SST refund on bad debts

SST refund on bad debts

Sales & service tax have different accounting treatments. We must clearly know the accounting basis to avoid incorrect submission. 

Let’s say the customer couldn’t make the payment to us, but we have submitted and paid SST on the relevant sales. Can we apply for the SST refund? Don’t worry, let us talk about the claim of SST refund for bad debts.

Accounting basis on SST on bad debts

Sales Tax

  • Accrual basis

  • Sales Tax is accounted for when the goods are sold, disposed of, or used.

  • Example:

  • Company A is a mechanical parts manufacturing company. The company issues invoices to customers on 15/09/2021. Therefore, the sales tax will be calculated based on the date of the invoice and submitted in the coming tax period.

Service Tax

  • Payment basis

  • Service Tax accounted:

  • When receiving payment from a customer;

  • If the customer has not paid within 12 months, the taxpayer will have to pay the service tax to the customs on the first day after 12 months from the invoice date.

  • Example:

  • Company B is a service provided company. The company issues invoices to customers on 15/09/2021, but customers make payments on 17/12/2021. Therefore, the service tax will be calculated based on the date of payment and submitted in the coming tax period.

  • Company B is a service provided company. The company issues invoices to customers on 15/09/2021, but the customers have not paid for it for more than one year. Therefore, the service tax will be calculated on the first day after 12 months from the invoice date (15/09/2022) and submitted in the coming tax period.

Claim for a refund in bad debts

When the company is unable to recover the arrears from the customer, the company can request a tax refund for the paid sales and service tax from the customs. However, the company must fulfil the following conditions to claim this tax refund:

Sales Tax

The company has written off all or part of the unrecoverable sales tax in the accounts as bad debts.

The company has taken reasonable actions to recover the sales tax from customers. 

The company must apply for this sales tax refund within six years from the date the sales tax is paid.

Service Tax

The company has written off all or part of this unrecoverable service tax as bad debts in the accounts.

The company has taken reasonable actions to recover the service tax from customers. 

The company has not recovered any payments related to service tax from the customers.

This unrecoverable service tax has been paid to the customs.

The company must apply for this service tax refund within six years from the date the service tax is paid.

The calculation method for claiming the refund in bad debts

i）If the company has received a part of the payment for the sales of taxable goods, 

the claim can be made for the difference between the sales tax paid and the amount

calculated as below formula：

A / B X C (A divided by B and multiplied by C)

A = Payment received from the customer

B = Total amount of the invoice including tax

C = Tax amount of the invoice

Example： Company A is a registered company. The company has issued an invoice with RM 110,000.00, but company A only receives payment of RM 60,000.00 including tax from customers. Later, the customer declared bankruptcy, and he was unable to repay the debt. Company A has paid a 10% tax to the customs. Therefore, Company A is eligible to claim the bad debt sales tax refund from the customs based on the following calculations：

The Calculation Method：

RM 60,000.00 / RM 110,000.00 x RM 10,000.00 = RM 5,454.55

Hence, the bad debts that Company A can claim from the custom are RM4,545.45 (RM10,000.00 – RM5,454.55)

ii）The required form for applying for the bad debt repayment is Form JKDM No.2. This form must be submitted to Cawangan Perakaunan Hasil according to zone /state /station.

Documents Required for Refund

  • Copy of invoice or payment received.

  • SST-02 form and SST listing

  • Documents or records which prove that the sales tax paid by the customer has not been received.

  • Documents or records which prove that reasonable actions have been taken to claim taxable payments from customers.

  • Documents or records which prove that the unrecoverable sales of taxable goods have been written off as bad debts on the accounts.

Remarks: If you request the SST refund from the customs, but subsequently receive payment from the customer, you shall report the SST and pay it to the customs!

Sources

For more details, please visit the official website：

Accounting for SST

Sales and Service Tax 2018 (Sales Tax 2018 - Pg. 24 to 27, Service Tax 2018 - Pg. 32 to 34)

Form JKDM No.2

Visit Us

  • Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

  • Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Account, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsource booking, accounting and payroll services to clients

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancy in Johor Bahru for interns, graduates & experienced candidates.

 
 
SSTKtp Ktpsst refund on bad debts