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Indirect Tax Chat – January 2019

Indirect Tax Chat

Keeping you up to date on the latest news in the

Indirect Tax world January 2019

Issue 1.2019

Quick links: Contact us - Our Indirect Tax team

Key takeaways:

1. Recent key changes to the Sales Tax and Service Tax

Regulations and Orders

2. Application for sales tax exemption under Schedule C,

Sales Tax (Persons Exempted from Payment of Tax) Order 2018

Greetings from Deloitte Malaysia’s Indirect Tax team

Greetings dear readers and welcome to the January 2019 edition of the

Indirect Tax Chat.

As was highlighted in our Indirect Tax Alert on 2 January 2019, the Federal

Government released the updated Regulations and Order for Sales Tax and

Services Tax respectively (you can find copies of the amended Regulations

here and the updated Orders here).

We share our analysis of the amended Legislation including providing

comments on the expanded list of taxable services for service tax that now

includes training and coaching, amusement park operations, brokerage and underwriting services,

and cleaning services.

The Royal Malaysian Customs Department (RMCD) has also issued new guides on the new

taxable services together with the imported service guide. The guides are currently only

available in the national language, Bahasa Malaysia. You can refer here for the new guides

released in the MySST portal.

Other news that may interest you:

It was reported that the government has collected RM5.4 billion from Sales and Service Tax (SST) in the past two months, exceeding the Government’s estimate of RM4.0 billion.

It was reported that the Director General (DG) of RMCD, Dato’ Sri Subromaniam Tholasy announced during a press conference that with the imposition of the new taxable services,

the RMCD expects an additional 5,000 to 10,000 companies to be registered.

To those celebrating Chinese New Year in the coming week, Happy Chinese New Year from

myself and the Deloitte Indirect Tax Team, and we wish you bundles of joy, good health and

prosperity.

Please do not hesitate to contact us if you have any queries, comments or require our assistance

on any indirect tax matters.

Best regards,

Tan Eng Yew Indirect Tax Leader

1. Recent key changes to the Sales Tax and Service Tax

Regulations and Orders Following the gazette of the Finance Act 2018 on 28 December 2018, the Federal Government

released the updated accompanying Regulations and Order for Sales Tax and Services Tax. We

have included our analysis as below:

Key Changes Description

Regulation 3A of the Service

Tax (Amendments)(No.3)

Regulations 2018

Effect of changes in taxable service

Service tax is applicable on the portion of service

attributed to period after the service became a taxable service.

If payments are received before service became

taxable and service is to be provided after the service became taxable, the payments received

are not subject to service tax.

Where the service ceases to be a taxable service, service tax is applicable on the portion of the

services which is attributed to the period before it

ceases to be a taxable service.

Effective date: 1 January 2019

Deloitte’s comment

This is a transitional provision when a new taxable service is introduced. The new taxable services

effective 1 January 2019 (i.e. amusement park

services, training and coaching services, brokerage

and underwriting services and cleaning services), would be examples where this regulation could apply.

Regulation 4A of the Service Tax (Amendments)(No.3)

Regulations 2018

Value of imported taxable services

For non-connected persons, the actual value for

service or for insurance, the actual premiums, to

be value for service tax purpose. For connected persons, open market value applies.

Effective: 1 January 2019

The valuation principles for imported taxable service mainly follow the existing valuation principles for

locally provided taxable services.

No further clarification has been given where withholding tax is borne by the local recipient of

service. At this moment, clarification is being sought

by the trade associations to address this issue.

i) Regulation 10(1A) of the

Service Tax

(Amendments)(No.3) Regulations 2018

ii) Service Tax (Persons Exempted from Payment

of Tax) Order 2018

B2B Exemption

1) Exemption of service tax on B2B services

A taxable person specified in column (1) of Group G

who provides taxable service as specified in column (2) of Group G in the First Schedule of the Service

Tax Regulation 2018 is exempted from paying service

tax. This exemption is not applicable to taxable persons who are providing employment services and

provision of guards or protection for the personal

safety or security under Group G.

In addition, exemption of service tax is also

applicable to advertisers who provides advertising

services under Group I.

The conditions for the exemption to be applicable for

the recipient of the services are as follows:

a) Acquirers of taxable service are registered in

the same taxable Group as the provider of

taxable service; and b) The services acquired must be the same

category of taxable service as provided by the

recipient to the customer.

2) Issuance of invoice

The service provider who is issuing the invoice to its

customer who is entitled for service tax exemption

has to include the following additional particulars on

the invoices issued:

a) Name and address of customer;

b) Customer’s service tax registration number; and

c) Total amount of service tax exempted.

Effective: 1 January 2019

It appears the compliance burden in terms of

recording the name and address of the exempted

customer (service acquirer) etc., is placed on the

service provider. However, the law provides that any breach of exemption condition would trigger the

liability to pay service tax on the exempted person

(in this case, the service acquirer).

Regulation 12 of the Service

Tax (Amendments)(No.3)

Regulations 2018

Furnishing of return or declaration of imported

taxable services by non-taxable person

Imported taxable services by non-taxable person is

to be declared in Form SST-02A.

It is important to note that service tax compliance for

imported taxable service is for both registrants (via the existing SST-02 return) and non-registrants (via

the new SST-02A declaration). The frequency of SST-

02A declaration differs from SST-02 (the latter’s frequency is every 2 months). SST-02A is due by the

end of the following month in which tax is due on

imported taxable services (i.e. the earlier of payment made or invoice received date).

First Schedule of the Service

Tax (Amendments)(No.3) Regulations 2018

1) Clause 3A - Non applicability of “Intra-

group” relief on imported taxable services

This additional clause specifically excludes the

applicability of intra-group relief on imported taxable services for the taxable services acquired by

businesses under Group G of the First Schedule of

Service Tax Regulations 2018.

Further to the amendment of the law above,

paragraph 22 and 23 of the Guide on Imported

Taxable Service dated 9 January 2019 provides for intra-group exemption to be given to imported

taxable services through an approval letter from the

Ministry of Finance under subsection 34(3) Service

Tax Act 2018. The exemption is only applicable for

those taxable services in (a)-(i) under Group G of the

Service Tax Regulations 2018. However, to qualify for

the exemption, the companies would have to satisfy the existing conditions under paragraph 4, 5, 6, 7

and 8 of the First Schedule of Service Tax

Regulations 2018 (i.e. the control and same service

tests) which are used to test the applicability of intra-group relief for taxable services provided in Malaysia.

2) Clause 10 - Value of exempted taxable

services to be included for purpose of

determining registration threshold

In determining the threshold for service tax

registration, businesses are to include the value of

taxable services that are entitled to the exemption of service tax in computing the total value for

registration purposes.

Service providers providing taxable services to

service tax exempted customers (e.g. for the above

B2B services, the exempted persons are the service

acquirers under certain categories in Group G or I), are themselves exempted from charging and

collecting service tax. However, this regulation makes

it clear that, despite the exemption from charging/collecting service tax, the service provider

would have to include the value of the exempted

service in calculating its registration threshold.

3) Group G - Taxable services

Item 7 – Coaching and training services have been

added as taxable services under the consultancy

services category.

Item (h) – Export of information technology services

are not taxable.

Item (j)(i) – Under employment service, the

exclusion of the service of supplying employees to

work for another person for a period of time (from the service tax scope of employment service), has

been deleted.

Item (i) Scope of management services category has

been updated as follows:

(a) Taxable person category for management

services, excludes the following (wider) classes of

persons than before:

(i) Persons providing management and

maintenance of residential properties i.e.

developer, joint management body, management corporation, or residential

association

(ii) Persons providing burial, cemeteries, cremation, sewerage, water supply and

transport services

(b) Taxable service category for management services is limited to the following (relatively

narrower) classes of so-called management

services:

(i) Project management services, full or part of

the project; (ii) Tourism management services;

(iii) Logistics management services;

(iv) Maintenance management services;

(v) Warehousing management services; (vi) Collection and debt management services;

(vii) Car park management services;

(viii) Sports facilities management services; (ix) Secretarial management services; and

(x) Any management services other than

specified in (i) to (ix) made on behalf of another person,

excluding the provision of such services in

connection with (xi) Goods or land situated outside Malaysia; or

(xii) Matters outside Malaysia other than matters

specified in (xi).

4) Group I – Addition of new taxable services

(i) Amusement park services (ii) Brokerage and underwriting services

(iii) Cleaning services

The exclusion of ‘exported IT services’ (i.e. IT services in connection with goods, land or other

matters outside Malaysia) appears to be a correction

of an oversight in the earlier Law. An exemption for

exported IT services was mentioned in the RMCD Guide that issued earlier but was missing from the

earlier version of the Law.

The deletion in item (j)(i) appears to seek the

imposition of tax on the “supplying” of employees to

work for another person for a period of time. However, the “secondment” of employees remains

not taxable (excluded from the scope of taxable

employment services). The question is the distinction

between supplying and secondment of employees, since the latter is still not taxable.

The amendment made on the management services appears to narrow the scope of management

services. However, ambiguities could still exist due to

the intrinsic vagueness of the concept of management and the related terminologies used in

the amendment. An example would be the unclear

scope of the residual category of “other”

management services “made on behalf of another person”.

The expansion of taxable services under Group I is admittedly to generate more service tax revenue.

Third Schedule of the Service

Tax (Amendments)(No.3) Regulations 2018

Amendments to Form SST-02

Imported taxable services is to be declared in Part

Sales tax and service tax deduction is to be declared in item 13 of Part B2

Adjustment under Sales Tax Deduction is to be

declared in item 13A of Part B2 Total value of exempted taxable services is to be

declared in Part D

Form SST-02 return replaced with revised version

Businesses would have to take into account of the

new SST-02 return going forward.

Regulation 16A, 16B, 16C,

16D and 16E of the Sales Tax

(Amendments) Regulations 2018

Sales Tax Deduction

Sales tax registered manufacturers may apply to claim for deduction of their sales tax payable for

their purchases from non-registered suppliers.

The application can be made to the Ministry of

Finance through the MY SST portal. Amount of deduction allowable are as follows:-

a) For purchase of goods which were subject to

5% sales tax – deduction of 2% of value goods purchased

b) For purchase of goods which were subject to

10% sales tax – deduction of 4% of value goods purchased

Only for purchases from non-connected suppliers

The above deduction will be subject to conditions

applied, which includes: Purchases made must be used for the purpose

of manufacturing taxable goods.

Purchases must be made from non-connected suppliers.

The sales tax deduction should be made in the

taxable period when goods are purchased and be declared in the revised Form SST-02.

Further guidance on the Sales Tax Deduction

application released by RMCD is now available here.

Effective Date: 1 January 2019

The sales tax deduction which took effect from 1

January 2019 will provide an avenue for smaller

scaled sales tax registered manufacturers to alleviate

the impact of sales tax to their costs. This is especially when they may not have access to

suppliers to utillise existing sales tax exemption

facilities. Such manufacturers should begin assessing the taxability of their purchases acquired and seek to

apply for this deduction if conditions are met.

Sales Tax (Rate of Tax) (Amendment) (No.3) Order

Change of rate of sales tax (water, tyres, stranded wires, brooms and brushes)

The sales tax rate for water, tyres, stranded wires, brooms and brushes have been reduced from 10% to

5% (i.e. included in First Schedule of Sales Tax

(Rates of Tax) Order 2018).

With the reduction of sales tax from 10% to 5% for

mineral waters, new tyres, stranded wires, broom and brushes, the prices for such goods should be

cheaper in the Malaysia market and the industries

(e.g. automotive and construction sectors) which uses such goods as inputs would also reap the tax

benefit.

Sales Tax (Goods Exempted From Tax) (Amendment)

(No.4) Order 2018

Goods exempted from sales tax (includes some food items, helicopter, aircraft and vessels)

Additional goods have been exempted from sales tax, which include:

Food items such as live, fresh or chilled stromboid conchs

Cereal straw and husks (unprepared), which

was previously taxed at 5%

Bicycles and Kick scooters Helicopters and certain categories of

aeroplanes and spacecraft

Deloitte’s Comment

Industries that use cereal straw and husks would

benefit from such tax reductions.

Helicopters and certain categories of aeroplanes and

spacecraft are also exempted from sales tax. The relevant industries such as passenger transport,

tourism and telecommunication would also reap the

tax benefit.

Sales Tax (Persons Exempted

from Payment of Tax)

(Amendment) (No.2) Order 2018

Person exempted from paying sales tax

Spare parts, components, materials, machinery, equipment and specialised tool purchase or imported

from providers who are endorsed by MIDA for MRO

purposes by the aerospace industry will be exempted from paying sales tax.

Deloitte’s Comment

With the sales tax exemption from 1 January 2019 on equipment and parts for aerospace, the relevant

businesses should be able to enjoy a reduction in the

cost of providing the MRO services.

In order to utilise this facility, an application will need

to be made to MIDA to seek for their endorsement in

writing. After the endorsement by MIDA, an application for Exemption under Schedule A should be

made through the MySST portal where the written

endorsement should be uploaded. The exemption certificate should then be generated after.

Brought to you by:

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Wong Poh

Director

KL Office

Chandran TS Ramasamy

Director

KL Office

2. Application for sales tax exemption under Schedule C, Sales Tax (Persons Exempted from Payment of Tax) Order 2018

There has been an update to the exemption application procedures for Items 3 and 4, Schedule

C of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018.

To apply for the exemption under Item 3 or 4 of Schedule C, the registered manufacturer will need to make an application through the MySST system for the appointment of person to

purchase/import on behalf. An appointment letter with the appointment approval number will

then be generated by the system.

Subsequently, the person appointed by the registered manufacturer will be required to use this

appointment approval number (obtained from the registered manufacturer) to generate the exemption certificate through the system.

Note: The previous certificates generated are still valid until further notice by RMCD.

The links to the user manual is accessible through this link.

With the latest updates, companies will need to take note and alert the suppliers of the new procedures (or vice versa) to avoid facing issues when applying for the sales tax exemption.

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Nicholas Lee

Associate

Director KL Office

Carmen Yong

Supervisor

KL Office

Contact us – Our Indirect Tax Team

Tan Eng Yew

Senthuran Elalingam

Indirect Tax

Leader etan@deloitte.com

Asia Pacific Financial

Services Indirect Tax Leader

+603 7610 8870 selalingam@deloitte.com

+603 7610 8879

Wong Poh Geng

Chandran TS Ramasamy

Director Director

powong@deloitte.com ctsramasamy@deloitte.com +603 7610 8834 +603 7610 8873

Larry James Sta Maria

Irene Lee

Director Associate Director

lstamaria@deloitte.com irlee@deloitte.com +603 7610 8636 +603 7610 8825

Nicholas Lee

Wendy Chin

Associate Director Senior Manager

nichlee@deloitte.com wechin@deloitte.com +603 7610 8361 +603 7610 8163

Name Email address Telephone

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Manager wanleong@deloitte.com +603 7610 8549

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Manager aamiruddin@deloitte.com +603 7610 7971

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Manager eazreen@deloitte.com +603 7610 7271

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