INDIRECT TAXES

Amendments to Service Tax Act, 1975 (the STA)
Amendments to Customs Act, 1967
Customs Post Clearance Audit
 




1. Amendments to Service Tax Act, 1975 (the STA)

a.   Interpretation [Amendment of Section 2]
     
    The definition of "exported taxable service" in Section 2 of the STA is substituted as follows :-

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in relation to the provision of insurance policies for the coverage of the international transportation of goods, means where the insurance policies are provided to cover risks relating to the transportation of goods -
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 insurance policies to cover risks relating to the transportation of goods within Malaysia that forms part of the transportation referred to in (ii) and (iii) where the coverage is provided by the same person;

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in relation to the provision of export credit insurance policies to local exporters, banks and investors, mean where the export credit insurance policies are provided to cover risks outside Malaysia relating to the export of goods, services and investments; and

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in any other case, means any taxable service supplied for and to a person in a country other than Malaysia, provided that the service is not supplied in connection with goods or land situated in Malaysia and the person is not in Malaysia at the time the service is performed;


For the purpose of the definition of "exported taxable service", Labuan, Langkawi, the Joint Development Area and the free zones shall be deemed to be places outside Malaysia.

The amendment which came into effect on 6th July, 2001 seeks to clarify the position in relation to the provision of insurance policies for the coverage of the international transportation of goods and the provision of export credit insurance policies as well as the position of Labuan, Langkawi, the Joint Development Area and the free zones.
     
b.   Joint and Several Liability of Directors, etc [Amendment of Section 17]
     
    A new proviso has been introduced to Section 17 of the STA.

The current legislation stipulates that if a company, a firm or an association of persons, as the case may be, is liable to pay service tax or penalty, then its directors, partners or members shall, together with the company, firm, society or association of persons, be jointly and severally liable for the service tax or penalty payable.

However, the new proviso provides that the directors of such company shall only be so liable where the assets of the company are insufficient to meet the amount due, after paying any sums having priority under the Companies Act, 1965 in relation to the application of the assets of the company in such winding up over the service tax or penalty. The amendment has effect from 6th July, 2001.

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2. Amendments to Customs Act, 1967

a.   Joint and Several Liability of Directors, etc [New Section 22C]
     
    In line with the relevant provisions under the STA, the Customs Act has introduced a new section which mirrors Section 17 of the STA and which has effect from 6th July, 2001.
     
b.   Access to Places or Premises [New Section 106A]
     
    This new section seeks to empower any senior officer of the Royal Custom and Excise Department (RCED) to gain access to any places or premises where an importer or any person who has dealings with such importer carries on his business. He shall be granted access to examine and seize any records or books from such premises. Where such free access is not granted to such premises, the senior officer acting under this section may enter such premises, if necessary by force. This is effective from 6th July, 2001.
     
c.   Power of Investigation [New Section 106B]
     
    With effect from 6th July, 2001, a proper officer of RCED shall have all the power necessary to carry out an inspection and to investigate the commission of any offences.
     
d.   Power to Examine Persons [New Section 116A(1)]
     
    The introduction of this new section which came into effect on 6th July, 2001, seeks to broaden the spectrum of authority of any senior officer of RCED investigating an offence under the Customs Act, where a person who appears to be acquainted with the facts and circumstances of the case be ordered to attend before him for the purpose of being examined orally. In addition, he will also be required to produce any books or documents which may assist in the investigation.
   
e.   Access to Recorded Information or Computerised Data
     
    A new section under the relevant Acts mentioned above have been introduced to grant access to any senior officer of RCED to any recorded information or computerised data, whether stored in a computer or otherwise.

It is further explained that "access" includes the provision of necessary password, encryption code, decryption code, software or hardware and any other means required to enable comprehension of recorded information or computerised data.
     
f.   Obligation of Secrecy
     
    The new section under the STA and Customs Act mentioned above stipulates that the name and address of an informer and the substance of the information received from him shall be kept secret and shall not be disclosed by any proper officer of customs or any person in the ordinary course of his duties comes into possession or access to such information except with the consent of the DG.

A person who contravenes this requirement shall be guilty of an offence and upon conviction be liable to a fine not exceeding RM10,000 or to imprisonment for a term not exceeding 5 years or to both.

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3. Customs Post Clearance Audit

In line with the World Trade Organisation Customs Valuation System, with effect from 1st January, 2000, importers must submit the Form K1A (Value Declaration Form) to RCED if the invoice value (FOB Value) of their 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.


Customs at the import station will generally accept the information declared in the Form K1A in order to facilitate the clearance of goods. However, post clearance audit will be conducted to determine the accuracy of the information provided by the importer in the import declaration Form K1 and Form K1A.

The Post Clearance Audit is carried out by a unit referred to as the "Unit Pasca Import". This unit would come under the "Bahagian Perkhidmatan Teknik" in the respective State Customs offices.

The "Unit Pasca Import" undertakes to verify the correctness of the value of dutiable / taxable goods declared at the time the goods were cleared from Customs.

Customs are likely to monitor closely the following :-

a.   Companies which were previously paying duty / tax on a customs value which was subject to uplift; and
     
b.   Companies which are related to the overseas suppliers.


Documents and records relating to the valuation of goods imported must be kept for a period of six years following the importation of the goods. These records refer to the purchase, importation, cost, value, payment for and disposal of the goods imported.

The consequences for non-compliance with the Customs legislation are as follows :-

a.   Exposure to back duties and taxes;
     
b.   Charges against the company :-
   

i.

Failure to keep records relating to the valuation of goods imported will render the company liable to a fine of not less than two (2) times and not more than ten (10) times the value of the goods.
   

ii.

Where the value of goods cannot be ascertained, the fine is not less than RM100,000 and not more than RM500,000.
   

iii.

Making incorrect declaration and falsifying documents shall be liable to a fine not more than RM5,000 or imprisonment for a term not exceeding five years or to both.
   

iv.

In the case of fraud, the penalty upon conviction will be :-
   

 

  • 1st OFFENCE, a minimal fine of 10 times the amount of customs duty or RM50,000, whichever is the lesser, and maximum of not more than 20 times the amount of customs duty or RM100,000, whichever is the greater amount or to imprisonment for a term not exceeding three years or to both.
     
  • 2nd and subsequent offences, a minimal fine of 10 times the amount of customs duty or RM100,000, whichever is the lesser, and maximum of not more than 40 times the amount of customs duty or RM500,000, whichever is the greater amount or to an imprisonment for a term not exceeding 5 years or to both.
    v. Where the value of goods cannot be ascertained, the fine shall not exceed RM500,000 or imprisonment for a term not exceeding 5 years or to both.

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Deloitte KassimChan Tax Services Sdn Bhd and Deloitte Touche Tohmatsu Tax Services Sdn Bhd.
© October 2001