Service Tax on Insurance for Management Corporation

Lloyds in London - a prototype

A number of readers wrote in ranting over the issues of service tax applicable on insurance premium for policies issued in the name of Management Corporation (MC) and Joint Management Body (JMB). Some were complaining over inconsistencies adopted by the industry in respect of service tax on those policy premiums – some just applied as if they were gunslingers and some are not too sure if it was indeed applicable, therefore just preferred a “follow the market….” mindset.

However, I was concerned when someone commented that my comments made in regards to condominium with numerous shoptlots forming an integral part of the overall condominium project were grossly wrong! My comment in the posting “The 5% service tax factor in insurance policy issued in favour of Management Corporation” did mention that there was a need to levy a 5% service tax if any of those shoplots, offices or any other commercial outlets forming part of the overall condominium cannot be segregated for insurance purposes. If insurable values of these commercial lots could be segregated then service tax should be applied solely on those insurance premiums applicable thereto if at all the tax is to be applied. Now… this is trying to be abit clever by cheating abit if we knew that MC or JMB is indeed a business entity (in the guise of saving abit here and there for the Insured(s)).

Taking it from here, I must say, I did made a mistake in my comment as at that time my mind was skewed towards some mixed development involving condo, apartment, offices and commercial shoplots…. I just cannot accept the fact that the MC managing KLCC to come out and declare that they are not into business (thus not a business entity) and therefore all their policies should not be levied with service taxes! The MC or JMB in this regards would surely be involved with the day-to-day running of the common properties, handling rental of commercial lots, managing the parking lots and so on…. whether doing it themselves or through utilising third-party managers.

In this respect lets re-examine the Royal Customs & Excise Dept’s Sept. 2009 reply:

AN EXTRACT OF THE MALAYSIAN ROYAL CUSTOMS & EXCISE DEPARTMENT – Letter dated Sept. 2009 in reply to PIAM – Clarification on the 5% Service Tax being imposed on insurance premium in respect of policies insuring Strata-Titled properties’ risks

Dimaklumkan, polisi insurans kebakaran, kecurian, tanggungan awam dan lain-lain insurans induk yang dikeluarkan kepada Perbadanan Pengurusan (PP) dan Perbadanan Pengurusan Bersama (PPB) adalah tidak tertakluk di bawah Akta Cukai Perkhidmatan 1975. Ini adalah kerana Perbadanan Pengurusan dan Perbadanan Pengurusan Bersama bukan organisasi perniagaan. PP dan PPB mengurus pembelian insurans dan insurans tersebut dibayar oleh pemilik rumah/kondominium dimana resit premium diberi kepada setiap pemilik rumah / kondominium. Walau bagaimanapun pihak PP dan PPB hendaklah menunjukkan bukti yang perkhidmatan tersebut diberi percuma. Sekiranya dalam proses menguruskan pembelian insurans tersebut, bayaran pengurusan dikenakan kepada pembeli rumah / kondominium maka perkhidmatan tersebut adalah perkhidmatan pengurusan yang tertakluk kepada Cukai Perkhidmatan 1975 Subtajuk II Butiran 13 Jadual Kedua Peraturan-Peraturan Cukai Perkhidmatan 1975.

If we read the full reply, I supposed the reply is very superfluous, certainly making things even more confusing. What this guy is trying to emphasise is that the MC or JMB is not a business entity, thus should not fall under the Service Tax Act 1975. He cautiously went further illustrating his point…. (not sure he went out of context or not) preferred to focus solely on house and condo owners, keeping a distance from those commercial categories!

Bringing you back to my earlier illustration and the fact the Custom guy had emphasised on “non-business entity” I can do some minor correction ( or rather qualify further) to my previous comment:

  1. It is alright to accept a declaration from the MC or JMB managing a condominium with some shop units as an integral part – I supposed those commercial activities of the MC or JMB are not anywhere sizeable. In the absence of clarity, I supposed it is alright to “close-one-eye” with the shoplots and also to the fact that the MC or JMB did collect revenue that are beyond the scope of their responsibilities…
  2. It is NOT alright however, if the number of or size of the commercial lots are significant compared to the total number of residential lots or condominium units – it is not even acceptable even if a declaration is made that they are not conducting any revenue generating business beyond their scope of responsibilities.

Do put in your comment or email me if this is not agreeable…….

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6 comments for “Service Tax on Insurance for Management Corporation

  1. January 26, 2011 at 00:20

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  2. January 12, 2011 at 06:41

    I’m going to save this so I can finish reading it later.

  3. September 21, 2010 at 00:19

    Hi, good stuff a good way to relook at things

  4. September 13, 2010 at 17:12

    [New Post] Service Tax on Insurance for Management Corporation – via #twitoaster

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