Problems relating to Trade and Investment on Malaysia
14. Taxation Systems |
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Issue |
Issue details |
Requests |
Reference |
| (1) Introduction of Goods and Services Tax | - Beginning 1 April 2015, GOM introduces Goods and Services Tax corresponding to VAT at 6% tax rate. GOM intends to work with GST on a full-fledged basis in order to reduce the budgetary deficits and expand the tax base. (Goods and services taxes have been repealed and replaced by GST). - With the introduction of Goods and Service Tax (GST), MFS filed application for Approved Trader Scheme (ATS), and made other enquires to Royal Malaysian Customs (RMC), however, without receiving any response from RMC to date. MFS remains unable to take any requisite preparation. - There remains a possibility for the GST levy in a transaction where movements of goods are made within Malaysia, while invoice goes through Singapore. It is unclear, if exemption rule exists to cope with such a situation. - Corporate income tax will be reduced along with introduction of GST due in April 2015. |
- It is requested that RMC returns prompt response to MFS's application. - It is requested that GOJ negotiate with GOM, should there be no exemption rule. - It is requested that GOM expands the depth of reduction in corporate income tax with the introduction of GST. |
- GST Act |
| (Action) - On 16 December 2009, MOF submitted the Bill for Goods and Services Tax (GST), equivalent of value added tax, to the first reading of the House of Representative (Dewan Rakyat), This is the second attempt of GOM after the aborted Bill of 2006 to submit the Bill for introduction of GST. The new Bill proposes GST rate of 4%, excluding the basic essential goods (agricultural produce, basic foods, etc.) to alleviate the tax burden upon the people in the low-income brackets. GST taxation system will replace the on-going sales and service tax (SST). Current SST rates comprises of 10% of sales tax, and 5% of service tax. The second and third readings of GST are due in March 2010. GOM envisages it takes 18-months for all concerned to complete the preparation, targeting full implementation of the new GST in the middle of 2011. - At the hearing for formulating the 2014 proposed national budget, Japanese Chamber of Trade & Industry, Malaysia (JACTIM) requested reduction in corporate income tax, all the more so, if the goods and services tax (GST), now under GOM's review, is to come into effect. Secondly, upgrading and expanding of investment incentive measures. Request was made for GOM to grant investment incentive measures to Japanese affiliated enterprises that frequently make reinvestment into existing operations for R&D, etc. in the recent years, instead of establishing a new corporation. - By 2014 Budget, GOM publicly disclosed the GST levy at 6% tax rate, beginning 1 April 2015. - Ministry of Finance promulgated excise duties [Exemption] (Amendment) Order 2014, (P.U. (A) 225/2014), expressly excluding imported cars procured by the Federal / State Governments. Regulation P.U. (A) 225/2014 [in Malay and English] (http://www.federalgazette.agc.gov.my/outputp/pua_20140806_P.U.%20(A)%20225-perintah%20duti%20eksais%20(pengecualian)%20(pindaan)%202014.pdf) - In April 2014, Customs Department moved up by large margin the implementation of goods and service tax online registration system from the initial target of January 2016 to 1 June 2015. |
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| (2) Nebulous Implementing Regulation of Tax Laws | - While increasing numbers of foreign funded enterprises face expiry dates for the pioneer status (PS), investment tax allowance (ITA) and reinvestment allowance (RA), cases of denials are reported in the taxation investigations involving transfer price taxation system, ITA, RA, etc., all decided upon the sole discretion of investigators without clear substantive rules given in writing by public notification, etc. | - It is requested that GOM arrange opportunities for exchange of dialogues for clarification of the taxation rules between Inland Revenue Board of Malaysia and FFEs. | - General Tax Laws |
| (Action) - On 22 August 2014, Parliament of Malaysia enacted "Promotion of Investments (Amendment) Act 2014". Under the Amendment, request for determining the period for tax deductions on investment must be filed within twenty-four months from the date of the Finance Minister's approval or its extension date. -- Promotion of Investments (Amendment) Act 2014 [in English] (http://www.federalgazette.agc.gov.my/outputaktap/20140822_1468_BI_WJW002917%20BI.pdf) |
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| (3) Nebulous Transfer Price Taxation System Investigation | - Calculation basis of additional tax from TPTS investigation is unilateral, and the resulting amount is extremely substantial. | ||
| (4) Levy of Withholding Tax in Violation of Japan-Malaysia Tax Treaty | - Japan-Malaysia Tax Treaty (JMTT) provides: "The profits of an enterprise of a Contracting State shall be taxable only in that Contracting State unless the enterprise carries on business in the other Contracting State through a Permanent Establishment situated therein." However, there remains a possibility that GOM levies withholding tax upon the service a member firm's subsidiary (MFS) receives from member firm (its Japan head office). | - It is requested that GOM: -- honours its undertaking with GOJ under JMTT by giving its precedence over the Malaysian domestic laws including Corporate Income Tax Law, and -- promulgates in the form of decree or otherwise that no Malaysian withholding tax payment obligation accrues upon the services rendered by an enterprise without a permanent establishment situated in Malaysia. |
- Japan-Malaysia Tax Treaty, Article 7 - Malaysian Income Tax Act Article 109(B) |
| (5) Nebulous Application Procedures for Petroleum (Income Tax) Act and Goods and Services Tax |
- While GOM promulgated new incentives on petroleum (Income Tax), the subject goods and the application method remain nebulous. Through an industrial body, request has been filed to the Taxation Authority to provide a clear-cut data and information. It has been decided to introduce from 2015, consumption tax, in lieu of the going goods and services tax. Taxation Authority has issued a guideline on consumer tax for the oil and gas upstream industries. However, the procedures for filing tax return include many ambiguous points. | - Petroleum (Income Tax) Act and Goods and Services Tax |
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| (6) The Risk of Double Taxation under TPTS | - Especially under the Transfer Price Taxation System (TPTS), a member firm faces the risk of double taxation as a group, as the rules on TPTS vary to and fro by countries. | - It is requested that GOM/GOJ work toward overhauls of the world standard TPTS Guidelines and the relative legislation. | |
| (7) Payment Work made Complex from Introduction of GST at different Tax Rates | - Decision was made to introduce Goods and Service Tax (GST at 6% Tax Rate) from April 2015, Malaysia, Myanmar and Brunei alone being left without introduction of GST in the ASEAN Signatories. While no material impact is envisaged on MFS's P/L, payment work will be made complex due to differences in tax rates by commodity. | - It is requested that GOM set GST tax rate not as cumbersome as possible for considering MFN's operation work such as tax payment. | - Home Page of Royal Malaysian Customs Department: http://gst.customs.gov. my/en/Pages/default.aspx |
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