The Improvement to Sales and Services Tax in Malaysia Budget 2020
The 2020 Budget is poised to improve Malaysians’ lives and bring stability to the Government’s finances. The Finance Minister made it clear that the Government will not reintroduce GST and the Budget 2020 will see an enhancement in the Sales and Services Tax to ensure improved efficiency and easy tax administration. Further to that, the Minister highlighted that the tax revenue collected relative to GDP was relatively low compared with countries like Vietnam and South Korea.
Approved Major Exporter Scheme for Sales Tax (Effective: 1 July 2020)
Sales tax exemption on the purchase/importation of goods, raw materials, components and packaging material by trader and manufacturers of exempted goods will be granted under the proposed Approved Major Exporter Scheme. According to the new scheme, the quantity of goods to be purchased/imported does not need to be disclosed/determined while applying for tax exemption. The eligible traders or manufacturers (i.e. traders or manufacturers of exempted goods whose annual sales consist of no less than 80% export of such goods will need to pay sales tax on:
- Trading good or manufactured exempted goods that are not sold or exported locally, subject to a prescribed formula; and
- Waste or refuse of raw materials, components and packaging materials used for the manufacturing of exempted goods, which are sold or disposed locally.
Prior to this, the following scenarios were in the picture:
- Traders are eligible to get a refund on the sales tax paid on taxable goods when these are subsequently exported, or
- Manufacturers of exempted goods are eligible for sales tax exemption on the purchase of raw materials, components, and packaging materials for manufacturing of exempted goods for export, based on prescribed conditions.
Previously, traders are required to pay the sales tax upfront and apply for the tax refund only after that. In addition, traders had to go through many channels to apply for approval and refund payment. Therefore, the new scheme heralds a positive development of Malaysia’s export industry with simplified processes and reduced administrative red tape.
Improvement on Group Relief Facility under Service Tax (Effective: 1 January 2020)
Under Budget 2020, services provided (refer to “professional” services under Group G of the First Schedule to the Service Tax Regulations 2018) by a company to a third party that is outside the same group of companies, would be entitled for a group relief. The group relief is subject to the value of services – the value of services cannot exceed the threshold of 5% of the total value of services provided by the company within 12 months. The proposal signals a relaxation of the existing group relief policy. Before the introduction of such group relief, the qualified services cannot be provided to the third party, which is outside the same group of companies, otherwise, the group relief would be lost.
Service Tax Exemption on Provision of Training and Coaching Services for Disabled Persons (Effective: 1 January 2020)
Before the proposal of the abovementioned service tax exemption, the training and coaching services to disabled individuals are taxable, with a few exceptions as below:
- Training and coaching provided by approved companies with status or definition as research and development company; contract research and development company under Section 2, Promotion of Investment Act 1986; and approved research institutions under Section 34B of the Income Tax Act 1967; or
- Federal or State Government, local authorities, or statutory authorities.
Under the newly proposed tax exemption, the provision of training and coaching services to disabled individuals by the following service providers will be entitled to a tax exemption:
- Training and coaching centres registered with the Ministry of Health Malaysia or the Department of Social Welfare; or
- Training and coaching centres endorsed by any national association for the disabled individuals registered with the Registrar of Societies Malaysia.