More time needed to grasp SST 2.0, say businesses

KUALA LUMPUR (August 23): They may be the reintroduction of previously imposed single-tier taxes, but the new sales tax and service tax — collectively referred to as “SST 2.0” — are still unclear to businesses with only about a week left before their implementation.

The businesses say they need more time to grasp the two taxes to be enforced from Sept 1 under the Sales Tax Act 2018 and Service Tax Act 2018.

For one, more time is required to get used to filing the tax returns electronically, said Federation of Malaysian Manufacturers president Datuk Soh Thian Lai.

“Under the previous SST regime filing was done manually. Now there is a new [electronic system] by the Royal Malaysian Customs Department for filing SST returns.

“This will definitely help to speed up the filing process. However, we would like to request [the] Customs [Department] to be lenient, especially for companies who are not able to file their returns on time once the SST 2.0 kicks in on Sept 1 by giving them a grace period. There will be teething issues considering that they are using the system for the first time,” said Soh.

“We think a three-month adjustment period [would be fair], so we hope [the] Customs [Department] will not penalise companies that are late or are inaccurate in their filing,” he told The Edge Financial Daily.

A registered manufacturer has to declare sales tax returns every two months, which would mean that returns would be due by Nov 30 once the sales tax comes into force on Sept 1. The same would apply to a registered person for service tax.

Malaysian Association of Hotel Owners executive director Shaharuddin M Saaid concurred with Soh’s view that there will be teething issues.

“At this point we do not know what the transitional issues are, but we can foresee some hotels may face some difficulties especially when it comes to the system compatibility as we switch from the GST (goods and services tax) to SST 2.0.

“Given this, we would need more time, and would like to seek leniency from [the] Customs [Department] at least for the first one to two months as it would take some time to resolve the problems that we may face,” he said when contacted by The Edge Financial Daily.

Under the old service tax regime — the Service Tax Act 1975 — the threshold for hotels to be registered for service tax is if the establishment has more than 25 rooms — which would mean that some inns and small-scale budget hotels could have escaped the net.

But under the Service Tax Act 2018, all hotels that make more than RM500,000 per year will be subject to service tax, and this includes inns, lodging houses, homestays and other similar establishments.

Malaysian Muslim Restaurant Owners Association president Ayoob Khan Muhamad Yakub said that in terms of having enough time to get accustomed to the SST 2.0, the association does not see that as an issue.

“Some of our members were subjected to GST before, so no issues on getting accustomed to the system. However, we hope [the] Customs [Department] will review the RM1 million threshold for restaurants under SST 2.0. Under the old service tax regime, the threshold was set at RM3 million.

“We hope [the] Customs [Department] will increase the threshold to RM3 million, as our restaurants are not fine-dining outlets and a majority of our customers are from the lower income group, the B40. We have written to the government about this, but we have not gotten any response,” he said.

Tax practitioners opine that it is a fair request from businesses that they be given time to get adjusted to SST 2.0. Grant Thornton Malaysia executive director for indirect tax and goods and services tax, Alan Chung, said some businesses are still unclear on the mechanism of SST 2.0.

“I think the education process that has been out there has not been as thorough and did reach out to as many people mainly due to the time factor.

“It also depends on the companies themselves on how equipped their staff are with SST knowledge. SST has a smaller coverage compared to GST, so not everyone is experienced with SST.

“I think the request from businesses for more time is not only fair, but is necessary,” he said.

Axcelasia Inc chairman Dr Veerinderjeet Singh said details on [the] SST should have been issued much earlier so that businesses can familiarise themselves.

“Dialogues should have been held much earlier, even before the (SST) bills were tabled in Parliament. So it is disappointing that this was not done.

“Of course, the SST is much easier to implement and less adjustments are needed to the IT system but clarity should be there given that Sept 1 is so near,” he said.

Independent directors fee subject to service tax? 
Veerinderjeet said there are still uncertainties till today on the treatment of certain types of items under SST 2.0. “[The] Customs [Department] is taking its time issuing some clarifications from time to time, and this is disappointing given that [the] Customs [Department] had the previous experience of implementing the sales tax and the service tax.

“In addition, [the] Customs [Department] is widening the scope of coverage of certain services under the service tax which were subject to GST before. For example, there are indications that independent directors serving on the boards of companies will likely be subject to service tax as they are providing consulting services which was not the case previously.

“There is no logic in this as for income tax purposes, independent directors are treated as employees and not as consultants,” he said.

The tax expert added that another area where clarification is needed is the treatment of disbursements. In layman’s terms, these are payments made by service providers on behalf of their customers for services used by them.

“It is still unclear on how disbursements would be treated when under the previous service tax regime, disbursements were excluded. Until now, [the] Customs [Department] has still not decided how this is to be treated,” he said.

This article first appeared in The Edge Financial Daily, on Aug 23, 2018.

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