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Indirect Tax Chat – June 2019Indirect Tax ChatKeeping you up to date on the latest news in theIndirect Tax worldJune 20191

Indirect Tax Chat – June 2019Issue 6.2019Quick links: Contact us - Our Indirect Tax teamKey takeaways:1. Compliance Audit Framework2. Changes to the Customs (Anti-Dumping Duties) Orders3. Amendments to the Customs Act 1967 and Excise Act19762

Indirect Tax Chat – June 2019Greetings from Deloitte Malaysia’sIndirect Tax teamGreetings, readers, and welcome to the June 2019 edition of our IndirectTax Chat.Following a recent meeting with the Ministry of Finance (MoF) and theRoyal Malaysian Customs Department (RMCD), further details have beenmade available in relation to the implementation of service tax on foreigndigital services from 1 January 2020. It was confirmed that the tax wouldapply to both services provided to Malaysian businesses, as well asconsumers. You can read more on this in our Indirect Tax Alert, issued on20 June 2019 which can be found here.MoF has also indicated that the commencement date of the Departure Levy has been deferred toa yet to be announced date. It was also indicated that the calculation method for the levy wouldbe revised.Also this month, the ASEAN - Hong Kong Free Trade Agreement (AHKFTA) entered into force forHong Kong and five ASEAN member states, namely Lao PDR, Myanmar, Singapore, Thailand andVietnam. This Free Trade Agreement (FTA) was signed by the ASEAN economic ministers andthe Secretary for Commerce and Economic Development of Hong Kong back in November 2017.Once Malaysia implements the AHKFTA requirement, it will eliminate Customs duties on 85% ofthe products traded with Hong Kong within ten years, and reduce another 10% of tariff lineswithin 14 years. Hong Kong, in return, will grant immediate tariff-free access to all productsoriginating from Malaysia once the relevant FTA is in effect.Here is some other recent news that may interest you: The RMCD announced new limits when paying for Sales and Service Tax (SST) online.Through the Financial Process Exchange (FPX) in the MySST system, the maximum paymentallowable is now RM100 million for corporate account payments and RM100,000 for individualaccount payments (RM10,000). For more information, click here. The RMCD released a new guide on Sales Tax drawback in Bahasa Malaysia. The drawbackprovision under section 40 of the Sales Tax Act 2018 is to preserve the concept of a singletier tax concept and to return any sales tax paid on taxable goods that have beensubsequently exported. This section does not apply to petroleum and petroleum products thatare included in chapter 27 of the Customs Duties Order 2017. For more information, clickhere. With the impending sugar excise coming next month, businesses have taken drasticmeasures to mitigate its effects. F&N Malaysia’s CEO, Lim Yew Hoe shared at the company’s2018/2019 first-half financial results briefing that F&N Malaysia will be reformulating about70% of its products. On the other spectrum, some businesses have brushed aside theminimal impact the sugar tax will have on them. The Malaysian operations of 7-Eleven,Carlsberg, and Nestle have had company officials express confidence that the sugar tax willnot have a material impact on them.3

Indirect Tax Chat – June 2019We hope you find this month’s Indirect Tax Chat informative. Please do not hesitate to contactus if you have any queries, comments or require our assistance on any indirect tax matters.Best regards,Tan Eng YewIndirect Tax Leader4

Indirect Tax Chat – June 20191. Compliance Audit FrameworkThe RMCD has recently published the Compliance Audit Framework (the Framework) dated 30April 2019 on its website. Currently, the Framework is only available in Bahasa Malaysia.The Framework outlines the provisions of law adopted by the RMCD in conducting audits, stagesof audit execution, rights and responsibilities of auditees, as well as the ethics of RMCD officers.It has been issued to ensure that auditees perform their responsibilities with a high degree ofcompliance.The Framework is summarised in the table below:Subject matterPurpose andimportance of theauditDescription To ensure all duties/taxes/levies accounted and paid bybusinesses are correct and accurate, in respect of legislationsadministered by the RMCD.To ensure that auditees which have been granted exemptioncomply with the conditions of the exemption.To promote self-compliance, voluntary compliance and to educatebusinesses in accounting and making correct payments ofduties/taxes/levies.To ensure government revenue collection is done in an effective,efficient and professional manner.Provisions of lawThe provisions of law administered, enforced and adopted for theaudits by RMCD are listed in the Framework.Audit period coveredand completion periodThe period covered by an audit is up to six years. However, the timelimit does not apply to fraud cases.The completion period of an audit depends on the completeness ofrecords/documents, complexity of the case and the level ofcooperation given by the auditees.Who can be auditedAny person, group of persons, limited liability partnership, companyor organisation who is directly or indirectly involved in businesseswhich are governed under the relevant laws and administered byRMCD.Implementation of theauditThe audit consists of 4 stages:i. Measures taken prior to the audit – determination of audit criteriaand approach5

Indirect Tax Chat – June 2019Subject matterDescriptionii. Fieldwork – information will be gathered through telephoneinterviews, discussions at the auditee’s premises or RMCD officesand relevant documentation and records prepared by the auditeeiii. Audit reporting – all audit findings will be recorded anddocumented for evidentiary purposes and for making just and fairdecisionsiv. Review – to ensure proper audit procedures have been carriedout, working papers are well documented, the correct laws havebeen applied and all audit findings have been reportedaccordinglyDocuments/ recordsrequired for the audit Round TableDiscussion (RTD) Organisation chart/company profile (if any).Copy of the company/business registration form/documents.Summary of the computation of duties/taxes/levies accounted andpaid (if any).Accounting documents/records:‒ Audited financial statement, trial balance, profit and loss,management accounts‒ Income tax Form B (Sole proprietor), Form C (Company) andForm P (Partnership)‒ General ledger‒ Sales and purchase records/documents together with receiptsand proof of payments‒ Bank statement/payment information (telegraphic transfer,letter of credit)Name, address, telephone number, fax number, email and licensenumber of chartered accountant (if any).One session of a RTD will be held with the auditee to:‒ Provide information and advice to the auditee on the noncompliance areas to be corrected and improved‒ Inform of audit findings, i.e. detected short payments ofduty/tax/levy (if any)‒ Inform of the offences committed under the relevantprovisions (if any)Where there is any detected short payment of duties/taxes/levies,a Bill of Demand (BOD) will be issued to the auditee. The auditeeis required to pay the BOD amount within 14 days from the datethe BOD is issued.RMCD may take further action if the BOD is not settled within thestipulated deadline (such as travel restrictions and court action toname a few).6

Indirect Tax Chat – June 2019Subject matterRights andresponsibilities ofauditeeDescription Ethics of RMCD officers AppealThe auditee may contact the Head of Branch/ Compliance Sectionof the relevant State RMCD to verify audit visits.The auditee may request for the identification of authority card toverify the authenticity of the RMCD officer’s identity. The authoritycard contains the name, designation, identification card numberand picture of the officer.The auditee shall give full cooperation to the RMCD officers by:‒ Allowing the officers to access the premise‒ Providing a copy of the original record/document for reviewand access to recorded information/computerised data‒ Providing explanation and information required by the officer‒ Answering all queries raised by the officer‒ Keeping the records/documents for 7 years and presentingthem to the officer upon requestThe auditee shall not:‒ Prevent the officer from performing his duty‒ Provide false information‒ Hide facts, documents and information‒ Avoid answering queries raised by the officer‒ Provide any form of gift, reward, compensation, wages andpromise to do business with the officerFailure to comply with the above may result in legal action beingtaken against the auditee.In performing the audit, the RMCD officers pledge to adhere to thefollowing professional standards:‒ Integrity‒ Free, fair and just‒ Professionalism‒ Confidentiality‒ Quality assuranceThe RMCD officers are prohibited from performing the following:‒ Audit companies where the officer has an interest‒ Accept bribes, rewards, gratuities or wages to ignore/notperform one’s duties, or to carry out one’s duties‒ Misuse of the auditee’s/RMCD’s equipment or information forpersonal benefit/individual interest.The three categories of appeal provided for under the law are: Appeal to the Customs Appeal Tribunal; Appeal to the Minister; and Appeal to the Director General of Customs.7

Indirect Tax Chat – June 2019Subject matterDescriptionThe procedures for each type of appeal may differ according with theprovisions of the prescribed law.ComplaintsAny complaints may be directed to the State Customs Director wherethe audit had been conducted in, or channeled to the Director ofCompliance Management at RMCD Headquarters via emailccc@customs.gov.my.Brought to you by:Wong Poh GengDirectorKL OfficeCarmen YongSupervisorKL OfficeBack to top8

Indirect Tax Chat – June 20192. Changes to the Customs (Anti-Dumping Duties) OrdersCustoms (Anti-Dumping Duties) (Administrative Review) Order 2019In 2018, the Malaysian Government carried out an administrative review investigation based ona petition which claimed that there was a substantial change in the dumping margin for theimports of certain cold rolled coils of alloy and non-alloy steel originating from certain exportersfrom China, South Korea and Vietnam.On 8 May 2019, the Government gazetted the Customs (Anti-Dumping Duties) (AdministrativeReview) Order 2019 (the New Order) and revoked the Customs (Anti-Dumping Duties) (No. 2)Order 2016 on the same day. The New Order takes effect from 8 May 2019 to 23 May 2021.There is a notable increase in the rates of anti-dumping duties for certain exporters of certainsteel products from China. You can refer to the New Order here for further information or detailsof the steel that are subject to the revised anti-dumping duties rates.Deloitte’s viewBusinesses should be aware that additional duties will increase the cost of the relevant steelimported from the relevant exporters from China.Brought to you by:Atika SuhartoAssistant ManagerKL OfficeTiffany LeeSemi-SeniorKL OfficeBack to top9

Indirect Tax Chat – June 20193. Amendments to the Customs Act 1967 and Excise Act1976Customs Act 1967The Customs Act 1967 is to be amended by the Customs (Amendment) Bill 2019 (which has beenpassed by Parliament but yet to be gazetted), effective from a date to be notified in the gazette.Below is an outline of a few of the notable changes in the Customs (Amendment) Bill 2019:Section amendment/additionSection 10AProposed changeCurrent stateDeloitte’s viewMatters where aCustoms ruling canbe obtained nowincludes the origin ofgoods.Matters whereCustoms ruling can beobtained does notinclude origin ofgoods.This should allowimporters an avenueto address potentialdisputes on theitem’s origin,especially in thecase of importswhere preferentialrates or entryrestrictions may beaffected.Nevertheless, this isan untested caseand there may beareas which willwarrant furtherclarity from RMCD.Section 10F (newsection)Inclusion of apossibility of publicruling being issuedby the DirectorGeneral (DG) ofCustoms.Given that the DGmay exercise hispower to issuepublic rulings,businesses shouldbe alert of thepotentially bindingdecisions issued bythe DG. At thispoint, it is unclear if10

Indirect Tax Chat – June 2019Section amendment/additionProposed changeCurrent stateDeloitte’s viewthe public ruling willbe legally binding.Section 11A (newsection)Customs duties shallnot be levied ongoods bona fide intransit and intranshipment –unless they are orbecome uncustomedgoods. Uncustomedgoods means goodswhere a breachunder the provisionof the Customs Acthas been committed.This provides moreclarity on theCustoms dutiestreatment on goodsin transit ortranshipment.Part IVA (new part)Introduction of a newPart discussing onmatters relating togoods in transit ortranshipment whichincludes: Allowable modes oftransit Suspension ofCustoms duties forgoods in transit Thecommencementand completion oftransit procedureConsistent with theintroduction ofSection 11A above,this provides moreclarity on theprocedures inundertakingshipments involvinggoods in transit ortranshipment.Section 65i) DG may nowallow goods,other than goodsliable to customsduty, to be keptin a bondedwarehouse.i) Only goods liable toCustoms duty ispermitted to bestored in a bondedwarehouse.ii) The Customs Act1967 does notstipulate a timei) This allowsflexibility for nondutiable goods orlocallymanufacturedgoods to bestored in abondedwarehouse.11

Indirect Tax Chat – June 2019Section amendment/additionProposed changeii) Goods depositedin a licensedwarehouse shallCurrent statelimit as to how longgoods can bestored in a licensedwarehouse.be cleared within2 years from thedate of deposit ora longer period,as approved bythe DG ofCustoms.Section 65AThe DG of Customsnow grants a licencefor a company to actas a licensedmanufacturingwarehouse (LMW)and such licenceshall be deemed toinclude a licence forwarehousing goodsas provided underSection 65.Section 65AA (newsection)Customs duties onwaste arising in thecourse ofmanufacturing by aLMW may beremitted by the DGof Customs. Ifremitted, the DGshall direct theFor a person to act asa LMW, a licence isobtained under Section65 whereas anadditional licence isobtained under Section65A.Deloitte’s viewii) Businessesutilising thelicensedwarehouse tostore goods mayneed to reevaluate theirinventoryturnover in thewarehouse, giventhe time limit forgoods stored.Otherwise, anapproval isrequired to storegoods for longerperiods.It would appear thatas opposed toCustoms’ previouspractice of issuingtwo licences to LMWlicensees (one underSection 65, whereasanother underSection 65A), onelicence will beissued instead.Though this isconsistent with thecurrent practice ofLMW licensees incomplying with LMWconditions, LMWlicensees shouldensure that themovement of itswaste are tracked12

Indirect Tax Chat – June 2019Section amendment/additionProposed changedestruction of suchwaste.Where Customsduties are notremitted, the DGshall requireCustoms duty to bepaid on such wasteas if it had beenimported in thatform.Section 65AB (newsection)If there is adeficiency in theamount of dutiablegoods ought to befound in the LMW,such goods shall bedeemed illegallyremoved unlessthere is proof to thecontrary andCustoms duty shallthen be payable onthe goods.Where the DG issatisfied that thedeficiency is causedby unavoidableleakage, breakage orother accident, theCustoms dutyleviable may beremitted.Section 65F (newsection)The DG of RMCD isempowered to allowthe storage ofdutiable goods in awarehouse or anyCurrent stateDeloitte’s viewand supported withrelevant certificatesof disposal.Further clarity byCustoms is requiredon the basis ofvaluation for theaffected waste.This emphasises theneed for a LMWlicensee to ensurethat all movementof its goods areproperly trackedand accounted for.This shouldnevertheless beconsistent with thecurrent practice ofLMW licensees incomplying with theLMW conditions.This may facilitatethe introduction ofcustomised dutyexemption facilities13

Indirect Tax Chat – June 2019Section amendment/additionPart VIIIA (new part)Proposed changeCurrent stateDeloitte’s viewother place (notbeing a customswarehouse/licensedwarehouse) subjectto conditions the DGmay impose.similar to licensedwarehouses.Introduction of a newPart discussing onmatters relating tothe establishment ofa petroleum supplybase (PSB) whichincludes: Applicationrequirements tooperate as a PSB Movement ofgoods in relation tothe PSB Treatments inrelation tounaccountablestock loss in thePSBThis appears to be anew facility (similarto those granted tolicensedwarehouses) whichis granted forbusinesses in thepetroleum sector.Section 87AProvisionaldeclaration can bemade for importsand exports subjectto Customs’ approvaland conditionsimposed.Section 88AThe DG may grant adeferral to pay dutyand determine theBusinesses mayseek guidance fromRMCD on thepotential benefits orfacilities which canbe granted for theiroperations.Businesses underthis sector mayconsider exploringthe viability ofapplying for thisfacility and how theycan benefit from theCustoms dutiesexemption, which aPSB may bring.Provisional declarationis only allowable forexports.This should providebusinesses withmore flexibility,especially whendealing withimportation ofgoods.This appears to be anew flexibility that14

Indirect Tax Chat – June 2019Section amendment/additionProposed changeCurrent statedate to pay the dutyapplicable.Section 93Minimum value fordrawback claims tobe increased toRM200.Deloitte’s viewmay be allowed on acase by case basis.Minimum value fordrawback claims isRM50.The period whereThe period wheregoods are required togoods are required to be re-exported inbe re-exported inorder to qualify fororder to qualify forduty drawback is 12duty drawback hasmonths.been decreased to 3months.This has, without adoubt, narrowed thescope for businessesto claim import dutydrawbacks.For businessesrelying ondrawbacks, theremay be a need torevisit and reassesscurrent businessmodels and considerapplying otheravailable Customsduty exemptionfacilities.Section 99A (newsection)DG is empowered tooffset Customs dutydrawback or refundsagainst amountsowing under theCustoms Act 1967,Excise Act 1976,Sales Tax Act 1972,Service Tax Act1975, Goods andServices Tax Act2014, Sales Tax Act2018 and ServiceTax Act 2018.Businesses that wishto claim theirdrawbacks andrefunds in fullshould ensure thatthere are nooutstandingpayments in respectof complying withSST 1.0, GST, SST2.0 or currentCustoms relatedmatters.Part XA (new part)Introduction of a newPart discussing onmatters relating tothe origin of goods,preferential and nonpreferential tariffIt would appear thatthe authorities areplacing moreimportance on thecompliance of rulespertaining to the15

Indirect Tax Chat – June 2019Section amendment/additionProposed changeCurrent statetreatments whichincludes: Procedures ofapplying for apreferential ornon-preferentialcertificate of origin The importer,producer orexporter havingthe responsibilityto ensure that theorigin of goods arecorrectly declared– otherwise,penalties may beimposed Procedures to beundertaken inrespect of thedeclaration ofgoods when theauthenticity of theinformationregarding thegoods’ origin is indoubt and subjectto furtherverificationSection 100AEvery person isrequired to keeprecords fortransactions, whichaffect or may affecthis obligations onany matters underthe Customs Act1967. Theamendment alsoprovides more clarityon the type ofDeloitte’s vieworigin of goodsespecially with theincreasedcomplexity of globaltrade and originbased incentives orrestrictions.Businesses will needto ensure thatproper controls arein place andsupportingdocuments tosubstantiate theorigin of theirproducts, especiallywhen utilisingcertificates of origin.Every person who haspossession ofdocuments andrecords pertaining tovaluation of goodsimported is required tomaintain all recordsrelating to thepurchase of,importation of, cost of,value of, payment f

Keeping you up to date on the latest news in the Indirect Tax world . ‒ Keeping the records/documents for 7 years and presenting them to the officer upon request The auditee shall not: ‒ Prevent the officer from performing his duty ‒ Provide false information

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