Indirect Tax News 1 - March 2012 - BDO International

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8 INDIRECT TAX NEWS 1 MALAYSIA GST – THROUGH THE LOOKING GLASS Asia has managed to weather the global financial crisis, due to policies in place as well as spending patterns in terms of appetite for risk and debt. However, there is still ongoing debate, both country and region specific, in terms of the action plans that need to be implemented for continued growth. The last decade has seen an increase in emerging markets in Asia. Global surveys undertaken by professional bodies (such as the International Monetary Fund (IMF), accounting firms, etc.) indicate that Asia plays a significant role in spearheading the “March out of the current global economic slowdown”. In a recent press briefing (January 2012) on the economic outlook for Asian Countries, in Washington D.C., IMF officials reported an expected growth of between 6 – 6.5% in the Asia Pacific Region in 2012 – 2013. What is the “growth recovery” plan? “Wei Ji” ( 危机 ) means “disaster” in Chinese. However, if you interpret each character of the word, it also means that there is opportunity in disasters or challenging times. A recipe for success may include taking the opportunity to relook at processes, policies and the best way of reinvention for sustainable growth patterns. Most countries in the region have undertaken reviews of policies, introduced preferential tax treatments (such as incentives, credits, exemptions, etc.) to facilitate both domestic and foreign investment. With regard to trends, we note that there has been a global shift from corporate to indirect taxes. The Organisation for Economic Cooperation and Development (OECD) has also indicated that indirect taxes are the least economically damaging type of tax. Is a Goods and Services Tax (GST) part of Malaysia’s growth plan? Malaysia has also jumped on the bandwagon to shift the emphasis from corporate to indirect taxes. The GST (akin to VAT) Bill was tabled for its first reading in Parliament on 16 December 2009. Subsequently, it was announced that the implementation of GST would be postponed in order to collate feedback from “Rakyat” to provide additional guidelines on the application of the tax. The extension of time or rather deferment of GST should be viewed as being practical, in terms of enabling more taxpayers to educate and better prepare themselves for the impending GST environment. These measures are to ensure a smooth transition for taxpayers into the GST environment. The deferment of GST caused ripples in the current economic climate. However, as global trends unravel, it would appear that this is a tax that will have to be considered as part of Malaysia’s future plans. The shift from the burden of direct taxes to a consumption tax system should increase funding capacity from both domestic and international investment in the country. These should provide adequate building blocks for Malaysia to continue steadily on its journey towards a higher income nation. Hidden taxes/“cascading effect” - How does the current consumption tax system work? At present, consumption taxes are imposed on taxable goods and services, as defined by the Sales and Service Tax legislations respectively. The categories are specific. However, due to “grey areas of interpretation” and poor compliance, not all taxable goods and services are under the current regime, resulting in leakages. The current regime imposes a single stage tax, with no “input tax credit system”. Therefore, taxes being paid by vendors in the supply chain become “sunk costs”, which are embedded as part of the cost of the goods or services, which may be taxed more than once. This is also known as the “cascading” or “hidden tax” effect. GST, being a transparent tax, should eliminate the cascading effect experienced under the existing sales and service tax regime, under which ‘hidden taxes’ are borne by the consumer. The self-policing mechanism should also help to increase compliance. Therefore, this tax would level the playing field in industries. How will GST work? GST would be a broad-based consumption tax (akin to VAT) to replace the existing sales and service taxes. This transactionbased tax would require regular submission of both tax returns and remittances of the taxes collected. Such a mechanism allows for refunds to be issued in a more efficient manner, as the monies due to taxpayers (when the output taxes paid are lower than the input taxes paid) will already be held by the Royal Malaysian Customs (RMC), due to the regular remittances made by GST registered entities. In addition, since GST utilises the “user pays” principle, as the economy grows, consumption will increase, providing additional revenue for the Government. This relationship is not as direct or clear under the direct tax, or income tax mechanisms. The government would be able to further improve infrastructure and welfare, and increase research and development to boost industries/home grown products/services, which should benefit the “Rakyat” of the country. This improved and more transparent means of collecting tax could also result in the lowering of direct taxes (i.e. personal and corporate income tax). How would GST be imposed in Malaysia? Goods and services would be subject to GST (taxable) or not (non-taxable). For taxable goods and services, there would be two rates of GST that could be imposed, i.e. standard rate (earlier announced to be 4%) and zero rate. For non-taxable goods and services, there would be two categories, i.e. exempt and ‘out of scope’. In both non-taxable categories, no GST (i.e. output tax) would be imposed. Therefore, no GST (i.e. input tax) could be claimed. The Government does not expect inflation at the GST rate of 4%. However, steps to prevent businesses from taking advantage of GST to make excessive profits include the tabling in Parliament in July 2010 of the Price Control and Anti Profiteering Bill 2010 (PCAPB). This legislation is aimed at regulating the pricing of goods and services, to ensure that businesses do not take advantage of the introduction of GST, by applying price increases, without reasonable bases. In addition, it has been proposed that a shoppers’ guide (covering approximately 350 items) will be published for circulation to the public 3 months prior to the GST implementation date. GST – Are we there yet? The deferred second reading of the GST Bill in Parliament should allow more time for the “Rakyat” to get ready. Some of the industry guidelines have already been released, providing the main framework for clarification of the application of the tax. Relevant legislation such as the PCAPB, and ongoing dialogue with taxpayers, are steps in the right direction to facilitate a smooth transition into the GST environment. Malaysia has to broaden its tax base and funding capacity to face the challenge of competition from emerging economies like China, Indonesia and Vietnam (amongst others). As with other countries, the shift from direct to indirect taxes raises political tension. In this regard, an implementation date for this tax will probably be announced after the next general election, which would be by March 2013. The clock has already started ticking, and the additional time only becomes useful if actions are taken now to determine the timelines and the method of implementation. “… Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that! …” - The Queen, Lewis Carroll’s “Alice through the looking glass”. PAULINE LUM Malaysia – Kuala Lumpur paulinelum@bdo.my
NAMIBIA CHANGES TO THE VAT ACT FROM 1 JANUARY 2012 INDIRECT TAX NEWS 1 9 Medical services, which were zerorated as of 1 May 2010, have become exempt, as they were before that date. The change in legislation led to a change in use of certain assets, making it necessary to account for a deemed supply. Certain taxpayers with a mixed supply will once again have to apportion input VAT, as they did before 1 May 2010, and many taxpayers will have to deregister, as they are no longer making taxable supplies. One wonders about the rationale behind this change, as 20 months is a very short timeframe in which to judge whether the decision to zero-rate these services was effective. Taxpayers may now apply to the Minister in writing for their VAT period to end on a different day. This day must not be more than 10 days before or after the current last day. A tax tribunal has been established to consider disputes between the Receiver of Revenue and taxpayers. LORNA CELLIERS JANA-MARIE DE BRUYN Namibia – Windhoek lorna@bdo.com.na janamarie@bdo.com.na NORWAY CHANGES TO THE VAT ACT EFFECTIVE FROM 1 JANUARY 2012 The Norwegian Parliament has made the following changes to the VAT Act with effect from 1 January 2012: Guarantee/warranty repairs performed for foreign principals The VAT exemption for guarantee/warranty repairs for foreign principals, which was cancelled on 1 January 2010, has been reintroduced. The exemption will include repairs related to goods or installations which the foreign principal has delivered in Norway. Both goods and services supplied in this connection will be covered. It is a condition that the foreign principal is not registered for VAT in Norway. Obligation to file VAT returns electronically All VAT returns covering VAT periods that end after 31 December 2011 should generally be filed electronically via the internet portal www.altinn.no. This means that persons entitled to sign VAT returns must obtain PIN-codes from Norwegian authorities in order to be able to access the portal. Certain procedures regarding this must be followed. Please note that it is possible to apply for a permission to file paper versions of the VAT return. Such applications should be made at least three months prior to the deadline for filing the VAT return in question. A permission to file paper returns will last for a limited period of two years. Change of VAT rate for food The VAT rate for food is increased from 14% to 15%. JAN KOLBJØRNSEN KNUT ANDREASSEN Norway – Oslo jan.kolbjornsen@bdo.no knut.andreassen@bdo.no
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