Section 31C of Sales Tax Act 1972 stipulates that a person may claim a refund of the sales tax paid in respect of taxable goods if the sales tax has been paid by him on or after 1 January 2003 and the sales tax payable to him has been provided in his accounts as doubtful debt or has been written off in his accounts as bad debt. In addition, the Director General of RMC must be satisfied that all reasonable efforts have been made by such person to recover the sales tax. The refund must be claimed within 6 years from the year in which the sales tax was paid.
The Act defines “bad debts” as the outstanding amount of the payment in respect of the sale of taxable goods including the sales tax which is due to the person but has not been paid to, and is irrecoverable by the person; and “doubtful debts” as a provision made with respect to the outstanding amount in the person’s accounts consistent with the generally accepted accounting principles.
Regulation 19D of the Sales Tax Regulations 1972 further stipulates that a payment is deemed to be irrecoverable if the whole or any part of it has been written off in the seller’s accounts as bad debt and the purchaser
a) has been filed for bankruptcy or is an adjudged bankrupt,
b) has been placed under receivership,
c) has voluntarily wound up or has been ordered by the court to wound up,
d) has been filed a claim in court by the seller to recover the payment, or
e) has not paid for the whole or any part of the payment after 6 months from the date such sales tax was paid.
Section 21B of the Service Tax Act 1975 and Regulation 16A of the Service Tax Regulations 1975 have similar provisions as the above.
The guidelines clarify the following:
i) Refund is available to person who has ceased to be a taxable person under the following circumstances:
a) that the person has ceased to manufacture taxable goods/provide taxable services, or the person has been granted exemption from licensing or the annual sales turnover is below the threshold,
b) that the person has manufactured taxable goods/provided taxable services without licence and has paid the tax but was unable to claim back from his clients,
ii) Proof of reasonable efforts taken to recover the debts:
a) For tax owed below RM500, at least 2 registered reminder letters were sent to the debtors;
b) For tax owed between RM500 – RM10,000, notice of claims was sent to debtor through a law firm;
c) For tax owed above RM10,000, statement of claims against the debtor was filed in the court
iii) Documents required to facilitate the claim of refund:
a) Letter of application for refund,
b) Prescribed form for claim of service tax/sales tax refund (Form JKED 2),
c) Statement of claims,
d) Copy of sales invoices
e) Form CJP 1 and any documentary evidence that the applicant has paid the relevant tax, such as copy of ledgers, bank statements, receipts, etc.
f) Records or document that substantiate reasonable efforts have been taken to recover the debts
g) Records to show that the uncollectable tax has been written off in the accounts,
h) Declaration by a registered accountant that the amount has been debited as bad debt for claims of refund amounting to RM10,000 and below. For claims of refunds above RM10,000, such a declaration should be made by a certified /chartered accountant.
i) Other relevant documentary evidence that the debts are irrecoverable, such as court order that the debtor is declared bankrupt or is under receivership or liquidation, court paper for applicant who has filed a notice claim in the court, board of directors resolution for voluntary winding up, etc.
iv) An application for refund should be made for each debtor. In view that the number of customers is huge for the telecommunications industry but the amount of each debt is small, the applicant may apply to the Director General of RMC for special treatment in respect of individual accounts.
v) Where the application for special treatment is approved, the following actions are considered as reasonable efforts taken to recover these debts:
a) sending reminder letters
b) reminding the customer through Interactive Voice Reminder,
c) suspending the service to customer temporarily (Temporary Out-of-Service),
d) calling or meeting the customer to recover the debts,
e) terminating the service to the customer and send the final bill.
Members who wish to know the detailed requirements may view the document at the Institute’s website or at the website of the RMC at
