to participate in decision making and directors’ authority to manage the company’s business.There are also changes in relation to meeting rules and procedures.