Crowe Chat Vol.3/2024
Tax Edition
Welcome to our Crowe Chat Vol.3/2024. In this issue, we will cover the following topics:
- Tax Investigation Framework 2024
- Guidelines and Procedures for the Application of Automation Capital Allowance (CA) for Manufacturing and Services Sectors
- Guide to Filling a Notice of Appeal (Form Q)
- Service Tax Policy No. 4/2024 (Amendment No. 1)
- Incentive Offer for Penalty and Surcharge Remission on Indirect Taxes
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Tax Investigation Framework 2024
Introduction
Tax Investigation Framework is issued to provide guidance to taxpayers on the investigation procedures of the Inland Revenue Board of Malaysia (IRBM). To ensure a more professional approach to tax investigations, a revised Tax Investigation Framework has been issued on the investigation procedures of the IRBM.
Previous Framework
The previous Tax Investigation Framework 2023 was issued on 1 January 2023.
Revised Framework
The IRBM issued the Tax Investigation Framework 2024 on 31 May 2024.
Details of the revised framework
- Investigation Procedures
An investigation can be done by issuing a letter of application for documents and information from the taxpayers, tax agents and third parties for review. Taxpayers may be requested to be present at the IRBM’s office to provide information and explanations verbally or in writing.
Investigations can be done by conducting an inspection visit without notice to the business premises or residence of the taxpayers, tax agents, third parties or any other necessary places. Inspection will be conducted professionally and ethically.
Once the investigation procedure is complete, the IRBM will issue the investigation findings letter to taxpayers. If the findings of the investigation are agreed, an agreement / letter of undertaking will be signed. The investigation case is considered completed after the approval of the Director General of Inland Revenue Board (DGIR) is obtained and the assessment is raised. If taxpayers disagree with the investigation findings, an assessment (with penalties) will be raised based on the authority of the DGIR or the case will be dropped if there are facts or evidence which supports the taxpayers’ argument.
- Taxpayers
Taxpayers are allowed to make copies of the taxpayers’ documents that are under investigation and under the control of the IRBM.
- Payment Procedures
If taxpayers are allowed to pay the taxes and penalties in instalments, proof of initial payment of at least 25% of the total tax and penalty must be submitted on the date the agreement / letter of undertaking is signed. The remaining payment must be paid according to the amount and instalment period allowed by the DGIR.
Guidelines and Procedures for the Application of Automation Capital Allowance (CA) for Manufacturing and Services Sectors
The Automation Capital Allowance (CA) incentive for the manufacturing sector was introduced in the 2015 Budget. Subsequently, the Automation CA for Category 2 of the manufacturing sector has been expanded to the services sector in the 2020 Budget. As part of the efforts to promote productivity and improve efficiency through automation, the Automation CA for manufacturing and services sector was further enhanced in the retabled Budget 2023. The automation CA is given to companies in certain industries to encourage automation especially those adopting Industry 4.0 elements.
Malaysian Investment Development Authority’s (MIDA) Guidelines
The MIDA issued the Guidelines and Procedures for the Application of Automation Capital Allowance (CA) for Manufacturing and Services Sectors on 19 June 2024.
Key highlights of the MIDA Guidelines
| Type of incentive | The Automation CA of 200% on the first RM10 million expenditure incurred within the Years of Assessment (YAs) from 2023 to 2027. The scope of automation includes adaptation of Industry 4.0 elements. | ||||||||||||
| Eligibility criteria |
i. A company that has applied the incentive commencing from the year 2023. ii. A company that has been approved for Automation CA prior to the year 2023 is also eligible for the incentive, provided that the company incurs qualifying capital expenditure for different assets. iii. The company must incur expenditure for at least one (1) machinery / equipment / software / system with an adaptation of Industry 4.0 within the eligible amount of RM10 million. |
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| Effective date |
Online applications received by MIDA from 1 January 2023 until 31 December 2027 will be eligible to be considered for this incentive. |
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| Eligible Machinery / Equipment |
i. The automation machinery / equipment includes machinery / equipment with an adaptation of Industry 4.0 elements; ii. The machinery / equipment / Industry 4.0 software / system is used directly in the manufacturing / services activity to enhance productivity and to be verified by SIRIM); iii. For automation machinery / equipment, the technology utilised must be more advanced than the technology currently used by the company and to be verified by SIRIM. The machinery / equipment must fulfill at least one (1) of the category areas of automation / automated equipment and has at least one (1) of the automation components (as listed in the SIRIM Info Sheet); iv. For machinery / equipment / software / system with an adaptation of Industry 4.0, the technology utilised must have at least one of the following Industry 4.0 elements:
v. The machinery / equipment / Industry 4.0 software / system should be used at least one (1) month after installation / commissioning; vi. For machinery / equipment / Industry 4.0 software / system used in producing new products, the machinery / equipment / Industry 4.0 software / system must be in operation for at least three (3) months after the production of the first batch of that new product; vii. The machinery / equipment / Industry 4.0 software / system purchased through the grant from the government is eligible for the Automation CA incentive. The qualifying expenditure for the Automation CA incentive is based on the amount that is not covered under the respective grant; and viii. The machinery / equipment / Industry 4.0 software / system that are not eligible are:
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Guide to Filling a Notice of Appeal (Form Q)
In a tax investigation, a taxpayer is allowed to appeal against the assessment raised by the IRBM for back taxes and penalties due to under-reporting of income in previous years. Taxpayers may appeal against these assessments by submitting the Form Q within thirty (30) days from the date of the Notice of Assessment / Notice of Additional Assessment as prescribed by the DGIR pursuant to Section 152 of the Malaysian Income Tax Act, 1967 (MITA).
New Guide
Details of the New Guide
- This guide provides an explanation on how to fill out a written Form Q by a taxpayer who is aggrieved by an assessment raised by the DGIR.
- This guide should be read together with Public Ruling No. 7/2020: Appeal Against An Assessment And Application For Relief.
- The taxpayer is required to submit four (4) copies of the Form Q for each YA under appeal and must ensure that at least one (1) copy is the original Form Q whereas three (3) other copies can be photocopied.
Service Tax Policy No. 4/2024 (Amendment No. 1)
Service Tax is imposed under the Service Tax Act 2018 on taxable services, which include a wide range of services such as hotel accommodation, food and beverages, professional services, and more. Effective from 26 February 2024, logistics services are classified as taxable services under Group J of the Service Tax Regulations 2018.
Amended Service Tax Policy
The Royal Malaysian Customs Department (RMCD) issued the Service Tax Policy No. 4/2024 (Amendment No. 1) on 23 August 2024.
Amendments to Service Tax (Imposition Of Tax For Taxable Service In Respect Of Designated Areas and Special Areas) (Amendment) Order 2024
All logistics services falling under Item 1 In Group J provided within or between Special Areas or Designated Areas, or between Special Areas and Designated Areas, should not be subject to the Service Tax.
Further clarification was made to explain that the exemption does not apply in the following cases:
- A logistics service provided by a person whose principal place of business is located in Malaysia, to a Designated Area or Special Area; or
- A logistics service is provided by any person whose principal of business is located in a Designated Area or Special Area, to customers whose principal place of business is located in Malaysia.
Amendments to Service Tax exemption on door-to-door delivery services
The MOF has granted Service Tax exemption on door-to-door services with specific conditions.
The amendment specifies that the scope of the door-to-door exemption applies even if the service provider uses the service of a third party, provided that other conditions, such as the use of a “single billing invoice”, are met.
The revised conditions are as follows:
- Provision of delivery services from a place outside Malaysia to a place within Malaysia or from a place within Malaysia to a place outside Malaysia without involving a third party, directly between the service provider and the customer. The delivery service provider is allowed to use services from third parties for the provision of delivery services;
- Provision of delivery services by the same service provider to the recipient;
- The goods have travelled by using the same airway bill or bill of lading or consignment note or delivery order to recipient; and
- Use of the same invoice for billing delivery charges from service provider to recipient (single billing invoice).
Amendments to Service Tax exemption on logistics services related to transit activities
The MOF has granted Service Tax exemption on logistics services related to transit activities, including goods arriving in Malaysia and subsequently transported to another place outside Malaysia via land or sea or air modes.
The amendment specifies that the exemption applies only if the goods arrive in Malaysia without involving break bulk and are subsequently sent directly to another place outside Malaysia.
The above amendments take effect retrospectively from 1 March 2024.
Incentive Offer for Penalty and Surcharge Remission on Indirect Taxes
The RMCD had previously, in 2022 and 2023, offered an amnesty for taxpayers who voluntarily disclosed their underpaid indirect taxes, such as Sales Tax and Service Tax, under the SVDP (Special Voluntary Disclosure Programme). On 26 August 2024, the RMCD extended this programme by announcing an incentive offer for the remission of penalties and surcharges.
Incentive Rates
|
No. |
Category |
Payment made between 26 August 2024 and 31 December 2024 |
Remission of Penalty or Surcharge |
|
|
Indirect Tax |
Penalty or surcharge |
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|
1 |
Indirect tax, penalty and surcharge |
100% |
0% |
100% |
|
2 |
Indirect tax and penalty or surcharge |
100% |
0% |
100% |
|
3 |
Penalty and surcharge |
0% |
15% |
85% |
Details of the Incentive Offer for Penalty And Surcharges Remission
The incentive covers the following types of indirect taxes:
- Goods and Services Tax (GST);
- Tourism Tax;
- Sales Tax;
- Service Tax; and
- Departure levy.
The incentive applies to Bill-Of-Demand (BOD) related to the taxable period ending on or before 31 December 2023.
To qualify, payments for indirect taxes, penalties and surcharges must be made between 26 August 2024 and 31 December 2024.
This incentive also extends to companies that have received approval for instalment payments, provided that they meet the payment schedule within the specified period (i.e. from 26 August 2024 to 31 December 2024).
However, the offer does not cover applications for remission of penalties or surcharges in cases eligible for full remission, including:
Penalties or surcharges arising from technical issues;
Amendments of output tax from bad debts recovered or retention sum adjustments; and
Penalties or surcharges on indirect taxes already approved for remission by the MOF.
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