deloitte taxmax the 45 series indirect tax...i) tourism management, i.e. management services for...

Deloitte TaxMax – The 45th seriesIndirect TaxTan Eng Yew

Deloitte TaxMax – The 45th series© 2019 Deloitte Tax Services Sdn Bhd 2

An Overview

Outline

Recent Key Indirect Tax

Changes

Hot issues

Budget 2020 Key

Indirect Tax proposals

SST Current State of

Play

Takeaways

3Deloitte TaxMax – The 45th series© 2019 Deloitte Tax Services Sdn Bhd

SST Current State Of Play


• Is GST coming back?

• Ongoing and fast-paced evolution of the SST regime

• Legislation continues to be refined and expanded, procedures introduced and clarified

• More interpretation and guidance from the Royal Malaysian Customs Department (RMCD)

• Grey and contentious areas in interpretation

• Ongoing consultation and engagement between industry and the authorities

• Indicated expansion of scope and increase revenue

• Forecast for SST collection:

- 2019: RM26.8 billion (RM15.5 billion sales tax l RM11.3 billion service tax)

- 2020: RM28.3 billion (RM16.3 billion sales tax l RM12 billion service tax)

SST current state of play


Budget 2020

Key Indirect Tax Proposals


Current:

Deferred payment facility granted by RMCD to certain businesses, e.g. Authorized Economic Operator (AEO) status

Proposed:

RMCD to introduce a deferred payment facility for customs duties/sales tax to expedite the customs clearance process in the cross-border movement of goods

o Effective: TBC

Comments:

• This facility would reduce and ease any cash flow difficulties for eligible businesses

• No details provided on qualifying person and the conditions of the facility (under existing facility, payment can be deferred for 3 to 8 days)

Deferred payment for clearance of goods from Customs Control


Merger of Special Commissioners of Income Tax (SCIT) and Customs Appeal Tribunal (CAT)

Current:

• Taxpayer aggrieved by a decision of the DGIR may submit an appeal to the SCIT

• Any taxpayer aggrieved by a decision of the DGC may submit an appeal to the CAT

Proposed:

• The merger of SCIT and CAT into a Tax Appeal Tribunal

o Effective: Year 2021

Comments:

• Currently, adopt different sets of procedures and processes

• Would this merger really improve the efficiency in the management of taxpayer appeals?


Approved Major Exporter Scheme for Sales Tax

Current:

• Traders can claim a drawback on the sales tax paid on taxable goods re-exported

• Manufacturers of exempted goods eligible for sales tax exemption on the purchase of raw materials, components and packaging materials for the manufacturing of exempted goods for export

• Manufacturers of exempted goods will need to determine (in advance) the quantities of imported or locally purchased raw materials, components and packaging materials

Proposed:

• The proposed Approved Major Exporter Scheme would grant sales tax exemption on the purchase/importation of goods, raw materials, components and packaging material, by traders and manufacturers of exempted goods

• Applicants are not required to determine the quantity of goods to be purchased/imported when applying for the exemption

• Only traders or manufacturers of exempted goods whose annual sales consist of no less than 80% export (of such goods), are eligible to participate in the scheme


Approved Major Exporter Scheme for Sales Tax (con’t)

• Sales tax will need to be paid on:

a. Trading goods or manufactured exempted goods which are not exported or sold locally, based on a . prescribed formula; and

b. Waste or refuse of raw materials, components and packaging materials used for the manufacturing of .. exempted goods which are disposed or sold locally

o Effective: 1 July 2020

Comments:

• Positive cash flow impact for export-oriented traders

• Less practical difficulties for export-oriented manufacturers of exempted goods in enjoying sales tax exemption

• Details on conditions for applications and compliance requirements is unclear – whether traders will face practicalissues in fulfilling the conditions and complying with the requirements


Improvement on group relief facility under service tax

Current:

• Group relief facility available when a company provides taxable services under Group G of the First Schedule to the Service Tax Regulations 2018 (except for employment and security services) to another company within the same Group of Companies

• This is provided the service provider does not provide the same taxable services to a third party outside the Group of Companies

Proposed:

• Group relief to be expanded to allow for group relief to be applied even when the service provider provides same taxable services to a third party outside the Group of Companies

• Conditional upon the value of such services not exceeding 5% of the total value of services provided by the service provider within 12 months

o Effective: 1 January 2020

Comments:

• Positive move, but details need to be clarified, e.g. ‘same service’

• In practice, companies may face difficulties in tracking whether the 5% threshold has been exceeded


Other Budget 2020 Proposals

• 50% excise duty exemption be given to licensed tour operators for the purchase of new, locally assembled vehicles, to be used as tourism vehicles

• Exemption on entertainments duty be given on admission tickets for stage performances, that include concerts, singing, music, dances and theatres (including cultural and artistic performances by local and international artists), held at any venue in the Federal Territory of Kuala Lumpur, Labuan and Putrajaya

• Reduction of export duty rate on crude palm oil

• Customs to acquire more scanners for containerised cargo

• Service tax exemption on provision of training and coaching services for disabled persons


Recent Key Indirect Tax Changes


Recent Changes (Service Tax)

• Imported Services

o From 1 September 2019, there is more certainty on the applicability of the intra-group relief for imported services. Prior to this, the relief was governed under the Ministerial Exemption vide the Guide published by the RMCD

o The condition (previously provided under the Ministerial Exemption) that the same taxable service not be provided to any third parties outside the group of companies, has now been excluded from the conditions required to qualify for the intra-group relief

• Coaching, Training, Brokerage and Cleaning

o From 1 January 2019 onwards, coaching and training (Group G) and cleaning and brokerage, and underwriting services (Group I) are now considered taxable services


Recent Changes (Service Tax) (con’t)

• Service Tax Exemption for Labuan

o Imported Professional Services (Group G) are exempted from reverse charge (self-account) of service tax for certain eligible Labuan entities

o The services must have been acquired from 1 September 2019 to 31 August 2020 to qualify

o The exemption is available for eligible Labuan entities (whether or not registered for service tax) carrying out the activities listed in the Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018 [LBAT]

o Eligible Labuan entities must meet the minimum number of full time employees and minimum amount of annual operating expenditure requirements, as specified under the Schedule of the LBAT


Recent Changes (Service Tax) (con’t)

• Removal of certain prescribed taxable services

o From 1 September 2019, the following services are no longer taxable

i) Tourism management, i.e. management services for inbound tour packages by travel agent

ii) Logistics management, i.e. management services by freight forwarder

iii) Amusement park

iv) Laundry services using any machine or device operated by coins or tokens

o For the period from 1 Jan until 31 Aug 2019, the above services are exempted from service tax under Section 34(3) of the Service Tax Act 2018

o However, any service tax collected from customers from 1 Jan 2019 must be remitted to RMCD and no refund is allowed

o For services already rendered to customer but not yet billed, invoice can now be raised without service tax charged. If invoice has been raised with service tax charged and payment has not been received from the customer, CN can be issued


• Sales Tax Exemption reporting

o Customs introduced reporting requirements for sales tax exemption holders in June 2019

o Some are required to be submitted (MIDA & Item 57) to RMCD, some only to be submitted upon request from Customs (CJ(P) B and CJ(P) C).

o Reporting starts from the day the exemption certificate is issued by RMCD

Recent Changes (Sales Tax)


Recent Changes (Customs)

• Increasing ‘statute of limitations’ from 3 years to 6 years

• Increase in compound for offences from RM5,000 to 50% of maximum fine

• Introduction of time limit to store goods in a bonded warehouse (2 years)

• Shorter time period for goods to be exported to enjoy duty drawback (from 12 to 3 months for traders)

• Increased focus on matters relating to origin of imported/exported goods, e.g. requirement to determine origin of items


Hot issues


Current indirect tax issues - Service Tax

• Interpretation of what constitutes taxable service – narrow vs. wide interpretation?

Examples:

(i) Management services

• Turnkey/Engineering, Procurement and Construction (EPC) contracts

• Preventive maintenance vs. corrective maintenance

• Logistic management vs. warehousing management

(ii) Information technology services

• Guide includes all IT enabled services

• B2B “same service” exemption

o Practical issue – ensuring both companies registered for and provide “same service” under specific item in Group G

o Law vs. customs practice


Current indirect tax issues - Service Tax (con’t)

• Imported services

o Determining if imported services are taxable – affects all Malaysian businesses whether or not service tax registered

• Service Tax on Digital Services

o Applies to both B2B and B2C

o If a foreign service provider does not charge service tax, local business recipients to assess and self-account on a reverse charge basis

• Reimbursements/disbursements

o Previous GST concept of reimbursement/disbursements adopted

o For service tax valuation, reimbursements subject to service tax, disbursements not taxable

o In some instances, Customs have indicated that recovery of expenses without mark-up would fall within the meaning of disbursement. This can be seen in the position taken by Customs in the Employment Services Guide


Current indirect tax issues - Sales Tax

• Definition of manufacturing—certain operations may not be straightforward

• Complying with exemption conditions

• Plenty of exemption, but not easily identifiable which is applicable to the business

• Tariff classification issues – are goods taxable or not?

• Issue with respect to sales tax valuation and applying specific SST treatments—if a project consists of sales of goods and some services (supervision, commissioning, installation) and billings are made in lump sum

• Accounting for sales tax and reporting/obtaining approval for destruction of scrap / taxable finished goods / exempted raw materials

• Importing items with exemption prior to the effective date ofexemption


• Adjustments to Final GST Return

o RMCD not allowing any adjustments for input tax credits not claimed before 29 December 2018

o Adjustments for additional output tax to be accounted for but subject to penalties.

Current indirect tax issues - Goods and Service Tax


Takeaways


Key Takeaways

• Summary

o Contentious areas in SST

o Enhanced penalty provisions under Customs Act

o Enforcement coming

• What’s next?

o Stay updated

o Perform self review

o Address matters effectively

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deloitte taxmax the 45 series indirect tax...i) tourism management, i.e. management services for...

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