SALES TAX (EXEMPTION FROM REGISTRATION)
ORDER 2018
This is a law enacted under the Sales Tax Act 2018 which
defines certain Operations which can be captured under the definition of ‘Manufacture’
and therefore mandates application for registration under the Sales Tax Act.
However these kind of Operation are given ‘Exemption from Registration’ by this
Order. My comments follow after the Order :
IN exercise of the powers conferred by subsection 20(1) of the Sales
Tax Act 2018 [Act 806], the Minister makes the following order:
Citation and commencement
1. (1) This order may be cited as the Sales Tax (Exemption from Registration)
Order 2018.
(2) This Order comes
into operation on 1 September 2018.
Exemption
2. (1) Persons whose
manufacturing operation solely is any one of those specified in Schedule A are
exempted from registration under subsection 13(1) of the Act irrespective of
the total sale value of taxable goods in the period of twelve months.
(2) If any question
arises as to whether any manufacturing operation constitutes a manufacturing
operation under this Order, such question shall be decided by the Minister.
SCHEDULE A
1. The developing
and printing of photographs and the production of film slides.
2. The engraving of
articles with the name of the recipient, his sports record or other
circumstances under which the article was donated or awarded.
3. The incorporation
of goods into buildings.
4. The manufacture
of ready mixed concrete.
5. The preparation
of meals.
6. The preparation
of tarred metal, tarred screenings, and hot mixed preparations of bitumen and
metal for roadmaking.
7. The production of
copies of documents by the photocopy or similar copying process.
8. The repacking of
bulk goods into smaller packages by a person other than a registered
manufacturer.
9. The repair of
second hand or used goods.
10. The testing of
eyesight, the prescription of suitable lenses and the fitting of such lenses
into frames.
11. The following
operations when performed by a person other than a registered manufacturer—
(i) the varnishing and/or
polishing of finished pieces of furniture.
(ii) the fitting of glass
tops and/or glass doors to pieces of furniture otherwise complete.
12. The reduction of
size and/or changing of the shape of taxable materials without changing the
nature of such materials, provided that the sizing and/or shaping is not part
of the normal process in the manufacture of a separate article.
13. The rendering of
personal tailoring service but excluding the manufacturing of garments and
other textile articles on the basis of bulk and not personalised production by
a firm or company engaged in the business of manufacturing garments and other
textile articles.
14. The printing of
logo, knitting, crocheting or embroidering on readymade garments supplied by
another person.
15. The colouring of
cloth supplied by another person without changing the size or shape of the said
cloth.
16. The manufacture of
batik fabrics using traditional techniques of manual block printing, manual
screen printing and/or hand drawing or painting and the articles thereof.
17. The installation
of air conditioners in motor vehicles.
18. The manufacture of
jewelry and goldsmiths wares.
19. The extraction of
gold from mineral ores.
20. The recovery of
gold from jewelry and/or the refining of gold.
Made 28 August 2018
[Perb. R.0.3865/356/1 Jld. 1(SK. 8); PN(PU2)751]
MY COMMENTS
The Sales Tax (Exemption from Registration) Order 2018 is an
exact copy of a similar Order that prevailed under the previous Sales Tax Act
1972. It was then known as Sales Tax (Exemption from Licensing Order 1997 (came
into effect on 17 Oct 1997). It was obviously drafted and implemented after the
Dept found the law had unintended consequences. This caused manufacturers of
certain processes(I shall refer to them as ‘Operations’) of taxable goods to be
classified as ‘manufacturing goods’ but they were actually retailers producing
personalized goods according to customers’ requirements or in a similar
situation.
2. Over the course of years following the
enforcement of that Order, the Dept made several decisions that could have a bearing on Companies engaged
in similar activities now under the Sales Tax Act 2018. I shall focus on
certain ‘Operations’ that were disputed as to whether these qualified for
Exemption under this Order either because of the nature of the ‘Operation’, the
party that carried out such an ‘Operation’ or whether the goods that were the
subject had been sold. The particular ‘Operations’ are:
item 3 : The incorporation of goods into buildings;
item 3 : The incorporation of goods into buildings;
item 5: The preparation of meals;
item 8: The repacking of bulk goods into smaller packages by a
person other than a registered manufacturer;
item 9 : The repair of second hand or used goods;
item 11 : The following operations when performed by a person
other than a registered manufacturer—(i) the varnishing and/or polishing of
finished pieces of furniture. (ii) the fitting of glass tops and/or glass doors
to pieces of furniture otherwise complete;
item 12 : The reduction of size and/or changing of the shape of
taxable materials without changing the nature of such materials, provided that
the sizing and/or shaping is not part of the normal process in the manufacture
of a separate article; and
item 15 : The colouring of cloth supplied by another person
without changing the size or shape of the said cloth.
3. In the case of item 3 : the incorporation of
goods into building, the problem is likely faced by manufacturers of built in
furniture; Fabrication of aluminium components and sheet glass in factories to produce for example Transome
and Mullion and installation on site as Curtain walls in buildings, and Aluminium doors and windows.
4. In the case of item 5: the preparation of
meals, Would businesses engaged in preparation of taxable food items like pre-cooked
and frozen Rice preparations, Sweet biscuits, Waffles and Wafers, Prepared
vegetable Frozen, Sweetened biscuits and Cookies, Frozen Readymade Menu meals,
Burgers etc delivered from Central Kitchen to own chain of Outlets or Francised
outlets be required to register and charge Sales Tax on such preparations? (Such
preparations attract Sales tax of 5%)
5. In the case of item 8: The repacking of bulk
goods into smaller packages by a person other than a registered manufacturer.
This activity carried out by a manufacturer would be taxable but similar
activity carried out by a person who is not a registered person is not taxable.
However business today do not only engage in manufacturing but they would also
be engaged in repacking bulk goods into smaller packages in the same premises
but in a clearly defined area, so what happens?
6. In item 9 : The repair of second hand or used
goods, this has a bearing on Furniture and Cushion repairers/refurbishing eg
where the Cushion cover is old and worn out and is replaced with a new coat and
the creaking frame strengthened or the joints and worn out fasteners replaced.
7. Item 11: (i) the varnishing and/or polishing
of finished pieces of furniture. (ii) the fitting of glass tops and/or glass
doors to pieces of furniture otherwise complete; has a bearing on Furniture
manufacturers because quite often the final touches including varnishing and
polishing and fitting of glass tops or glass doors are simple operations and
practical to be carried out at distributors level and if done so would not be
subject to sales tax at this level. However sometimes manufacturers outsource
such operations to Specialised subcontractors who polish furniture or glue
parts or bore holes and return such semi finished or nearly complete item back
to Factory before quality checks and repacking is done. In such instances the
cost of the workmanship and materials used or incorporated would have to be
added at the manufacturer’s level and the total be subject to sales tax when
the manufacturer subsequently sells the goods.
8. Item 12 : Reduction of size or changing its
shape refers to simple cutting processes eg cutting part of a roll of Tape or
Wire or large roll of paper according to the size requested by a customer. This
exemption does not apply where such process is part of the manufacturing of
another good done at a factory.
9. Item 15 : the
coloring of cloth refer to the dyeing process of materials including subsequent
washing and drying before such materials are returned to the customer to be
used or used in another process which could be a manufacturing activity and
subject to registration.
In my next post I shall cite certain decisions that were made
that served as a Guideline for the Department and the Taxpayers in ascertaining
whether they ought to apply for Registration now or may run the risk of being
detected later and be penalized with backdated taxes and late payment penalties
that they would have to cough out and be
compounded too for an offence.
19 Nov 2018
