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Indirect Tax Chat – January 2019
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Indirect Tax Chat
Keeping you up to date on the latest news in the
Indirect Tax world January 2019
Indirect Tax Chat – January 2019
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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
Indirect Tax Chat – January 2019
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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
Indirect Tax Chat – January 2019
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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
Indirect Tax Chat – January 2019
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Deloitte’s comment
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
Indirect Tax Chat – January 2019
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Deloitte’s comment
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.
Effective date: 1 January 2019
Deloitte’s comment
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.
Deloitte’s comment
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
Indirect Tax Chat – January 2019
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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.
Deloitte’s comment
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.
Indirect Tax Chat – January 2019
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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
Effective date: 1 January 2019
Indirect Tax Chat – January 2019
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Deloitte’s comment
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
B1
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
Effective date: 1 January 2019
Deloitte’s comment
Businesses would have to take into account of the
new SST-02 return going forward.
Indirect Tax Chat – January 2019
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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
Deloitte’s comment
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
2018
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).
Indirect Tax Chat – January 2019
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Effective Date: 1 January 2019
Deloitte’s comment
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
Effective Date: 1 January 2019
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.
Effective Date: 1 January 2019
Indirect Tax Chat – January 2019
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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.
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Wong Poh
Geng
Director
KL Office
Chandran TS Ramasamy
Director
KL Office
Indirect Tax Chat – January 2019
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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.
Deloitte’s comment
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
Indirect Tax Chat – January 2019
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Contact us – Our Indirect Tax Team
Tan Eng Yew
Senthuran Elalingam
Indirect Tax
Leader [email protected]
Asia Pacific Financial
Services Indirect Tax Leader
+603 7610 8870 [email protected]
+603 7610 8879
Wong Poh Geng
Chandran TS Ramasamy
Director Director
[email protected] [email protected] +603 7610 8834 +603 7610 8873
Larry James Sta Maria
Irene Lee
Director Associate Director
[email protected] [email protected] +603 7610 8636 +603 7610 8825
Nicholas Lee
Wendy Chin
Associate Director Senior Manager
[email protected] [email protected] +603 7610 8361 +603 7610 8163
Indirect Tax Chat – January 2019
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Name Email address Telephone
Leong Wan Chi
Manager [email protected] +603 7610 8549
Ahmad Amiruddin Ridha Allah
Manager [email protected] +603 7610 7971
Eliza Azreen Kamaruddin
Manager [email protected] +603 7610 7271
Atika Hartini Suharto
Assistant Manager [email protected] +603 7610 7986
Emeline Tong
Assistant Manager [email protected] +603 7610 8733
Hazell Neoh Assistant Manager
[email protected] +603 7610 8059
Other offices
Name Email address Telephone
Susie Tan
Johor Bahru and Melaka [email protected] +607 268 0851
Everlyn Lee
Penang [email protected] +604 218 9913
Lam Weng Keat
Ipoh [email protected] +605 253 4828
Philip Lim
Kuching and Kota Kinabalu [email protected] +608 246 3311
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Indirect Tax Chat – January 2019
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Indirect Tax Chat – January 2019
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