1. stpams’ 6th International Residential Refresher Course (irrc) held at Colombo (Sri Lanka) and Kuala Lumpur (Malaysia)

1. The Sales Tax Practitioners Association of Maharashtra (STPAM) is an apex Bar of the sales tax practitioners in Maharashtra. Over the last decade, due to globalization of business, it has become necessary to understand the direct and indirect tax systems of countries with which we have got close business relations. Against this background, the STPAM thought it appropriate to understand and study the tax laws specially of the neighbouring countries. This year, the STPAM decided to hold its 6th IRRC in Sri Lanka and Malaysia starting from 30th April to 9th May 2006.
    

2. The first technical session was held on May 3, 2006, at Hotel Taj Samudra, Colombo, in which, the Ld. Paper writer Mrs. Lakmali Nanayakkara, Partner, Ernst & Young, a global firm of Chartered Accountants, was invited to present her views on Value Added Tax in Sri Lanka. Earlier, His Excellency, Mr. A. Manickam, Deputy High Commissioner, High Commission of India, Colombo, was kind enough to inaugurate the first technical session of the IRRC. In this connection, our Sr. member Mr. A.B. Ghanekar has covered the deliberations of first technical session in his article, which is published in the Review, separately.
    

3. The second technical session was held at Kuala Lumpur. This session too was inaugurated by His Excellency Mr. Sanjay Panda, Counsellor (Economic), holding the rank of Deputy High Commissioner, High Commission of India, Kuala Lumpur. In the second technical session, at our invitation, Mr. Thomas Selva Doss, the Ld. Paper writer presented his paper on ‘Sales Tax And Goods & Services Tax In Malaysia’. Mr. Harpal Dhilon, Hon. Secretary, Malaysian Institute of Taxation, was the guest of honour.
    

4. In both the technical sessions, the Deputy High Commissioners named above, louded the initiative taken by the President of the STPAM, in arranging the IRRC, with a view to understand the indirect taxation system prevailing in the neighbouring countries. They also clarified that they too are concerned with VAT taxation and have to consider such system while drafting ‘International Treaty’ with the country wherever they are posted. All the delegates were pleased with the interaction and frank discussion they have had with their country’s Deputy High Commissioners.
    

5. We now present a brief note on the sales tax system as in vogue in Malaysia, based on the talk delivered by Ld. Paper writer Mr. Thomas Doss.

Sales Tax in Malaysia

At the beginning of his address Mr. Thomas Doss clarified that in Malaysia, anybody can undertake the practice of sales tax. You are not required to be professionally qualified to undertake such practice. The present Sales Tax Act of 1972 is not amended till date and, therefore, according to him, it has become an obsolete piece of legislation. Although, the new legislation titled "The Goods and Services Tax (GST)" is ready for the Parliament to be passed, yet for political reasons it is postponed till 2009. Under the proposed legislation everything under the ‘Sun’ is going to be taxed. Further, currently, the sales tax administration has been assigned to customs department of the country. One interesting feature of the present law, which he pointed out was that – No account books are required to be maintained by the traders. It is sufficient that they should maintain the record of the business transacted. As such, assessment is completed based on "record" only, without any reference to the normal books of account, which we are required to maintain. This is the material difference in their system as compared to ours.

Salient features of Sales Tax Act, 1972

The law provides for only two rates of tax. First is the 5 per cent on essential goods, foodstuffs, liquor and cigarettes. The second is 10 per cent on general goods.

Sales tax is the single point tax levied on certain – (a) imported goods, and (b) locally manufactured goods. Sales tax on imported goods is to be paid when the goods are cleared from customs control. Sales tax on locally manufactured goods is to be charged and levied by the licensed manufacturer at the time the goods are sold or disposed otherwise than by sale. It may be noted that all raw materials components and packaging materials used by the manufacturer to manufacture taxable products will be exempt from sales tax.

Every person who manufactures taxable goods shall apply to the Senior Officer of sales tax to be licensed as a Licensed Manufacturer. Manufacturers whose sales did not exceed Malaysian Ringit (RM) 100,000/- or Contractors (i.e., persons performing work on taxable materials wholly supplied by another person) whose job work charges did not exceed RM 20,000/- are not liable to sales tax provided they have obtained Certificate of Exemption. This certificate requires renewal every year.

Every taxable person shall within 28 days after the taxable period deliver to the proper Officer a return in the prescribed form (CJ-3). Sales tax can be paid either in cash or by postal orders, money orders, bank drafts or cheques. In the absence of business even "NIL" returns are required to be filed.

If sales tax is not paid within the due date, a penalty of 10% is imposed. For every subsequent delay of 30 days, additional 10% penalty is levied subject to a maximum of 50%.

Every taxable person shall keep full and true records written up-to-date of all transactions which affect his liability to sales tax. The records shall be preserved for a period of six years. The Sales Tax Department is empowered to conduct audit from time to time to ensure that tax-payer has complied with the rules, regulations and procedures under the Sales Tax Act, 1972. The auditor will normally conduct an audit for a period of three years from the date of audit. If fraud is detected then there is no limit on the period that will be audited. Mainly, audits are undertaken in respect of licensed companies. After the audit, bill of demand (like our Assessment Order and Demand Notice), if any, is sent. However, bill of demand is not appealable but can be got corrected. The tax demanded as per bill of demand is required to be paid within 14 days. Otherwise, your passport is impounded.

Government has proposed to introduce the goods and services tax. It is a multi-stage tax, which is paid throughout the production and distribution chain. GST is charged on any taxable supply of goods or services made by a taxable person in the course or furtherance of any business carried on by him in Malaysia. GST is also charged on importation of goods and services. GST is charged on imported goods at the time they are cleared from customs control. In the case of import of services, GST is charged from the receiver of the services using reverse charge mechanism.

Supply of goods and services are divided into three categories i.e.

1. Standard rated supplies: Taxable supply of goods and services, which are subject to a standard rate. The taxable person is eligible to claim input tax credit on his inputs.
    

2. Zero rated supplies: Supplies, which are subject to a zero rate. The taxable person is eligible to claim input tax credit on his inputs.
    

3. Exempt supplies: Non-taxable supplies which are not subject to GST. The supplier is not eligible to claim the GST incurred on business inputs.

Any person who makes or intends to make a taxable supply of goods or services in Malaysia in the course of his business (on crossing a prescribed threshold) is required to register for GST. A person who makes exempt supplies or taxable supplies below the prescribed threshold is not required to register. A registered person will be given a unique GST Identification Number. A person shall apply for registration within 28 days from the end of the month in which he has exceeded or is expected to exceed the threshold. The date of registration is on the first day of the following month.

Taxable period for a person will be determined at the time when his GST Registration is approved. The following are the categories:

1. Quarterly basis for businesses with annual turnover not exceeding RM 5,000,000.

2. Monthly basis for businesses with annual turnover exceeding RM 5,000,000.

3. Six months basis in special cases.

A taxable person may apply to be placed in any other category other than his predetermined taxable period.

1. Claimant must be a taxable person.

2. Goods and services are acquired for the purpose of making taxable supply.

3. Must have a valid tax invoice.

All records with respect to GST shall be kept in Bahasa Malaysia or English for 7 years.

GST Return is to be furnished in a prescribed form whether or not there is a tax liability. The return must be submitted not later than the last working day of the month following the end of the taxable period. Returns may be filed either by post or electronic means.

2. 'Citizen Charter' issued by sales tax department

1. It appears that over a period of time the Department as well as practitioners and trading community have forgotten the ‘Citizen Charter’ issued by the Department. Under the said Charter, inter-alia, under caption ‘Our Aim’ the following two points are mentioned: -

2. However, regrettably, experience shows that enough attention is not paid by the Department in attaining the above laudable objective. Passing of highhanded assessment orders as well as first appeal orders continues without any break. The scenario at Registration Branch is far from satisfactory, inasmuch as, the list of requirements for registration purpose is increasing and dealers who go for registrations are presumed to be dishonest and tax evaders. This is contrary to the mandate recorded in Charter that it is the endeavour to provide dealer friendly service. In this connection, the landmark judgment of the Bombay High Court in Niranjan Mills Limited vs. State of Maharashtra (1995) 99 STC 587 (Bom.) is lost sight of. As regards ‘Responsibilities’ mentioned in the Charter, among others, one point is: "Observe punctuality regarding office timing, lunch, tea-break etc." Seldom the above rule is observed either by the Officers or the staff working under them.
    

3. In the Charter under heading "Our Expectations" one key area mentioned is as below: -

4. In compliance with the above expectations, and, in particular, noticing the ‘Loksatta’ Report dated 18-05-2006 in which, it has been reported that the ACB has arrested Mr. Vivek Ramesh Salunkhe, Sales Tax Officer, while receiving a bribe of Rs. 2,00,000/- from a dealer, namely, Mr. Manish Gala. May we therefore, considering this recent incident suggest that the Department should include in the Charter one more area of responsibility under the title "Business Integrity, etc." on the lines as we noticed in the ‘Annual Report and Accounts - 2005’ presented by the Board of Directors of Hindustan Lever Ltd., to their shareholders. Here below, we have extracted the relevant points from the said Report. Wherever the word "Unilever" occurs, it should be substituted for the word "Sales Tax Department" and wherever the words "The board of Unilever" occurs it should be substituted for the words "Commissioner of Sales Tax", to implement our free and fearless suggestion. Of course this should be done after giving due credit to HLL Report – 2005.

Unilever does not give or receive, whether directly or indirectly, bribes or other improper advantages for business or financial gain. No employee may offer, give or receive any gift or payment which is, or may be construed as being, a bribe. Any demand for, or offer of, a bribe must be rejected immediately and reported to management. Unilever accounting records and supporting documents must accurately describe and reflect the nature of the underlying transactions. No undisclosed or unrecorded account, fund or asset will be established or maintained.

All Unilever employees are expected to avoid personal activities and financial interests which could conflict with their responsibilities to the Company. Unilever employees must not seek gain for themselves or others through misuse of their positions.

Compliance with these principles is an essential element in our business success. The Unilever board is responsible for ensuring these principles are communicated to, and understood and observed by all employees. Day-to-day responsibility is delegated to the senior management of the regions and operating companies. They are responsible for implementing these principles, if necessary through more detailed guidance tailored to local needs. Assurance of compliance is given and monitored each year. Compliance with the code is subject to review by the board supported by the audit committee of the board and the corporate and the corporate risk committee. Any breaches of the code must be reported in accordance with the procedures specified by the joint secretaries. The board of Unilever will not criticize management for any loss of business resulting from adherence to these principles and other mandatory policies and instructions. The board of Unilever expects employees to bring to their attention, or to that of senior management, any breach or suspected breach of these principles. Provision has been made for employees to be able to report in confidence and no employee will suffer as a consequence of doing so."

5. Let us hope that the above suggestion is acceptable to the Hon’ble Commissioner and the Government in Finance Dept.

3. Supreme Court Newsletter released

1. For the first time in 55 years, the Supreme Court has brought out a newsletter containing a wealth of information on the working of the judiciary in the country as well as a gist of important judgments concerning the welfare of the people.
    

2. Releasing this quarterly newsletter here on Wednesday, Chief Justice of India Y.K. Sabharwal said the newsletter was intended to ensure transparency and openness in the working of the judicial system and would help in better accountability. The Chief Justice also released a book Supreme Court Rules, 1966 as amended up to date, which is priced at Rs. 40/-.

(Source: - "The Hindu", dated April 20, 2006).