Sales tax: Approved Major Exporter Scheme

To improve the competitiveness of export-oriented companies in Malaysia, it is proposed that an Approved Major Exporter Scheme ("Scheme") be introduced with effect from 1 July 2020. Under the Scheme, approved traders and manufacturers of exempted goods will be granted a full sales tax exemption on the importation and purchase of goods or raw materials, components and packaging materials. Additionally, there will be no requirement to determine the quantity of goods to be exported at the time of importation of purchase of goods. To be eligible for the Scheme, the trader or manufacturer must export not less than 80% of their annual sales. Sales tax shall be paid for the following:

  1. The portion of trading goods or manufactured exempted goods that are not exported, but sold in local market, based on the prescribed formula.
  2. Waste or refuse of raw materials, components and packaging materials used for the manufacturing of exempted goods that are disposed or sold in the local market.

Our thoughts: Section 40 of the Sales Tax Act 2018 provides a drawback facility whereby the Director General of Customs may refund the amount of sales tax paid by a company on goods imported or purchased, which are subsequently exported out of Malaysia. However, the companies have to pay sales tax upfront on the goods imported or purchased, and wait for the amounts to be refunded after a drawback application is submitted.

In addition, Item 4 of Schedule B of the Sales Tax (Persons Exempted from Payment of Tax) Order 2018 exempts approved manufacturers from paying sales tax if they purchase raw materials, components and packaging materials for the manufacturing of exempted goods for export. However, to receive this exemption, the traders or manufacturers of exempted goods must determine in advance the quantity of goods imported or purchased which are to be subsequently exported or sold in the local market. The introduction of the Scheme will help address the issues above and ease the cash flow of businesses that import and export goods substantially.

Service tax: Relaxation of condition for group relief

Under the current service tax regime, the taxable professional services under Group G of the First Schedule of the Service Tax Regulations 2018 (save for employment services and security services) provided by a company to another company within the same group of companies is not subject to service tax ("Intra-group Relief"). However, Intra-group Relief is not available if the same taxable services are also provided to a third party outside the group of companies. It is proposed that this condition be relaxed with effect from 1 January 2020, to allow for Intra-group Relief even if the same services are also provided to a third party outside the group of companies. However, the value of services provided to the third party must not exceed 5% of the total value of services provided by the company within 12 months.

Our thoughts: The relaxation of the condition to obtain Intra-group Relief is a welcomed one. We are hopeful that further guidance from the authorities will be provided on how companies are to monitor and prove that the value of services provided to a third party is 5% or less of the total value of services provided over a span of 12 months.

Service tax: Exemption for disability training and coaching services

It is proposed that with effect from 1 January 2020, service tax exemption be given on training and coaching services to disabled persons with hearing, visual, physical, speech, mental and learning disabilities provided by:

  1. training and coaching centers registered with the Ministry of Health Malaysia or the Department of Social Welfare
  2. training and coaching centers endorsed by any national association for disabled persons registered with the Registrar of Societies Malaysia