GST Question & Answers for Tour and Travel Industry

Transcription

1 Page 1 This set of Q&A has been prepared following submission of a Technical Memorandum on 9th January 2015 to the Royal Malaysian Customs (RMC) and after a consultative meeting on 9th February 2015 between MATTA (led by President Haji Hamzah and VP Inbound Datuk KL Tan) directly with the heads of the RMC. Representatives from MATTA Tuan Haji Hamzah Rahmat (President) Datuk KL Tan (VP Inbound) Datin Josephine Low (Honorary Treasurer) Mr. Joseph Xavier (Honorary Secretary General) Dato Ngiam Foon (EXCO member) Mr. Phua Tai Neng (CEO) Mr. Lee Fook Koon (Consultant) Mr. (Consultant) Representatives from Royal Malaysian Customs Dato Subromaniam Tholasy (GST Director of Customs) Mr. Tan Sim Kiat (GST Deputy Director of Customs) Other senior RMC officials directly involved in Tour/Travel Industry MATTA is pleased to inform that we have secured the agreement of RMC on various crucial issues affecting tour and travel agents for which MATTA lobbied. Most notably, our profit markup on sale of overseas flight tickets will NOT be exposed as we have fought for and obtained agreement from RMC to zero-rate the profit markup of overseas flight tickets for tour agents acting as principal. Initially, the RMC s stand was that all non-langkawi based tour agents must charge GST on Langkawi tours. However, MATTA has lobbied against this. Now, following our representation, we have obtained agreement from RMC that Langkawi-based tour products (consumed within the island) will be granted No GST status, regardless of whether we are a Langkawi-based tour agent or a non-langkawi tour agent. Furthermore, based on our technical memorandum, the RMC has adopted many of our proposals and is in the process of making amendments which will see changes to the GST Guide on Travel Industry. Presented herein is a summary of the questions and answers for many (but not all) of the issues raised. Please note that these are preliminary answers based on unofficial written reply from RMC as the official written reply has yet to be received. MATTA will continue to seek clarification on issues still pending, which may involve submission of further technical memoranda or more consultative meetings with the RMC as needed. In this respect, MATTA members facing GST technical issues (where the position of the law or GST guides are unclear) may write officially to MATTA for immediate compilation. Please note that only issues without clarity or solution should be brought out. In the spirit of fair play, matters which your company s auditor / tax consultant or GST consultant would ordinarily be able to address should not be included.

2 Page 2 1. For a merchant / reseller (selling an international air ticket at a profit), can the ticket cost and profit markup be zero rated? Yes, the ticket cost and profit markup can be zero rated. However, this is only applicable if the travel / tour operator is acting as a principal and not as an agent (following GST definition). 2. For a tour to Langkawi (involving transport from Malaysia to the island, and tour within the island), is the entire package NOT subject to GST? Only the tour portion (which covers items consumed in Langkawi eg. the food, accommodation and guided tours around the island) is NOT subject to GST (Designated Area). 3. If a tour operator NOT based in Langkawi (eg. based in Kuala Lumpur) on-sells a Langkawi hotel room, is there any GST? No. Tour products which are entirely consumed in Langkawi will not be subject to GST. This treatment applies equally to tour products involving Labuan and Tioman. 4. If the same tour operator in Kuala Lumpur on-sells Langkawi tour components (eg. restaurant meals, car rental package, entrance tickets to Langkawi attractions and guided island tours), is there any GST? These services made inside Langkawi are NOT subject to GST, even if on-sold by KL tour operator. However, the entire service (tour product) must be consumed within the Designated Area. 5. Where a tour operator sells a multi-destination tour covering Langkawi and other parts of Malaysia, can the Langkawi portion of the tour be NOT subject to GST? The Langkawi portion of the tour (tour items within the island only) is NOT subject to GST if it is clearly itemized in the Tax Invoice. 6. Can a tour operator issue Tax Invoice with minimal breakdown while showing details in an attachment sheet? It is acceptable if the disclosed details comply with Regulation 22 (required disclosures for a tax invoice).

3 Page 3 7. If the customer does not provide address, is it alright to omit it (the customer s address) from the Tax Invoice? Generally, a tour operator must issue invoices that comply with the full tax invoice format. However if the tour operator intends to omit the customer address field from the tax invoice, then such tour operator must write to Royal Malaysian Customs to apply for approval to use a simplified tax invoice format where selected details may be omitted. 8. Does travel agent (who acts as an agent and NOT as a principal as defined under GST rules) include the cost of air ticket when computing the RM500,000 registration threshold? A travel agent who acts as a GST agent (as defined under GST rules) should disregard the ticket cost when computing the RM500,000 registration threshold. Such travel agent only includes the service fee (administrative work charged for assisting a traveler to buy a ticket) and commission earned in computing the taxable turnover for GST registration purposes. 9. If a tour operator earns an incentive from airline, who should issue Tax Invoice? Ordinarily, the tour operator should issue a Tax Invoice. This may only be possible upon communication between the tour operator and the airline on the quantum of the incentive. Alternatively, the airline may issue a self-billed Tax Invoice if the quantum of the commission is unknown to tour operator. However, there are special conditions to be fulfilled for using a selfbilled Tax Invoice approach. 10. If the ticket sold is an international flight ticket (zero-rated), will the incentive also be zerorated? Incentive is standard rated regardless of destination. The GST treatment on the incentive is not affected by the GST treatment of the underlying product (ie. the flight ticket). 11. For incentive earned, what is the Time of Supply? Refer S11(9)(a) of the GST Act 2014 or tax invoice date issued or payment date received, which is earlier. 12. If local tour agent helps foreign tour agent to sell domestic flight, what is the GST treatment on commission?

4 Page If local tour agent helps local air line to sell international flight (Malaysia to overseas), what is the GST treatment on commission? Standard rated 14. If local tour agent helps foreign airline * to sell international flight (Malaysia to overseas), what is the GST treatment on commission? (* airline does not belong to Malaysia) 15. If local tour agent helps local tour agent to sell international flight (Malaysia to overseas), what is the GST treatment on commission? Standard rated 16. If local tour agent helps foreign tour agent to sell international flight (Malaysia to overseas), what is the GST treatment on commission? 17. If local tour agent helps local airline to sell international flight (overseas to Malaysia), what is the GST treatment on commission? Standard rated 18. If local tour agent helps foreign airline * to sell international flight (overseas to overseas), what is the GST treatment on commission? (* airline does not belong to Malaysia) 19. If local tour agent helps local tour agent to sell international flight (overseas to Malaysia), what is the GST treatment on commission? Standard rated 20. If local tour agent helps foreign tour agent to sell international flight (overseas to overseas), what is the GST treatment on commission?

5 Page If local tour agent earns commission from foreign tour agent for sale of outbound tours, must there be a contract in order to zero-rate the commission? Yes, there must be a contract to lay out the terms of the commission. 22. Can letter or or other correspondence (containing terms of commission) be accepted as a contract? Yes, a letter or or other correspondence is acceptable as long as it spells out the terms of the commission. 23. Can a trip by coach to Singapore (which stops at Malacca along the way) be zero-rated? Yes, but only for the passenger transport portion. In this respect, any hotel accommodation provided in Malacca for an overnight stay will not be zero-rated, as zero-rating only applies to the passenger transport portion where there is a stop along the way. 24. If a tour agent sells outbound air ticket which includes pickup from house to airport, is this zero rated? The outbound air ticket is zero rated. The pickup from house to airport is standard rated if provided by chartered bus. 25. If an air ticket is sold under code sharing, is the domestic leg of international flight zero rated? Yes. The entire flight (domestic leg and international leg) will be zero-rated. 26. If a traveler buys a domestic flight to connect to an international flight, can the domestic flight be zero rated (not under code sharing )? No. The domestic portion will be standard-rated since the domestic leg and international leg are not under code sharing. MATTA is still in discussion with RMC on this matter. 27. For a tour where majority of components are overseas and a small portion is domestic, can the entire tour be zero rated? No, the tour operator must split up the tour into domestic portion and outbound portion. The domestic portion is standard rated.

6 Page Can a tour operator sell a combo entrance ticket for Lego Land (Malaysia) and Universal Studio (Singapore), and zero rate the combo ticket? No, the tour operator must break down the combo ticket into individual prices. The domestic portion of the ticket is standard rated while the overseas portion of the ticket is zero-rated. 29. Can wholesaler of KTM tickets use Exempt status for the profit markup on the ticket. Example: wholesaler buys KTM ticket at RM10 and sells it at RM13. Can RM3 be Exempt? No, the full price of RM13 cannot be Exempt. Only the KTM ticket cost of RM10 is Exempt. The Royal Malaysian Customs views the additional RM3 as a service charge which is to be standard rated. 30. For sale of a tour package, if a Tax Invoice has not yet been issued and no payment has been received, when is the Time of Supply for the tour: at START date of tour, or END date of tour? In a situation where a Tax Invoice has not yet been issued and payment has not yet been received, the Time of Supply is the END date of the tour. 31. If a lump sum incentive is receivable by a travel agent (after ) but relates to a period that stretches before and after , is GST chargeable on the full incentive since it is paid after ? Even though the lump sum of incentive is receivable in the GST era, the incentive can nonetheless be time-proportioned such that the portion before is NOT subject to GST, while the portion on / after is subject to GST. 32. If a cruise from Malaysia docks at international port and continues the return journey back to Malaysia, is the return journey zero-rated? Yes. The cruise journey from Malaysia to the international port as well as the return journey back to Malaysia can both be zero-rated. 33. What is the GST treatment if a cruise picks up passengers from international port into Malaysia?.

7 Page What is the treatment of realized foreign exchange gain / loss? Foreign exchange gain is treated as Exempt supply. We are seeking further clarification on this. 35. What is the tax code to be used for foreign exchange gain? The Royal Malaysian Customs has replied ES as the tax code. However, we are seeking further clarification on this. 36. If a tour also provides a premium luggage as a gift, is the free luggage subject to GST (assuming it costs more than RM500 each)? Yes, free luggage is subject to GST. [This means the tour operator must either charge the customer (tourist) the GST on the free luggage, or else, the tour operator absorbs the GST on the luggage and reports / pays the deemed GST accordingly]. 37. If a travel agent provides free company trip to employees, does the company need to account for deemed GST? No. Free company trips given by a tour operator to its employees will not attract any deemed GST. 38. If a travel agent provides monetary cash vouchers to employees as gifts at annual dinner, is there any GST (assume such vouchers given out are more than RM500 each)? Monetary cash vouchers given to employees are not subject to GST. 39. If a foreign agent (eg. online travel agent) buys Malaysian hotel rooms and re-sells these hotel rooms to a local tour agent, is this to be treated as an imported service? Yes. The local tour agent who buys such hotel rooms from an online travel agent will need to account for the GST on such hotel rooms as an imported service and apply the reverse charge mechanism. 40. If yes, what is the time of supply? For the situation above, the Time of Supply is the time of payment by the recipient.

8 Page Can a tour agent claim input tax based on a softcopy invoice in a statement format (for volume transactions)? Statement format is acceptable if statement format complies with regulation 22. However, this matter is still being examined (for fine-tuning) by the Royal Malaysian Customs. 42. Some tour agents have already sold inbound tours or domestic flight tickets whereby the departure date of the tour/flight occurs in the GST era ( onwards). Current rules require tour operators to still account for the GST on such tours/flights and pay over a fraction 6/106 of the selling price to the Royal Malaysian Customs in the April 2015 taxable period. Since the profit margin of tour operators is very slim, can tour operators be given special exemption from paying the fraction 6/106 (being the GST portion embedded in the selling price) to RMC in April 2015? Royal Malaysian Customs has stated that the invoice issued shall be deemed to be inclusive of GST. [This means tour operators must pay over the fraction 6/106 to the RMC for the GST portion embedded in the selling price of inbound tours / domestic flights sold before but where the service occurs on onwards] 43. If a tour operator provides airport transfer from hotel in Langkawi to airport in Langkawi, is there any GST? Airport transfer within Langkawi is NOT subject to GST. 44. If a tour operator provides airport transfer from hotel in Langkawi to airport in KLIA (ie. out of Designated Area), is there any GST? Yes, GST is chargeable on airport transfer from Langkawi hotel to KLIA. If the airport transfer from Langkawi hotel to KLIA is provided by chartered coach, the GST treatment of airport transfer is standard rated. 45. If the airport transfer is provided from hotel in Langkawi to KLIA airport as part of a tour package to Langkawi, is there any GST? The airport transfer portion must be separated from the rest of the Langkawi tour package. If the airport transfer is provided by chartered coach, the GST treatment for the airport transfer is standard rated.

9 Page MATTA has raised various other points relating to inconsistencies and ambiguities in the GST Guide on Travel Industry (version ). What is the RMC s response to this? As a result of MATTA s prompting, the RMC has agreed in principle on many of the proposals and have stated that they are in the process of revising the GST Guide on Travel Industry accordingly to remove the inconsistencies and ambiguities. Further notes: I. This set of Questions & Answers has been prepared based on unofficial written reply from the senior officials of the Royal Malaysian Customs in response to MATTA s technical memorandum during a consultative meeting on 9 th February At time of preparing this Q&A, the official written reply was not available. II. III. IV. In view that the deadline of is fast approaching, MATTA has nonetheless developed this set of Q&A based on the said unofficial replies from RMC in hopes that it may facilitate MATTA members in their GST preparations. MATTA members should not rely on information contained in this Q&A without first consulting a relevant professional trained in GST matters. The set of Q&A describes specific scenarios which may not fully coincide with the particular scenario of a reader. Furthermore, it is possible for the official written reply to be different from the Q&A. Therefore, neither MATTA nor the authors shall be responsible or liable for any claims or loss arising from in any way in connection with any person relying upon this set of Q&A. It has recently been made known to MATTA that certain GST legislation (relating to zero-rating of tour / travel related products) may be amended in the near future. Therefore, MATTA members must keep abreast of the latest developments in GST to ensure proper GST treatment of their tour products.