AXCELASIA INSIGHTS Vol 2. 2018

Axcelasia is an integrated professional services group providing tax advisory, business consulting, enterprise management system applications and business process outsourcing services to public listed companies, private companies, multinational corporations and government-linked entities.

 

We are pleased to provide our newsletter for this month. We will continue to provide updates on areas within our expertise from time to time.


 

Sales Tax and Service Tax Version 2.0

The following Bills in relation to the reintroduction of the Sales Tax and Service Tax (collectively known as “SST”) and the abolishment of Goods and Services Tax (“GST”) were passed last week by the Lower House of Parliament ( the Dewan Rakyat):

 

a)         Sales Tax Bill 2018

b)         Service Tax Bill 2018

c)         Goods and Services Tax (Repeal) Bill 2018

These Bills will soon become law once the Royal Assent from the King is obtained. Once enacted, the implementation of the SST (which is a main feature of the election manifesto of the newly-installed Government) will come into effect from 1 September 2018. As at the time of writing, the SST Regulations coupled with the relevant Gazette Orders have not been released by the authorities. Hence, our comments below are based on the above-mentioned Bills.

 

Based on the Bills, we have summarised below the salient points in relation to the proposed legislation:

 

 

Sales Tax

Service Tax

Key features

·        Single-tier tax

·        No input tax credit facility

·        Exemption from payment on the acquisition of raw materials is available to registered manufacturers

·        Single-tier tax

·        No input tax credit facility

·        Exemption for management services provided to related companies is unknown at this juncture

Imposition and scope of tax

·        Chargeable by registered manufacturers on taxable goods

·        Imported goods are subject to Sales Tax

·        Export of goods not subject to Sales Tax

·        A sales tax drawback facility is available on Sales Tax paid in respect of taxable goods that are subsequently exported

·        Chargeable by taxable persons on taxable services. Click here to access the list of taxable services.

·        Imported services not subject to Service Tax

·        Exported services not subject to Service Tax

Rate of tax

·        5% or 10%, depending on the tariff code

·        Specific rate for petroleum – to be announced

·        6% on taxable services

Mandatory registration

·        Manufacturers of taxable goods with turnover exceeding RM500,000 in a 12-month period

·        Sub-contractors that provide manufacturing services with turnover exceeding RM500,000 in a 12-month period

·        Except for restaurant related businesses, service providers that provide taxable services with turnover exceeding RM500,000 in a 12-month period

·        The threshold for restaurant related businesses is RM1 million.

Filing of returns

·        Bi-monthly

·        Bi-monthly

Accounting basis

·        Accrual (payable per invoice date)

·        Payment basis (payable upon collection)

Special Provisions – Places deemed outside Malaysia

·        Designated Area (“DA”) i.e. Labuan, Langkawi and Tioman

·        Special Area (“SA”) i.e. Free Zone, Licensed Warehouse, Licensed Manufacturing Warehouse and Joint Development Area

·        Sales Tax does not apply to manufacturing activities in DA & SA (refers to manufacturing and sale within the DA/SA)

·        Importation of goods into DA generally not subject to Sales Tax

·        Goods manufactured in DA/SA and transported into the PCA (Principal Customs Area –which is the rest of Malaysia besides the DA/SA) are treated as importation, and thus subject to Sales Tax

·        Services provided within and between DA not subject to Service Tax

·        Services provided within and between SA not subject to Service Tax

·        Services provided by a person in PCA to DA / SA subject to Service Tax

·        Services provided by a person in DA / SA to PCA is subject to Service Tax

Accounting & records keeping

·        Mandatory to issue invoices for the sale of taxable goods

·        Invoice, Credit and Debit Notes must contain the prescribed particulars

·        Requirement to keep records for 7 years

·        Mandatory to issue invoices for the supply of taxable services

·        Invoice, Credit and Debit Notes must contain the prescribed particulars

·        Requirement to keep records for 7 years

Transitional issues & GST closure

·        Goods delivered on or after 1 September 2018 will be subject to Sales Tax although the invoice was issued or payment was received under the GST regime

·        Services rendered on or after 1 September 2018 will be subject to Service Tax although the invoice was issued or payment was received under the GST regime

·        GST Input tax credit that has not been claimed must be claimed within 120 days from 1 September 2018 – considered as “final claim”

·        Last taxable period is August 2018 and the due date for the filing and payment of GST is 28 December 2018

·        GST audits are still relevant after 1 September 2018 – the Customs Department is empowered to recover any tax due notwithstanding that the repeal of the GST Act 2014

 

Comments

 

By and large, the proposed SST legislation is somewhat similar to the previous Sales Tax Act 1972 and Service Tax Act 1975 except that certain provisions have been improvised and the basket of goods and services that are subject to SST are slightly different.

 

For purposes of ensuring a seamless transition from GST to SST, there are certain key aspects / issues, among others, that need to be looked into by affected businesses and these include:

 

a)     Tariff code

 

The tariff code is important for registered manufacturers to ensure that the applicable tax rate on manufactured goods is correctly applied i.e. either non-taxable, 5% or 10%.

 

b)     Taxable services

 

Service providers that render both taxable and non-taxable services are required to appropriately map the supplies in accordance with the requirements. Incorrect mapping will result in the filing of incorrect returns.

 

c)     Valuation rules

 

The relevant regulations or rules on Customs valuation have not been released but it is expected that the Royal Malaysian Customs Department (“RMCD”) would adopt the World Trade Organisation (“WTO”) rules of valuation under the new SST regime.

 

The adoption of WTO valuation rules would potentially cause a misalignment with the Transfer Pricing policy adopted by OECD for income tax purposes.  This is likely to impact registered manufacturers that sell taxable goods to a connected distribution or sales entity.

 

 

 

d)     Transition from GST to SST

 

The proportion of the supply of goods or services that straddles beyond 1 September 2018 will be subject to Sales Tax and/or Service Tax. Therefore, the affected businesses must adhere to the transitional rules provided under the soon-to-be enacted legislation for compliance purposes.

 

e)     Input tax credit

The application to claim for input tax suffered prior to the making of taxable supplies / GST registration must be dealt with before the GST tax return form (GST-03) for the last taxable period is submitted i.e. on or before 28 December 2018. Approval from the Director General of RMCD is necessary in certain instances (e.g. businesses which have incurred input tax on capital assets but have yet to commence business) to submit the claim in the last taxable period. Failing which, the input tax suffered is irrecoverable.

Lastly, businesses that are liable to register for SST will be automatically registered by the RMCD. For those that have been omitted from the auto-registration, please note that it is a mandatory requirement to submit the application before 30 September 2018.

 

There have been cases where the RMCD has inadvertently included businesses that are not liable to register under the SST net. In this situation, the affected businesses must notify the RMCD swiftly to rectify the error.

 

Axcelasia Taxand has a dedicated team which specialises in GST and SST. Should you need our assistance, please feel free to contact us.

 

Contact persons:

Leow Mui Leelml@axcelasia.com

Brynner Chiam bczh@axcelasia.com


Key Contacts

 

 

Head of Business Entities

Entity

Email

MALAYSIA

Leow Mui Lee

Axcelasia Taxand

lml@axcelasia.com

Derek Lee

Axcelasia Columbus

dl@axcelasia.com

Kenny Harris Wong

Axcelasia Softnex

khw@axcelasia.com

Sylvia Anita Rockey

Axcelasia HR Consulting

sar@axcelasia.com

Datin Chai Seow Lin

Axcelasia Corporate Services

Axcelasia Global Business Services

csl@axcelasia.com

SINGAPORE

James C Wong

Axcelasia Singapore

jcw@axcelasia.com

VIETNAM & LAOS

Ranjit Singh

Axcelasia Vietnam

Axcelasia Laos

rs@axcelasia.com

 


Disclaimer:
This newsletter contains general information only, all of which may be subject to change.
Independent professional advice should be obtained where necessary.

 

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