Finally, clarity on double-taxation issues for industry

The Malaysian marketing communications industry can breathe a huge sigh of relief because the Ministry of Finance (MOF) has clarified there will be no double taxation on SST.In a meeting last Friday with MOF’s Dato Ooi Kok Seng, special officer to the Finance Minister, Media Specialists Association (MSA) President Yap Chee Weng together with industry heads from GroupM, OMG, IPG, Dentsu Aegis Network and the 4As, discussed the issue at length and Dato Ooi agreed there is no need to charge Service Tax to advertisers for pass through media/production costs which have already been subjected to Service Tax by the media/production suppliers.

Chee Weng (picture), who is also CEO of Dentsu X Malaysia, outlined the income chain in the industry and how the taxes will affect the entire ecosystem on a scale never seen before, mentioning pass through costs and also referring to how SST was implemented in the past.

He explained, “Double service tax impact further amplifies the business expense for the advertiser. Essentially, they’ll pay 6% for pass-through costs on agency invoices, on top of the 6% of the same costs that was levied through the media owner’s invoice.”

The meeting resolved that advertising agencies should only charge Service Tax on the services it provides to the advertiser and pass through media/production costs which have not been subjected to Service Tax by the media/production suppliers.

The Royal Malaysia Customs Department will be issuing a confirmation on this latest development before its implementation date and provide further details to guide agencies on the matter.

Service Tax exemption will now be provided to Business to Business (B2B) advertising services by registered entities effective January 1, 2019.

After this date media owners and production players are advised not to charge SST on their invoices to agencies.

For advertising services between 1st September 2018 and 31st December 2018 (post zero GST), agencies will need to provide a breakdown of its charges on its invoices to the advertiser with the relevant Service Tax that it should be paying the Customs.

This is to avoid the compounded service tax on the vendor’s service tax already charged.