sales tax and service tax 2018 managing the transition · ernst & young tax consultants sdn bhd...
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Volume 6 - Issue 4 – 3 August 2018
Sales Tax and Service Tax 2018Managing the transition
Aside from sorting out the tax compliance intricacies, businesses should seize the opportunity to re-evaluate the efficiency of their operations across the people-processes-technology spectrum.
Amarjeet SinghPartner and Malaysia Tax LeaderErnst & Young Tax Consultants Sdn Bhd
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Businesses which are impacted by the new Sales Tax and Service Tax need to develop a clear roadmap to implement the necessary changes to processes and systems.
In tandem with compliance to the new indirect tax regulations, businesses should be cognizant of other related regulations and avoid potential pitfalls when transitioning to the new regime.
Yeo Eng PingEY Asean Tax Managing Partner
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2Take 5: Sales Tax and Service Tax 2018 – Managing the transition
On 31 July 2018, in the latest steps to abolishing the Goods and Services Tax (GST) and returning to the Sales and Service Tax (SST) regime, the Ministry of Finance tabled the following Bills to the Dewan Rakyat for first reading:► Goods and Services Tax (Repeal) Bill 2018► Sales Tax Bill 2018► Service Tax Bill 2018► Customs (Amendment) Bill 2018► Free Zones (Amendment) Bill 2018
As expected, the Sales and Service Tax Bills are largely similar to the legislation in place prior to the introduction of GST. This will be a relief to businesses familiar with the taxes, particularly those required to be registered, to collect and pay, as in theory, this should make the short implementation period a little easier.
Notable changes from the previous SST framework:► Registration threshold of RM500,000► Sales tax: A more concise definition of
‘manufacture’, expansion of the list of exempted goods and inclusion of Special Areas (SAs)
► Service tax: Expansion of the list of taxable services, removal of inter-group services exemption and inclusion of SAs
Administration of both taxes will now be carried out online, through the MySST system, similar to GST. This is a welcome initiative for businesses, given how manually intensive the administration was under the previous SST regime.
► SST applies to locally manufactured and imported taxable goods (unless exempted), as well as certain prescribed services.
► Sales tax rate is expected to be 5% or 10%, while service tax is 6%.
► SST is planned to be implemented with effect 1 September 2018.
► MySST System will be introduced to facilitate online SST registration and compliance.
New SST: key points
A return to the familiar SST
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Businesses will need to undertake an efficient SST implementation project in the short time available, to ensure a positive outcome from the transition process. This will include:► Assessing the impact on people, processes
and systems in complying with the new SST legislation
► Engaging in pro-active stakeholder engagement and communication on potential commercial implications
► Ensuring adherence to relevant regulations that may have an impact post-SST implementation, e.g. Price Control and Anti-Profiteering Act 2014
Notes:1 Other Bills tabled in Parliament include the Goods and Services Tax (Repeal) Bill 2018, and two other Bills to amend the Free Zones Act 1990 and
Customs Act 1967. 2 The proposed SST legislations to-date include:► Acts – Sales Tax Act 2018 and Service Tax Act 2018► Regulations – Sales Tax Regulations 2018, Service Tax Regulations 2018, Customs Ruling Regulations and Compounding of Offences► Orders – Rate of Tax Orders 2018, Exemption Orders and Appointment of Coming into Operation Order
Chart 1: Regulatory milestones - the new SST regime
Aug 2018
Sep 2018
1 SepSST implementation2
28 AugGazette on subsidiary legislations
20 AugTabling to Dewan Negara
1st week of Aug Tabling of the Bills to Dewan Rakyat
27 AugRoyal Assent and Gazette
3Take 5: Sales Tax and Service Tax 2018 – Managing the transition
ScopeAll taxable goods manufactured and sold, used or disposed by a taxable person in Malaysia, unless listed under the Proposed Sales Tax Exemption Orders, as well as taxable goods imported into Malaysia
Sales Tax
Who is impacted?Companies that manufacture and sell, use or dispose of goods in Malaysia, with annual taxable sales of RM500,000 or more and are registered, or are liable to be registered, under the Sales Tax Act 2018
Proposed Sales Tax Framework
Registration Mandatory (where applicable) or voluntary
Transitionalregistration
Manufacturers who are GST-registered persons and who meet the required criteria will be registered automatically for Sales Tax
Rate of tax 5% , 10% or a specific rate
Return submission and payment
► Bi-monthly► Electronically or by post
Late paymentpenalty
► 10% - first 30-day period► 15% - second 30-day period► 15% - third 30-day period
*Maximum penalty of 40% after 90 days
Exemption from Sales Tax
► Goods listed under the Proposed Sales Tax (Goods Exempted from Sales Tax) Order 2018
► Persons listed under the Proposed Sales Tax (Persons Exempted from Sales Tax) Order 2018
► Sales Tax (Exemption from Registration) Order 2018
Accounting basis Sales Tax is required to be accounted for at the time when the goods are sold, disposed of or first used (accrual basis).
Overview of SST: Key notes
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4 Take 5: Sales Tax and Service Tax 2018 – Managing the transition
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Proposed Service Tax Framework
Registration Mandatory (where applicable), voluntary (branch/division level available)
Transitionalregistration
Service providers who are GST-registered persons, making supplies of taxable services and who meet the required criteria, will be registered automatically for Service Tax.
Rate of tax 6% and a specific rate for credit cards (RM25)
Return submission and payment
► Bi-monthly► Electronically or by post
Taxable services
► Hotels► Insurance and takaful► Food and beverage preparation► Clubs► Gaming► Telecommunications► Pay-TV► Forwarding agents► Legal► Accounting► Surveying► Architecture► Valuation► Engineering
► Employment agencies► Security► Management services► Parking► Motor vehicle services or repair► Courier► Hire and drive cars► Advertising► Domestic flights except Rural Air
Services1
► Credit or charge cards► IT services1
► Electricity1 in excess of 600 kWh (to end consumers)
► Consultancy
Contra systemA registered person is allowed to deduct Service Tax in his return for any cancellation and/or termination of services or any other reasons such as reducing premiums or giving discounts.
ExemptionsNo exemption order specifically mentioned in the proposed model. The Minister has the power to grant exemption(s) to any person subject to Service Tax.
ScopeAll taxable services made in the course or furtherance of any business in Malaysia
Service Tax
Who is impacted?Companies whose value of taxable services (for a period of 12 months) exceeds a threshold of RM500,000 and are registered, or are liable to be registered, under the Service Tax Act 2018
Note:1 Additional taxable services
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Penalties under the new regime
Sales Tax Bill 2018 Sales Tax Act1972
First time offender
► Liable to a fine of 10 to 20 times the amount of Sales Tax evaded
► Maximum five years’ jail► Or both
Fine of between RM50,000 and RM500,000 if the exact amount of Sales Tax evaded could not be determined
► Liable to a maximum fine of RM50,000
► Up to three years’ jail
► Or both
Second orsubsequent offence
► Liable to a fine of 20 to 40 times the amount of Sales Tax evaded
► Maximum seven years’ jail► Or both
N/A
Abetting► Liable to a fine of between RM2,000 and RM20,000► Maximum three years’ jail► Or both
► Liable to a maximum fine of RM5,000
► Up to one year imprisonment
► Or both
Source: Media sources, Royal Malaysian Customs Department: SST FAQs
Analyze your set of goods and services► Conduct a transaction analysis of your business to identify the
SST treatment of taxable goods and services1
Implement a change management process► Have a change management protocol for transaction mapping,
contract reviews, customer and vendor communication, systems impact and pricing
► Devise contingency actions for any post-implementation hiccups
2
Prepare SST registration and tax filing in advance► Ensure applicable and accurate SST registration► Develop efficient SST reporting processes and documentation
management
3
Engage and communicate with stakeholders ► Report to stakeholders the impact of the change on the
business relationships 4
Post-implementation review of transition► Review accuracy of transition and correct application of GST
and SST reporting5
Five stepsActioning a smooth transition
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APAC no. 07001372
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This material has been prepared for general informational purposes only and is not intended to be relied upon asaccounting, tax or other professional advice. Please refer to your advisors for specific advice.
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Amarjeet SinghPartner and Malaysia Tax LeaderErnst & Young Tax Consultants Sdn. Bhd.
Tel: +603 7495 [email protected]
Yeo Eng PingEY Asean Tax Managing Partner
Tel: +603 7495 [email protected]
Aaron BromleyPartner, Indirect TaxErnst & Young Tax Consultants Sdn. Bhd.
Tel: +603 7495 [email protected]
Yeoh Cheng GuanMalaysia Indirect Tax LeaderErnst & Young Tax Consultants Sdn. Bhd.
Tel: +603 7495 [email protected]
Bernard Yap Malaysia FSO Tax LeaderErnst & Young Tax Consultants Sdn. Bhd.
Tel: +603 7495 [email protected]
Dato' Abdul Rauf RashidMalaysia Managing PartnerEY Asean Assurance Managing Partner
Tel: +603 7495 [email protected]
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