The 5% service tax factor in insurance policy issued in favour of Management Corporation

lookOn 27th July 2009, we have written a post title, “Management Corporation – insurances and service tax waiver” where we have proposed that the 5% service tax on insurance premium should be waived on the grounds that the Management Corporation (MC or PP) or Joint Managment Body (JMB or PPB) is not a taxable person and does not carry out any taxable services in the course of carrying out their duties as prescribed under the Strata Titles Act 1985 and Building and Common Property (Maintenance and Management) Act 2007.

High rise buildings every where - somebody have to manage it! But at your expense?

High rise buildings every where - somebody have to manage it! But at whose expense?

On 6th October, 2009 Persatuan Insuran Am Malaysia (PIAM) has issued a member circular stating that the Royal Customs & Excise Department has finally confirmed that this 5% servicve tax applicable on insurance premium is now waived!

The extract of that letter is being set out below:

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

bgDimaklumkan, 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.

Painting the skyline into the future

Painting the skyline into the future

How can we interpret this extract? Perhaps the following makes illustration much easier:

1. “….PP dan PPB bukan organisasi perniagaan” By highlighting “non-business organisation simply means these MC and JMB must not carry out any activities having business elements…. so that it would not fall within the definition of taxable person and providing services that are deemed taxable as prescribed in the Service Tax Act 1975.
2. “…setiap pemilik rumah / kondominium…” was mentioned three times! This means waiver is in respect of housing, condominium and apartment. If the MC or JMB is managing a combination of condo units, shoplots and offices then there must be a clear split between values in respect of condo units and the rest of the non-residential units for the purpose of purchasing insurances with waiver of service tax allowed for those involving condo units. Otherwise service tax must be applied across.
3. “….PP and PPB hendaklah menunjukkan bukti yang perkhidmatan (mengurus pembelian insurans) tersebut diberi percuma….” Do they need to show proof that they are not charging the unitholders in procuring those insurances? It is not required, however, this can be translated into PP and PPB cannot earn any commission from this procurement exercise, whether from insurance company, agent or broker. Any such commission must be discounted for the benefit of the unitholders.

In this respect insurer must ensure the following are done before this service tax waiver is granted:

  1. MC and JMB must sign declaration that they are not any taxable person and not providing any taxable services as described in the Service Tax Act 1975, and
  2. No commission is to be given to the MC or JMB and likewise agent / broker should confirm that no such commission or introducer fees are being given to the MC or JMB. Of course we may argue that commission given back to them would eventually accounted for in the accounts for the benefit of the unitholders…. but why go through all these hassle. The agent or the broker can treat those amount as refunds…. that would do the job! MC and JMB must provide a declaration in this regard.
Something entertaining in Liu Bo Lin but what has this got to do with the subject of declaration?

Liu Bo Lin - China's greatest illusionist.... can he survives if a truck ramped through it all?

Do you agree with this article? Or you know what I do not know…….? Appreciate your comment. 😉

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8 comments for “The 5% service tax factor in insurance policy issued in favour of Management Corporation

  1. SuhaileeZainuddin
    September 16, 2011 at 00:27

    Can you what a the insurance policies for a highrise building and the important steps to be taken in respect of making an insurance claim?

    • September 16, 2011 at 19:29

      Yes, defintely there are policies for highrise building; usually is a FIre policy plus all the relevant extra perils like earthquake, subsidence and landslip….

      Important steps for making an insurance claims – SImply say, report immediately to the insurance company is key, but before doing so seek the advise of your insurance agent or someone you trust and having the necessary expertise in insurance matters. Determine if your claim is cover or not within the terms and conditions of your policy. If you can show that the loss is covered within the ambit of your policy then please report the claim immediately. Do not “over report” the claim details, sometimes claimant then to over represents the facts and create suspiscion among the insurer and the adjuster in the process. Get the insurance company to let you know what are the claims documentation to produce, if any of these is unavailable please tell them so….

  2. Ir.Mochamad Rusan
    March 8, 2011 at 14:46

    Mohon saya di email Form (isian)untuk mengurus asuransi pembayaran biaya rumah sakit.
    terima kasih

    • March 12, 2011 at 01:05

      Apa pasal hank… Saya kurang faham makna pertanyaan ini? Sila jelas sedikit lagi.

  3. Kent
    December 14, 2009 at 19:00

    Dear sirs,
    Some of the MC business that I do have elements involving shoplots and offices in addition to the usual residential apartments and condos. So is this MC entitled to a waiver of 5% service tax? You see I do not want to waive but the competitors are waiving on the pretext that the recent reply from the Royal Custom indicated a waiver! I am now in a dilemma!

    • December 15, 2009 at 01:26

      iF you revisit the reply from the Tax Authority in this blog, you should noticed they refer to residential! If any insurers or agents want to waive the 5% service tax, please ensure that the MC or JMB operations can be segregated between those of residential and those being on commercial.

  4. Ganesh
    October 13, 2009 at 20:01

    This reply from the Royal Custom is long overdue. At least now we can waive service tax with ease rather than doing it and then worrying about the department going after our ass!

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