Authorities agree to request for full recovery of input tax from CSR expenses

Thursday July 12, 2012

By Jack Wong
jackwong@thestar.com.my

KUCHING: The authorities have agreed to Sarawak Timber Association’s (STA) request to treat the expenses incurred by logging companies on corporate social responsibility (CSR) programme for local communities as “normal business expenses” that would be allowed the full recovery of input tax under the proposed Goods and Services Tax (GST).

A decision on this was made during a meeting between association officials and the Finance Ministry tax review panel headed by its chairman Datuk Kamariah Hussain at Wisma STA here yesterday.

Also attending the session were Royal Malaysian Customs Department advisor Datuk Zaleha Hamzah and senior officials.

STA treasurer Philip Choo said under the CSR programme, logging companies had funded various social and community projects that benefited local communities.

According to him, these projects include infrastructure like bridges and feeder roads, medical and healthcare services as well as educational facilities. Churches and community halls have also been built for the villagers who have received other assistance such as generator sets and building materials, from logging operators.

Choo, however, was unable to say how much logging and timber companies in the state spent a year on their CSR programme.

He said the decision to allow full recovery of input tax incurred was one of the major outstanding issues raised by the STA that had now been addressed.

STA, with the help of Ernst & Young Tax Consultant Sdn Bhd, had raised nearly 30 issues/areas of concern related to the implementation of GST in a memorandum of understanding (MoU) to the tax review panel in 2006. Most of the issues were resolved in several previous dialogues with the panel.

The issues were identified based on the feedback from a survey the association conducted to gauge its member awareness and readiness for GST implementation, and the association’s study on the GST “Discussion Paper”.

The association, which believes that the introduction of GST will have a significant impact on the operational costs of the forest and timber industry, has taken a proactive approach to engage with the tax review panel to discuss the identified issues, according to Ernst & Young executive director Koh Siok Kiat.

“The tax review panel will come up soon with guidelines on allowing full recovery of input tax,” he said.

Koh said the panel had also agreed to give GST refund to STA members, who are major timber exporters, within 14 days of their submissions. The authorities may pay interests to the exporters for any delay in the refund.

Choo said Sarawak exported more than RM7bil worth of timber products last year, and based on this figure, the refund would amount to around RM220mil.

“A delay in the refund may affect the cash flow of the exporters,” he added.

He said STA would organise a series of seminar on GST in major towns to create greater awareness among members. Speakers would include experts from the tax review panel and other tax consultants.

The authorities have indicated that the date of the GST implementation would be announced after the next general election.

In the 2005 Federal Budget, the Government made known its intention to replace the current sales tax and service tax with GST in 2007.

However, its implementation has been deferred to allow the Government to engage inclusively with businesses to ensure that the GST is well received and that regulations and guidelines are all in place.