July 2017 – Newsletter 4/17

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Dear valued clients and business associates,

Happy July!

In recent months, we have seen lots of turnarounds in government policy. Including imposition of GST on more than 60 new food items that was cancelled last minute on 19th June. And the tourism tax – how does it work and what is the actual starting date?

In summary, this newsletter includes

With many updates on GST this year, we have decided to assist our clients by organizing seminars in August. The first day will explain the latest updates and the second day explains the common issues in GST accounting, how to review GST and the latest updates in tax codes.

Please refer to the sections below for detailed information concerning the subjects or click on the subjects above to be redirected to the respective topic.

Enjoy reading! Please do let us know if you have any comments!

With compliments from,
M.S.Wong & Co.

i) Minister Relief 1/2017 (Issued 1st July 2017)

IMPORTANT FOR MANUFACTURING/ PROCESSING INDUSTRIES MAINLY FOR EXPORT

A new relief by Minister of Finance under section 56(3)(b) of the GST Act 2014 was released on 1st July 2017. This set out the conditions to obtain relief from charging GST on the following services:

  • Supply of handling or storage services directly in connection with goods for export to an overseas customer.
  • Supply of certain services by a company licensed under section 65A of the Customs Act 1967 or company operating in a free zone directly in connection with goods for export to an overseas customer (important for clients that provide manufacturing activities; installation, repair, cleaning, restoration and modification of goods and other services)
  • R&D on goods for an overseas customer
  • Supply of tools, machines services in connection with tools or machines – to an overseas customer.
It is important to comply with the conditions and the documentation before a business can effect the relief. In addition, Group 2 and Group 3 services will require approval from the DG before the services are eligible for GST relief. Please find the guidance attached below.

ii) Income Tax Treatment of GST

On 8th June 2017, two Public Rulings(PR) regarding the GST has been published. The first Public Ruling is to touch on the topic of income tax treatment and the second Public Ruling is to explain the Qualifying Expenditure.

i) Income Tax Treatment on GST – Expenses
Paragraphs 39(1)(o) and 39(1)(p) of the Income Tax Act 1967(ITA) was introduced with effective from YA 2015 to address the treatment of GST. Generally, tax treatment for the input tax and output tax can be summarised as below: –
Type of GST Criteria Income Tax Treatment
Input tax
By a person who is:-
  • Registered under GSTA and eligible to claim the input tax credit; or
  • Liable to registered under GSTA but fails to do so
 Not deductible
Output tax
  • Borne by person registered, or
  • Liable to registered under the GST Act

Input tax incurred on the purchase or acquisition of goods or services that is attributable to the making of exempt supply and blocked input tax items are not claimable under GSTA. However, please be noted that such input tax is not automatically deductible under subsection 33(1) of the ITA and is subject to any specific prohibition under subsection 39(1) of the ITA. To make it short, if the underlying is deductible, disallowed input tax not claimable may be deductible under income tax.

A non-GST registered recipient (not liable to register) who uses imported service for the purpose of the business has to account for GST as prescribed and make the payment to the RMCD. Such expenses will be deductible under subsection 33(1) of the ITA.

There will be circumstances where RMCD conducted an audit on GST-registered person and discovered that there was mistake made in claiming the input tax credit. Adjustment can be made by RMCD and DGIR may at any time, give effect to such adjustment by making assessment or reduced assessment for the YA to which the adjustment relates or in the YA in which DGIR discovers the adjustment. On the other hand, if output tax is assessed by RMCD due to undeclared sales, DGIR may raise additional assessment on the understated business income and penalty may be imposed under section 113 or section 114 of the ITA.

Please click here for the link to download Public Ruling 1/2017.

Public Ruling No. 1/2017

ii) Income Tax Treatment on GST – Qualifying Expenditure (QE)
QE incurred by a person does not include any amount paid in respect of GST by a person if one of the following conditions is fulfilled:
  • The person is entitled to the input tax credit under the GSTA.
  • The person is liable to be registered under the GSTA but failed to do so.
For capital assets which are used in a business, the criteria for inclusion of input tax as part of QE is shown in the table below.
Status of Supplier Claim of Input Tax
(assumes that the capital expenditure is incurred for the making of taxable supplies)		 Inclusion of Input Tax in QE
GST-Registered Not Claimable Included
GST-Registered Claimable Not Included
Liable to Registered but Failed to do so Not Claimable Not Included
Non-Registered Not Claimable Included
When capital assets are used for making mixed supplies, the portion of GST incurred on the purchase or acquisition of the asset for making taxable supplies is claimable while the GST incurred on the purchase or acquisition of the asset for making exempt supplies is not claimable under GSTA. Capital goods adjustment arises when there is a change in the proportion of usage of capital assets in making taxable supplies.
The guide also provide illustration on how the Capital Goods Adjustment (CGA) could affects the RA, please talk to us if you would like to understand further, or you may click on the button below to download PR 2/2017 for more information. 

Public Ruling No. 2/2017

iii) Tourism Tax – still to be confirmed

It has been widely reported that the government has announced that Tourism Tax (TTx) will be introduced and implemented on 1st August 2017.
The following fixed rate of tourism tax was proposed to be applied to tourist (Any person, whether he is a Malaysian national or otherwise, visiting any place in Malaysia) according to the ratings of the accommodation premises as shown in the table below:
Ratings of Accommodation Premise Tourism Tax Rate
Five Star RM20 / Room / Night
Four Star RM10 / Room / Night
Three Star RM5 / Room / Night
Two Star
One Star
Three Orchid RM2.50 / Room / Night
Two Orchid
One Orchid
Non-Rated
However it has been reported Malaysians will be exempted from the tax for three stars and below and individuals who have booked rooms through travel agents will be relieved until March 2018. However, all there are not clear as the regulations or detailed guidance have not been released.

The tourist is liable to pay tourism tax to the operator (Person who operates the accommodation premise), the tourism tax is liable to be collected to RMCD in respect of the operator’s taxable period. Duration of the taxable period would be a period of 3 months that ends on the last day of any month. If the operator is GST-registered, the taxable period will concur with the period assigned to the operator for the purpose of GST.

Operators who provide accommodation premise that fulfill the conditions below will be exempted from registration of tourism tax:

  • ‘Homestay’ that registered with Ministry of Tourism and Culture (MOTAC).
  • ‘Kampungstay’ that registered with MOTAC.
  • Established and maintained by religious institutions that is not for commercial purposes.
  • Has less than 10 rooms.
  • Operated by the Federal Government, State Government or statutory body for training, educational or accommodation not for commercial purposes.
The following links redirect to webpages regarding tourism tax.

The Malay Mail Online
Free Malaysia Today

iv) Seminar Regarding GST

Based on popular demand, we have organised a seminar to update our valued clients on the latest updates in GST as well as share our GST tools to perform effective structured review. We will also be sharing on common issues raised in CBOS audits as well as recent experiences in GST Tribunals.

Come join our 2-day seminar to get the most relevant GST updates and learn how to adequately prepare your business to be GST compliant.

Course details (Seminar notes in English and delivery will be in Mandarin):

  • Date: 15th August 2017 (Tuesday) & 16th August 2017 (Wednesday)
  • Time: 9:00 AM – 5:00 PM
  • Location: Holiday Villa, Johor Bahru
  • Fees (Meals Included):
  • Days Fees
    Early Bird Normal
    One Day RM424 RM530
    Two Days RM742 RM954

            Note: The fees are inclusive of 6% GST.

Early bird pricing only applies to registration or payment made by 5:30pm 28th July 2017. For more detailed information, refer to the brochure by clicking on the download link below or contact us to inquire about the seminar.

Brochure for GST Seminar