Scope of SST and SST Cases · Scope of the Proposed Sales Tax • Clause 8- Sales tax is a tax charged and levied on all taxable goods: (a) Manufactured in Malaysia by a registered

Scope of SST and SST Cases

S. Saravana Kumar

25.8.2018

Sales Tax and Service Tax-(1) Sales Tax Bill 2018

(2) Service Tax Bill 2018(3) Proposed model by Customs on

19.7.2018

Scope of the Proposed Sales Tax

• Clause 8- Sales tax is a tax charged and levied on all taxable goods:

(a) Manufactured in Malaysia by a registered manufacturer and sold,used or disposed by him; or

(b) Imported into Malaysia by any person.

• No sales tax is charged on:

(a) Goods listed under the Proposed Sales Tax (Goods Exempted FromSales Tax) Order;

(b) Certain manufacturing activities that are exempted by Minister of Financethrough Proposed Sales Tax (Exemption From Registration) Order.

Registration for Sales Tax

• Clause 12, registration requirement:

a) taxable goods manufacturers are required/ liable to be registered whensales value of taxable goods has exceed RM500,000 for 12 monthsperiod.

b) manufacturers who carry out sub-contract work on taxable goods whereValue of work performed exceeds RM500,000 for 12 months periods.(Taxable goods belonging to a registered manufacturer, non registeredmanufacturer and manufacturer in special area (FIZ and LMW).

• Computation of registration threshold is based on:

I. historical method (total value of taxable goods in that month and 11months immediately preceding the month); and

II. future method (total value of taxable goods in that month and 11 monthsimmediately succeeding the month).

• Registered person would be known as “Registered Manufacturer”.

Timeline for Registration for Sales Tax

• Clauses 12 and 13, registration requirement:

a) Liability to register at the end of the month after the Sales Tax Act is in

force.

b) Liability to submit application for registration to the DG by the end of the

following month of (a) above.

c) DG shall register the manufacturer with effect from the first day of the

month following the month in (b) above.

1 Sep 2018

Act comes into

force

30 Sep 2018

Liability to

register

31 Oct 2018

Liability to

submit

application

1 Nov 2018

DG to register

the

manufacturer

25 August 2018

31 August 2018

31 Sep 2018 1 Oct 2018

8.8.2018

Bill passed by

Dewan Rakyat

15.8.2018

Bill sent to

Senate but not

passed

14.9.2018

Presented for

royal assent

Scenario: SENATE DOES NOT PASS THE BILLS

End of Sep

2018

Act comes into

force

Registration for Sales Tax

• Voluntary registration option for:

a) taxable goods manufacturers below threshold.

b) Persons who are exempted from registration.

• Manufacturers of non taxable gods are not eligible for voluntary registration.

• Exemption from registration would be given to:

(a) manufacturer below threshold

(b) sub-contractor manufacturer below threshold

(c) Manufacturer of non taxable goods

• Manufacturing activities given exemption including:

1. Tailoring

2. Jeweller, optician

3. Installation and incorporation of goods into building

Proposed Exemption by Customs

Proposed Sales Tax (Goods Exempted from Sales Tax) Order 2018

•Goods such as live animals, unprocessed food, vegetables, medicines,

machinery, chemical etc.

Proposed Sales Tax (Person Exempted From Sales Tax) Order 2018

•Schedule A: Class of person

Rulers, Federal or State Government, Local Authority, Inland Clearance

Depot and Duty Free Shops

•Schedule B: Manufacturer of specific non taxable goods

Exemption of sales tax on acquisition of raw materials, components,

packaging etc.

•Schedule C: Registered manufacturer

Exemption of sales tax on acquisition of raw materials, components,

packaging etc. to be used in manufacturing of taxable goods (replacing

CJ5, CJ5A, CJ5B)

• Clause 7, service tax is charged and levied on:

a) Taxable service

b) Provided in Malaysia

c) By a registered person in carrying on his business.

• Not chargeable on imported service and exported service.

•Registration if taxable service exceeds RM500,000 (historical and future

method).

•Proposed rate at 6% (provision of service or charge card at RM25)

Scope of Service Tax- Proposed Service Tax Act 2018

•LIST OF PROPOSED TAXABLE SERVICES

NO 1975 - MARCH 2015 1st SEPT 2018

ESTABLISHMENT THRESHOLD SERVICE PROVIDER TAXABLE SERVICES THRESHOLD

1. Hotel >25 rooms

Accommodation: hotel, inns, lodging

house, service apartment, homestay

and any other similar establishment.

All services including sale of food, drinks and

tobacco products. RM 500,000

2. Restaurant in hotel >25 rooms 1. Operator of restaurant, bar, snack-

bar, canteen, coffee house or any

place which provides food and drinks

• eat-in or take-away

• exclude canteen in an

educational institution or operated by a religious

institution or body.

2.Caterer. 1.Food court operator.

All services including prepared or served food or

drinks; and sale of tobacco products, alcoholic

and non-alcoholic beverages.

RM 1,000,000

3. Restaurant in hotel

<25 rooms

and threshold

exceed

RM300,000

4. Restaurant outside

hotel RM3,000,000

5. Night club No threshold

1. Night club, dance hall, cabaret

2. 1st, 2nd or 3rd class public

house or 1st or 2nd class beer

house

3. Health or wellness centre4. Massage parlour or similar

places



6. Private club RM300,000 Private club All services including sale of food, drinks and


7. Golf club and

driving range No threshold Golf club and driving range



8.

Private hospital (on

ward and food

charges only) RM300,000 Not taxable service

NO 1975 - MARCH 2015 1st SEPT 2018


9. Insurance (B2B

only)

No threshold

Insurer or takaful operator

1. General insurance or takaful B2B and general

insurance or takaful B2C excluding medical

insurance or takaful

1. Excludes

a. Insuring or takaful coverage of

risks

relating to the transport of

passengers or goods outside Malaysia

b. Insuring or takaful coverage of

risks

incurred on granting credit relating to

the export of goods, services or

investments outside Malaysia

c. Insurance contract or takaful

certificate to cover risks outside

Malaysia

RM

500,000

10. Telecommunication

and Paid-TV

Telecommunication and paid

television service provider

1. Telecommunication and relatedservices

excluding provisions of services to another

telco provider.

2. Paid television broadcasting services

RM500,000

11. Customs agent Customs agent Services of clearing goods from customs control RM500,000

12. Advocates and

solicitors Advocates, solicitors and syarie

lawyers

Legal services and other charges in connection

to such services. RM500,000

13. Public accountant Public accountant

Accounting, auditing, book keeping, consultancy

or other professional services and other charges

in connection to such services.RM500,000

14.

Surveyors including

registered valuers,

appraisers or estate

agents

Surveyors including registered

valuers, appraisers or estate agents

Surveying services including valuation, appraisal,

estate agency or professional consultancy

services and other charges in connection to

such services.

RM500,000

15.

Profession

al

engineer

Professional engineer

Engineering consultancy or other professional

services and other charges in connection to

such services.

RM500,000

NO 1975 - MARCH 2015 1st SEPT 2018


16. Architect Architect

Architectural services including professional

consultancy services and other charges in

connection to such services.

RM500,000

17. Manageme

nt services

Management services excluding such

services provided by:

1. the developer, joint

management

body or management

corporation to the owners of a

building held under a strata title;

or

2. asset and fund managers

Management services and other charges in

connection to the provision of management

services

including project management or project

coordination

RM500,000

18. Consultancy

Consultancy services excluding

research and development

companies

Professional consultancy services and other

charges in connection to such services

excluding:

1. Consultancy services relating to medical

and

surgical treatment provided by private

clinics or specialist clinics; or

2. consultancy services in connection with

goods or

land outside Malaysia or where the subject

matter relates to a country outside Malaysia

RM500,000

19. Employment

agency

RM150,000

Employment agency

Employment services excluding–1. secondment of employees or supplying

employees to work for another person for a

period of time; or

2. employment outside Malaysia

RM500,000

20. Private agency Private agency

Provision of guards or the protection or security

of person, property or business excluding such

services to guard or protect the above which is

situated outside Malaysia

RM500,000

21. Parking operator Parking operator Provision of parking spaces for motor vehicles

where parking charges are imposedRM500,000

NO 1975 - MARCH 2015 1st SEPT 2018

ESTABLISHMENT THRESHOLD SERVICE PROVIDER TAXABLE

SERVICES THRESHOLD

22. Motor vehicles

service or repair

Operator of motor vehicle service or

repair centre or provider of motor

vehicle service or repair

Provision of general servicing, engine repairs

and tuning, changing, adjusting and fixing of

parts, wheel balancing, wheel alignment or

body repairs including knocking, welding or

repainting of motor vehicles.

RM500,000

23. Courier service

operator RM150,000 Courier service operator

Courier delivery services for documents or

parcels not exceeding 30 kilograms each

excluding such services for documents or

parcels:

i. from a place outside

Malaysia to a place outside

Malaysia;

ii. from a place within

Malaysia to a place outside

Malaysia; or

iii. from a place outside

Malaysia to a place within Malaysia

and includes the provision of courier

delivery services within Malaysia that forms

parts of the service referred to in

subparagraphs (ii) and (iii)where the

service is provided by the same person

RM500,000

24. Hire and drive car

RM300,000

Hire-and-drive passenger motor

vehicle

and hire-passenger motor vehicle

licensed by Land Public Transport

Commission, Commercial Vehicles

Licensing Board Act 1987 and

Tourism

Vehicles Licensing Act 1999

Provision of hire-and-drive or hire-passenger

motor vehicle services including hire of

passenger motor vehicle with or without

chauffeur

RM500,000

25. Veterinary Not taxable service

26. Advertising Advertising

Provisions of all advertising services excluding

provision of such services for promotion outside

MalaysiaRM500,000

NO 1975 - MARCH 2015 1st SEPT 2018


27.

Credit card or

charge card

services

No threshold

Credit card or charge card services

provider regulated by Bank Negara

Malaysia

Provision of credit card or charge card services

through the issuance of a principal credit card,

principal charge card, supplementary credit

card or supplementary charge card, whether or

not annual subscription or fee is imposed

excluding fuel card

and charge card in a closed community e.g.

education institution or a sports club by its

students or members

No

threshold

28.

Betting and gaming provider

involving bettings, sweepstakes,

lotteries, gaming machines or games

of chance

1. Betting and gaming services involving

bettings,

sweepstakes, lotteries, gaming machines or

games of chance.

1. Conducting tournaments involving bettings,

sweepstakes, lotteries, gaming machines or

games of chance.

1. Conducting or allowing the conduct of a

card game or any other game by the casino

operator

RM 500,000

29. Transmission and distribution of

electricity provider

Provision of electricity to any domestic

consumer excluding for the first 600 kWh for a

minimum

period of twenty-eight days per billing cycle

consumed by that consumer

RM 500,000

30.

Airline operator licensed under

section 35 of Malaysian Aviation

Commission Act 2015 [Act 771] or

air service permit under section 36 of

Malaysian Aviation Commission Act

2015

Domestic passenger air transport service and all

services in connection with such services

excluding the air transport route as specified

under the Rural Air Services AgreementRM 500,000

31. Information technology (IT) services

provider

All types of IT services excluding:

1. sale of goods in connection with the

provision of IT services;

2. IT services in connection with goods or

land outside Malaysia or where the subject

matter relates to a country outside

Malaysia.

RM 500,000

CASES ON SST

ABC Sdn Bhd v DG of Customs(Customs valuation for sales tax)

ABC Sdn Bhd v DG of Customs

Customs’ stance

For sales tax valuation,

Customs used the excise duty

valuation method under Excise Act to value goods

Excise method includes A&P

expenses

By using the excise method, A&P expenses were added to value of goods

Upon adjustment of value, Customs

issued bill of demand

Our view

Sales tax valuation is governed by Sales Tax (Rules of Valuation)

Regulations and the method is “transaction value of the goods”, not the

excise method. If the transaction value could not be used, there are other

methods under the Regulations to be used i.e. value of identical goods and

similar goods

The Regulations requires the Customs to give opportunity to the

taxpayer to satisfy that the value is correct. Customs is also required to

give its grounds when adjusting the value, of which were not performed

by the Customs

Existence of domestic remedy does not preclude taxpayer from filing

judicial review, due to the operation of Section 141N of Customs Act and

Section 67 of Sales Tax Act

High Court and Court of Appeal’s view

It is the Customs’ internal practice to apply the excise value method

in uplifting the price of goods for sales tax purposes

Uplift of value of goods for sales tax purposes by incorporating

advertising and marketing expenses is without legal basis

Sales tax valuation must be based on the Sales Tax Regulations,

and not the Excise Act

Ketua Pengarah Kastam v

Kenwood Electronics Sdn Bhd

Sales tax issue for LMW

FACTS

Defendant (KEM) buys goodsfrom 2 LMWs:

a) KETM; andb) Montech

Licensed under Sections 65& 65A of the Customs Act1967.

Plaintiff:• Alleged that D has under-

declared value of goodsremoved from LMWs

• Sought to recover from Darrears of import dutiesand sales taxes underpaid

Defendant:

Contended that it did notbear burden or liability topay import duties and salestax.

Defendant:

Also contended that therewas no under-declarationof value on goods removedfrom LMWs.

ISSUES

Who bears the burden of paying short paid import

duty and the sales tax on goods removed from LMW?

DECISION

D was not liable to pay sales tax in respect of goodsremoval from an LMW.

LMW licensees (KETM & MASB) bears responsibility forpayment of import duty and sales tax on goods removedfrom LMW (Regulation 29 of Customs Regulations 1977).

Value relied by Customs to prove under declaration ofvalue and short payment of import duties and sales taxwas unreliable.

Customs relied on 2 different invoices referring to 2different goods and failed to call relevant witnesses toprove actual value of goods.

Everise Sprint (M) Sdn Bhd v MOF

Remission of sales tax and import duties by MOF

FACTS

Appellant:• In the business of buying

and selling used primemovers

• Bought 69 units fromScania Malaysia, exportedfrom Scania UK

Appellant:

• Paid import duties andsales tax based oninvoices issued byforwarding agents afterCustoms clearance

Customs:

• Released prime moversafter providingclearance

• Conducted audit onScania Malaysia anddiscovered shortfall

• Sought recovery ofshort-paid taxes formAppellant

Appellant applied forremission of duty and taxfrom MOF under S.14ACustoms Act and S.33 SalesTax Act 1978. MOF refusedrequest and Appellant filedJR.

ISSUE

Whether the appellant was the importer and

whether it is possible to impose liability on two

parties at the same time (Appellant & Scania

Malaysia)?

DECISION

Demand on two persons for the same short-paidtaxes created ambiguity and serious doubt as to taxliability – tax statutes are to be interpreted strictlywith no intendment - absurd and unjust to imposeliability on the appellant as well as Scania Malaysia.

Decision premised on wrong appreciation of factsand failure to consider relevant facts must bequashed.

Customs failed to consider some relevant facts andconsidered irrelevant facts – decision tainted withillegality

Royalty: Customs valuation for sales tax purpose (Levi Strauss and U Sdn Bhd v DG of Customs)

Customs’ stance

Royalty paid by licensees to foreign license holders to

be added to transaction value.

Even if there is separate sale

agreement and royalty agreement, royalty is seen as a condition of sale

If there is a reference to sale of

goods in royalty agreement, the royalty must be

incorporated

Our view and Court’s view

Even if royalty agreement makes references to sale of goods, it does notmean royalty should be added

Royalty must be directly paid in consideration for the sale of the goods

In Levi Strauss v Customs and U v Customs, our Courts held that:

The royalties paid by the taxpayer were not a condition to sell the productsin Malaysia but to enable the exploitation the trademarks and licensingrights granted to the taxpayer. Additionally, the taxpayer had nocontractual requirement to appoint related parties to manufacture theproducts. Procurement was the taxpayer’s sole discretion based oncommercial reasons

Decision of the High Court

• Customs’ allegation that the royalties were a condition of the sale of the products was

not supported by evidence

• Our courts recognise that “condition of sale” has a settled legal meaning and that the

words are unambiguous. In its usual meaning, a condition is a term which, without

being the fundamental obligation imposed by the contract, is still of such vital

importance that it goes to the root of the transaction

• Rather than creating a complex series of tests, courts preferred on the common law

and sales of goods law to determine whether royalties are paid as a condition of sale.

Hence, the courts have rejected the economic realities test advanced by Customs in

the previous cases

• Transaction value can be adjusted by adding royalties paid in respect of

goods imported, if it forms the condition of the sale of the goods to Malaysia.

• Customs’ allegation that the royalties were a condition of the sale of the

products was not supported by evidence

Power Root (M) Sdn Bhd v Director General of Customs [2014] 2 MLJ 271

Tariff classification

FACTS

The Applicant manufacturedcertain drinks ('the goods')which the respondent classifiedas attracting a sales tax of 10%.The Applicant were of the viewthe goods were only liable to a5% sales tax

However, in view of theRespondent's decision, theApplicant paid the sales taxat the rate of 10% and thenappealed against theRespondent's decision to theCustoms Appeal Tribunalwhich dismissed their appeal

The Applicant then

appealed to the High

Court which found in

their favour. The Court

of Appeal unanimously

dismissed the

respondent's appeal

against the High Court's

decision.

The Applicants wrote to the

Respondent requesting for

the extra 5% sales tax it had

collected to be refunded to

them. The Respondent

refused the request saying

there was no order of court

directing the refund to be

made.

The Applicant then

appealed to the High

Court which found in

their favour. The Court

of Appeal unanimously

dismissed the

respondent's appeal

against the High Court's

decision.

ISSUE

Whether the Applicants are entitled for a refund

pursuant to the High Court and Court of

Appeal’s orders?

DECISION

HC: “Sales tax is charged on the manufacturer,which are the applicants. The respondent allegesthat the sales tax overpaid by the applicants was'passed on' to the consumers and therefore if theywere to refund the sums to the applicants, theapplicants would be unjustly enriched.”

“On the contrary, it is the respondent who will be unjustlyenriched if they were permitted to retain the ultra virestax. Once the law is declared ultra vires, the respondenthas no right to retain such taxes collected. Article 96 of theFederal Constitution of Malaysia states that no tax or rateshall be levied by or for the purposes of the Federationexcept, by or under the authority of federal law…”

DECISION

“The respondent's assertion that for the reason theillegally collected taxes are 'passed on' to the endusers therefore relieves them of their obligation forrestitution, is simply unfounded. In the first place,the respondent has no right to retain illegallycollected taxes and the applicants should haverecourse to restitution as of right. It would be abreach of fundamental constitutional principles topermit the respondent to retain illegally collectedtaxes.”

OTHER ISSUES

Retrospective imposition of sales tax and service tax

Customs’ stance

When challenging any past sales tax or service tax return,

bills of demand will be issued with

penalties

Companies must settle the bills of

demand and penalties within 28

days

Directors will be prohibited from

travelling for failure of payment

Our view

Customs must state legal basis for raising time barred bills of demands

Legal action can be commenced against Customs including a stay order

If Customs cannot justify or acts arbitrarily

A stay of travel restriction notice was be sought from High Court if thedirector has no plans to leave Malaysia

APPEAL PROCESS FOR SST

Application for review by the DG

Customs Appeal

Tribunal

Judicial Review

THANK YOU!

Documents

Scope of SST and SST Cases · Scope of the Proposed Sales Tax • Clause 8- Sales tax is a tax charged and levied on all taxable goods: (a) Manufactured in Malaysia by a registered