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The coronavirus outbreak is expected to cause disruption to many businesses whether direct or indirect. The tourism, transportation, hospitality and education sector may be the first to feel the impact, but other industries may not be sheltered as the ‘knock-on domino’ effect takes place.

Challenges faced by businesses include managing their tax obligations on a timely basis, cashflow commitments and dealing with suppliers and customers. This impact is not only felt in Malaysia but also around the world.

Recognising the challenges faced by taxpayers, KPMG Malaysia Indirect Tax has prepared a brief guide below, with the objective of supporting businesses in managing their indirect tax affairs effectively and avoid pitfalls during these uncertain times. 

Sales Tax 

1. Order cancellation and changes

Cancellation of orders or changes in the purchase requirement is not uncommon but can be more prevalent due to the coronavirus outbreak.  In some cases, these cancellations may have occurred after an invoice has been issued, resulting in Sales Tax having been accounted for which is not matched by later sales revenues. 

The Sales Tax legislation provides for the issuance of credit notes but businesses need to be mindful of the conditions to qualify.  Similarly, there is a provision for bad debt relief where businesses may make a claim to the Royal Malaysian Customs Department (“RMCD”) for refund of Sales Tax in relation to bad debt, but again there are conditions to comply. 

It may be opportune for businesses to start exploring the above provisions to minimize Sales Tax leakages, in the unlikely event that such actions are required.

2. Abnormal losses 

Many businesses may incur losses during the outbreak of the coronavirus.  For example, orders may be cancelled leading to disposal/ scrapping of stock or raw materials. 

Businesses need to be mindful that disposal of stocks may be subject to Sales Tax (depending on the HS Code).  Further, there are conditions to be met in respect of any scrapping of raw materials where Sales Tax exemptions have been applied.

3. Cashflow management 

The cashflow of businesses will be a significant challenge during the period affected by the coronavirus outbreak, and even after it dissipates.  Finance and tax managers need to carefully consider the cashflow impact of Sales Tax on creditors and debtors.  Generally businesses should seek to minimize the timeframe between point of sale and collection of cash so as to manage the associated Sales Tax within a reasonable period of time.

Similarly, many contract terms may need to be adjusted in light of supply chain delays, and to avoid accruing further Sales Tax obligations (which is not matched by sales revenues).  Those contracts may need to be revisited but at the same time recognizing the importance of longer-term relationships and the challenges faced by many businesses in the current environment. 

4. Maximising Sales Tax exemptions

There are many Sales Tax exemptions available in the Sales Tax (Persons Exempted from Payment of Tax) Order 2018 and its Amendment Orders. These exemptions are there to minimize tax cascading as well as ease the cost of doing business.

Although there may be strict or numerous conditions to comply, in view of the current economic environment, it may be fitting for businesses to start reviewing their supply chain and explore utilizing such exemptions. 

5. Relook at HS code classification 

As the Sales Tax rate is determined by the HS code, every effort should be taken to ensure that only the correct Sales Tax is paid.

Businesses acquiring and manufacturing taxable goods may want to evaluate whether they have been paying and charging the correct Sales Tax rate, by evaluating whether the HS code classification has been applied correctly. 

Service Tax 

6. Maximising Service Tax exemptions

Over the past 1 and a half years, many Service Tax exemptions have been introduced to reduce tax cascading and manage cost of doing business.  More recently, due to the Coronavirus outbreak, the Government has introduced various Budget Stimulus to assist businesses, particularly those in the tourism sector.  Do however, be aware of the transitional provisions, if any. 

We have issued write up on the various Budget Stimulus here as well as Service Tax Policies here. 

Where the impact of the Coronavirus does not subside, we anticipate more assistance to be issued by the Government. Businesses are encouraged to take advantage of these exemptions, if for any other reason, to remain competitive in these challenging times.

7. Bad debts

In an economic downturn, many businesses encounter cash flow issues and potential bad debts.  Although Service Tax is generally to be accounted based on payment basis, there is a 12-months deemed paid rule where Service Tax still needs to be paid to Customs regardless of whether the customers have settled the invoice. 

For businesses who account for Service Tax based on accrual basis or need to account for the 12-months deemed paid rule, businesses need to start thinking of the mechanism to apply for bad debt relief.  Alternatively, businesses in this situation may be better off considering ways in which to renegotiate, or provide renewed supply or payment term with their customers, which may in turn allow for an adjustment rather than the recognition of a bad debt which necessitates complying with the bad debt relief rules for Service Tax.

8. Going digital

With the advancement in technology, improved lifestyle as well as the preference to limit face to face interaction currently, demand for digital services is on the rise.

Businesses are now exploring digital services as an alternative measure to conduct business and reach out to customers.  Although this would appear to be the way forward, businesses also need to be mindful of the Service Tax implications of going digital, particularly with the recent introduction of Service Tax on digital services.  Nevertheless, there are exemptions available which may neutralize the cost of doing business digitally. 

Customs and Global Trade Issues

9. Origin assessment 

Global supply chain disruptions driven by the outbreak has resulted in alternative raw material/ component sourcing or price revisions.  As this may affect product origin assessment, businesses benefitting from preferential trade (i.e. via Form E, Form D and etc) are exposed to the risk of losing their preferential duties and subsequent increase in the cost of doing business.

Businesses should take steps to ensure their preferential origin assessment done earlier are not materially affected.  Those adversely affected should seek audience from the Authorities accordingly.   

ASEAN and various Governments, on the other hand, are hoped to introduce immediate guidance or temporary measures in allowing businesses reasonable room to manage its products origin. 

What you can do now?

  • Consider the commercial issues during this period and properly manage invoice timing and contractual changes.
  • Closely monitor the incentives from different Government Authorities available. 
  • Conduct a Sales Tax and Service Tax health check to identify areas of risk and optimization.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Contact KPMG

For more information on our core service offerings, please contact:

Petaling Jaya Office

Tai Lai Kok
Executive Director –
Head of Tax and Head of Corporate Tax
ltai1@kpmg.com.my
+ 603 7721 7020

Long Yen Ping
Executive Director –
Head of Global Mobility Services yenpinglong@kpmg.com.my
+ 603 7721 7018

Bob Kee
Executive Director –
Head of Transfer Pricing
bkee@kpmg.com.my
+ 603 7721 7029

Ng Sue Lynn
Executive Director –
Head of Indirect Tax
suelynnng@kpmg.com.my
+ 603 7721 7271

Soh Lian Seng
Executive Director –
Head of Tax Risk Management
lsoh@kpmg.com.my
+ 603 7721 7019

Nicholas Crist
Executive Director –
Corporate Tax
nicholascrist@kpmg.com.my
+ 603 7721 7022

Dato’ Leanne Koh
Executive Director – 
Corporate Tax
leannekoh@kpmg.com.my
+ 603 7721 7026

Neoh Beng Guan
Executive Director – 
Corporate Tax
bneoh@kpmg.com.my
+ 603 7721 7025

Ong Guan Heng
Executive Director – 
Corporate Tax
guanhengong@kpmg.com.my
+ 603 7721 7027

Chang Mei Seen
Executive Director – 
Transfer Pricing
meiseenchang@kpmg.com.my
+ 603 7721 7028

Ivan Goh
Executive Director – 
Transfer Pricing
ivangoh@kpmg.com.my
+ 603 7721 7012

 

 

 

Evelyn Lee
Executive Director –
Penang Tax
evewflee@kpmg.com.my
+604 238 2288 (ext. 312)

Regina Lau
Executive Director –
Kuching Tax
reglau@kpmg.com.my
+6082 268 308 (ext. 2188)

Titus Tseu
Executive Director –
Kota Kinabalu Tax
titustseu@kpmg.com.my
+6088 363 020 (ext. 2822)

Ng Fie Lih
Executive Director –
Johor Bahru Tax
flng@kpmg.com.my
+607 266 2213 (ext. 2514)

Crystal Chuah Yoke Chin
Tax Manager –
Ipoh Tax
ycchuah@kpmg.com.my
+605 253 1188 (ext. 320)