This is a brief follow up to our earlier customs and trade update titled, "The Resurrection of Sales and Service Tax". In this update, we highlight the progress being made on the implementation process in Malaysia.
As of 16 August 2018, the Sales Tax and the Service Tax Bills in Malaysia have passed the House of Representatives, but they still have not been deliberated in the Senate. Given that the majority of the members of the Senate belong to the Opposition, there is the potential for some issues to emerge.
Despite the fact that these current Bills and the associated Sales Tax Exemptions List are almost copies of the previous Sales Tax Act, Service Tax Act and the Sales Tax Exemptions List that were in use prior to 1 April 2015, business will still have to wait until these become law and the main Acts and Subsidiary legislations are finalised in order to get a clearer picture of what will be required of them.
Businesses may also recall that back in 1 April 2015 at the introduction of Goods and Services Tax (GST), Royal Malaysian Customs preparedness was in some turmoil. They did not have the required number of staff with the skills necessary to advise on, administer and enforce the new GST. As a result, they had to recruit new staff specifically to handle GST, as well as train existing staff. In the period from 1 April 2015 till now, the previous Customs' expertise in the advising, administration and enforcement of Sales and Service Taxes has essentially been lost. As a consequence, officers of Royal Malaysian Customs are going through extensive training sessions to equip them with the knowledge to provide advice to the business community on these taxes and to correctly enforce the new laws and requirements.
On the positive side, as these taxes will effect mainly manufacturers, importers and service providers, the number of businesses that will be required to be SST-registered will drop substantially from the current estimated 472,000 GST-registered. Director-General of Royal Malaysian Customs, Datuk Seri Subromaniam Tholasy, estimates that there may be around 100,000 business required to be registered for the SST. It is helpful to know that Royal Malaysian Customs has said that those businesses that are already GST-registered and who meet the new criteria for having to register for SST, will automatically be registered. Let us hope that is the case and that there will be written confirmation given to each company that this has been done.
We also understand that Royal Malaysian Customs has, or is in the process of, rolling-out an electronic filing system to allow businesses to register, perform statutory filings, and make payments related to SST, online.
One major concern is that the proposed date for implementation and, in particular, registration of 1 September 2018, means a very limited lead time for businesses and Customs to get their systems in place and become knowledgeable on their responsibilities related to these taxes. If the Senate is not able to get the bills deliberated within the next few days, then we would hope that the authorities in Malaysia push the implementation out further, rather than trying to push a goal of their political agenda on the SST implementation.
In the meantime, businesses need to keep themselves updated on the progress with the introduction of the new taxes and ensure that, if they meet the criteria for having to register, that they do so. Also for those registering, please remember to check the HS tariff classification of the goods, as this is a critical element of the determination process.
As part of their due diligence of current operations, companies should also include reviews of any long term contracts for local supplies by manufacturers and those for imports of products that you may be using in a supply and construction projects. If the goods are subject to sales tax then this would be a cost that likely would not have been factored into the original contract.