Indirect Taxes Sales Tax Service Tax Customs Valuation System under the WTO Agreement 1. Sales Tax The amendment to the Sales Tax Act, 1972 came into operation from 1st January 2000. Amendments have also been made to the Sales Tax Regulations to give effect to the following changes in the law :- a. Payment by Instalments A new regulation 14A allows for instalment payments where the whole or part of the sales tax has not been recovered from the customer by the taxable person or the penalty for late payment of sales tax has not been paid. b. Deduction of Sales Tax Payable The new regulation 19C provides for deduction of sales tax in a tax return based on credit notes issued by the taxable person for :- i. goods returned within 3 months from the date of sale due to wrong quantity, poor or defective quality or uncontracted goods provided the goods have not been sold or disposed of by the purchaser; and ii. discounts given. This deduction is allowed during the same taxable period in which the credit note was issued. If the deduction exceeds the sales tax payable, the balance is carried forward to the subsequent taxable period, until the whole balance has been deducted. However, no refund will be available where the licensee ceases business. ^ top 2. Service Tax The amendment to the Service Tax Act, 1975 came into operation from 1st January 2000. Amendments have also been made to the Service Tax Regulations to give effect to the following changes in the law :- a. Definition of ìAnnual Sales Turnoverî ìAnnual sales turnoverî in relation to any day of any months means the sales turnover made in the period of 12 months or part thereof immediately before that. The definition seeks to clarify that the threshold to determine the annual sales turnover of taxable services is based on a revolving 12 month period. b. Definition of ìFood Courtî ìFood courtî includes any eating place which is centrally managed with a common cashier system and where two or more persons provide food, drinks or tobacco products. Service tax is charged on and paid by the taxable person carrying on a food court business having an annual sales turnover exceeding RM500,000. c. Calculation of Annual Sales Turnover for New Taxable Services In case where a service is prescribed as a new taxable service, such service provided during a period of 12 months or part thereof prior to the month such service becomes a prescribed taxable service, is taken into account in the calculation of annual sales turnover when determining whether licensing is required. d. Licensing for Persons Providing Two or More Taxable Services Taxable persons providing two or more taxable services only need to submit one application for service tax license. e. Payment by Instalments A new regulation 14A allows instalment payments where the whole or part of the service tax has not been recovered from the customer by the taxable person or the penalty for late payment of service tax has not been paid. ^ top 3. Customs Valuation System under the WTO Agreement The new WTO customs valuation system came into operation from 1st January 2000. The rules are contained in the Customs (Rules of Valuation) Regulation 1999. The transaction value of imported goods (i.e. the price actually paid or payable for the goods when sold for export to Malaysia) is the primary basis in customs valuation for the levy of import duty and sales tax. This is however subject to adjustments for certain mandatory items not included in that price and provided no restrictions / conditions exist. The transaction value would be acceptable as the customs value of the imported goods provided :- a. there are no restrictions in respect of the disposition or use of the goods by the buyer; b. the sale of the goods or the price paid or payable for the goods is not subject to some conditions or considerations where its value cannot be determined; c. no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer is to accrue, directly or indirectly, to the seller; or d. the buyer and seller of the goods are not related or where the buyer and seller are related, the Customs is satisfied that their relationship did not influence the price paid or payable for the goods. Persons are regarded as related to one another if :- i. they are officers or directors of one anotherís business; ii. they are partners in business; iii. they are employer and employee; iv. any person owns, controls or holds 5% or more of the voting stock or shares of both of them; v. one of them controls the other; vi. both of them are controlled by a third person; vii. together they control a third person; or viii. they are members of the same family. Mandatory adjustments of the price paid or payable in determining the transaction value of the imported goods :- a. Add-on amount not already included in the price paid or payable for imported goods :- i. Commission and brokerage; ii. Packaging; iii. Value of assists provided by the buyer comprising of - ï materials, component, parts and other items incorporated in the goods; ï tools, dies, moulds, and other items utilised in the production of the goods; ï materials consumed in the production of the goods; and ï engineering, development work, artwork, design work, plans and sketches undertaken elsewhere than in Malaysia and necessary for the production of the goods. The value of assists must be apportioned to the imported goods in a reasonable manner and made in accordance with generally accepted accounting principles. iv. Royalties and licence fees; v. Proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller; vi. The value of any materials, component, parts and other items incorporated in the goods for the purpose of repair to, or refurbishment of, those goods prior to importation of the goods to Malaysia, and the price paid for the service or repair or refurbishment; and vii. The costs of transportation and insurance, loading, unloading and handling charges and other expenses associated with the transportation of the goods to Malaysia. b. To deduct cost separately identified from the price paid or payable for imported goods :- i. construction, erection, assembly or maintenance of, or technical assistance provided in respect of the goods after the goods are imported; ii. transportation or insurance of the goods within Malaysia; and iii. any customs duties or other taxes payable in Malaysia. Where the transaction value of the imported goods cannot be accepted by the Customs, the following sequential order of customs valuation would apply strictly :- a. the customs value determined for identical goods; b. the customs value determined for similar goods; c. the customs value determined by deducting from the price amount of commission, profit and general expenses, transportation or insurance, customs duties or other taxes and packaging or further processing of goods in Malaysia; d. the customs value determined by computing the aggregate cost of material and manufacture, profit and general expenses; and e. finally a flexible valuation is allowed falling back to the foregoing 4 methods determined based on information available in Malaysia. f. The hierarchical order for the deductive value and computed value methods may be reversed at the request of the importer before the commencement of the customs valuation. The importer may request for a written explanation from the Customs on the computation of the customs valuation of the imported goods. For the purposes of determining the new customs value, importers must complete an additional prescribed Form Customs No 1A ñ Value Declaration Form if the invoice value of the imported goods exceeds RM10,000 and :- a. the imported goods are for commercial purposes; and b. the imported goods are subject to import duty / sales tax or partial exemption of import duty / sales tax. Further, the Customs may also request certain importers to complete an administrative form, the Statement of Compliance on Valuation of Imported Goods. Besides the purpose to deter underdeclaration of the value of imported goods as various items (which can be added on as permitted adjustments in arriving at the transaction value) relating to the transaction value are required to be disclosed, the additional information would be used by the Customs during post-importation audits. Importers are required to preserve documents and records pertaining to the imported goods for a period of 6 years. ^ top