MOL raises stakes in Malaysia

Japanese transport massive, mitsui o.S.K. Lines (mol), has accelerated its proportion in pkt logistics to 35% to bolster its standing in malaysia and wider south east asia. Pkt provides freight forwarding, customs brokerage, contract logistics, haulage, and distribution offerings to the car and electronics sectors in malaysia and adjacent areas.

Mol, which offered an initial 20% proportion in the commercial enterprise ultimate yr, stated strengthening the partnership could assist to in addition broaden its logistics network within the growing asian marketplace, which includes its mol international logistics department, which it installation earlier this year to manipulate its freight forwarding enterprise.

The construct-up of logistics services in the region is a part of mol’s rolling plan 2018, through which the organization objectives to restructure its enterprise and allocate sources to selected competitive enterprise sectors, inclusive of logistics.

Pkt installation its one auto hub commercial enterprise in penang in 2015 to help the automotive and electronics industries. It finished the primary section of warehouse improvement there in may additionally final 12 months and currently gives more than 60,000 squarem of warehousing area with fee-introduced sports. The ’12 waves’ warehousing complex will in the end cowl 185,800 squarem in 3 stages of development. Pkt is aiming to make one automobile hub one among the most important automotive logistics carriers in malaysia and mol is awaiting to enjoy the boom with its extra proportion inside the enterprise.

Malaysia GST Rules Or Ruins? From A Ship Financier’s Perspective

The hype is over! The long-debated goods and services tax (“GST”) was implemented on 1 April 2015 by virtue of the Goods and Services Tax Act 2014 [Act 762] (“the GST Act”). Introduced as part of the government’s tax reform programme to enhance the efficiency and efficacy of the taxation system, the rationale for GST is to eliminate inherent weaknesses in the now-abolished sales and service tax, which had a cascading effect due to what is known as “double taxation”. That said, like many other sensational political issues in Malaysia, there are several differing schools of thought on its economic implications on a larger scale.

The key objective of this article is to provide an overview on the mechanics and dynamics of GST that a financier in Malaysia may face in connection with ship financing.

Inconsistency in definition of ‘ship’

In accordance with s 2 of the Merchant Shipping Ordinance 1952 (“MSO”), the meaning of a “ship” includes every description of vessel used in navigation not propelled by oars. For the purposes of GST, however, the GST Act does not provide any definition as to what constitutes a “ship”. In this regard, the Zero-Rated Supply Order 2014 comes to its rescue. Despite incorporating the interpretation of a “ship” as reflected in the MSO, the Zero-Rated Supply Order 2014 goes a step further to exclude vessels that are “designed or adapted for recreation, pleasure or other than freight or passenger transportation”. The GST Guide on Shipping Industries, on the other hand, provides a list of vessels that do not constitute a “ship” for the purposes of GST. Among the excluded vessels are powerboats and yachts, although passenger liners are accepted as “ship”. Why a distinction has been drawn between these vessels is unclear.

Notwithstanding the distinction drawn by the Zero-Rated Supply Order 2014 and the Guide on Shipping Industries, there is a string of established authorities that show pleasure crafts, motor boats and yachts come within the definition of “ship”. One may argue that powerboats and yachts are expressly excluded from the definition for GST purposes due their private nature primarily designed for recreation or pleasure. We are unable to agree with this reasoning. It will be naïve to ignore the fact that powerboats or yachts can also be utilised to transport passengers in international waters for commercial purposes.

In this context, we took the liberty to consider the definition of “ship” under s 21(4)(a) of the Singapore Goods and Services Tax Act 1993. Prior to July 2010, a ship for the purposes of the Singapore GST Act was defined as one that is not designed or adapted for use for recreation or pleasure. Consequently, prescribed services did not enjoy zero rating. We can see the similarity between the Malaysian and Singapore GST Acts in this regard.

However, that definition was subsequently amended on 1 July 2010 to include ships used or adapted for recreation or pleasure, provided that they are wholly internationally bound. This means any services by ship used or adapted for recreation or pleasure that is used within international waters is now zero-rated in Singapore.

With respect, the haphazard distinction in regards to the definition of a “ship” provided in the Zero-Rated Supply Order 2014 and the Guide on Shipping Industries causes difficulty within the shipping industry. Our view is that the Zero-Rated Supply Order 2014 should be rectified to reflect established authorities. Alternatively, it will be worthwhile to explore the expansion of the definition of a “ship” as has been done in Singapore to maintain competitiveness within the shipping industry.

Overview of GST within shipping industry

A “ship” will fall within the ambit of movable property under the definition of “goods” provided by s 2 of the GST Act, following which any service within the shipping industry is subjected to GST at either the standard rate which is at 6%, or zero rate. The latter was introduced with the intention of boosting Malaysia’s competitiveness abroad where GST registrants in such circumstances can claim input tax credit from the government for the production of taxable supplies.

To break it down into perspective, goods such as ship store supplies and spare parts purchased for the purposes of international voyages are zero-rated. These rates, however, do not extend to domestic travel. Similarly, services provided by intermediaries such as navigation and ship handling services, shipping agents or ship managers are zero-rated supplies. Further, services rendered by classification society, salvors and the supply of containers, whether by way of sale or leased, are also zero-rated. As most Malaysian shipping companies ply international routes, it can be surmised that most of their activities will be zero-rated as they involve exportation of services.

Effect of GST on facilities over vessel

It is settled that financial services specific to loan, advances or similar facilities are exempted from GST. This also extends to bonds, debentures or other similar financial instruments representing or evidencing debt, whether secured or otherwise.

In short, apart from other considerations that may become payable for the usage of the facility, financiers shall not charge GST over the actual loan sum itself. “Other considerations” in this context will include fees relating to arranging, broking, advisory services, legal services and so on wherein the service provider shall charge GST at their respective GST rate. On a related note, it seems that supply of insurance coverage pertaining to the facility for the purchase of a vessel or the construction of a new ship is taxable supply at standard rate. However, based on item 14 of the Zero-Rated Supply Order 2014, if the insurance policy is meant to cover risks directly related to the export of a ship out of Malaysia, GST will then be zero-rated.

Enforcement of mortgage over vessel

A mortgagee may wish to enforce his mortgage over a vessel when the shipowner is in default under the terms of the mortgage. The mortgagee has two possibilities in doing so. He may use “self-help” or seek the assistance of the court.

As for the first option, the mortgagee can exercise his right under the mortgage deed to take possession of the ship and appoint a receiver and manager to manage earnings from the vessel or, alternatively, to sell the ship. In practice, however, this may pose some difficulty since shipowners will not co-operate with the mortgagee who wishes to dispossess them of their vessel. Therefore, the mortgagee, more often than not, will choose to enforce his security through an in rem action and have the vessel arrested and subsequently sold by way of judicial sale to recover the debts under the facility.

Effect of GST on the sale of a ship

The sale of a ship is treated as a supply of goods. Accordingly, the supply of a ship, whether or not an onward trading of a whole ship or the construction of a new ship, is subject to GST at the standard rate. This also applies to the importation of foreign vessels into Malaysia to be registered under the Malaysian flag.

However, the supply becomes zero-rated if the ship is built by a local business but eventually exported out of Malaysia. The key word here is “export“. Therefore, if a vessel is built by a local business, then sold to a foreign registered company (and foreign flagged) but operates within Malaysian waters, the sale will not amount to “export of goods”. In such instances, GST at standard rate will apply.

In a straightforward sale of a vessel, it is plain that the seller is liable to pay GST at standard rate but he is entitled, if the contract so allows, to require the purchaser to pay the GST. However, circumstances differ in the case of enforcement of mortgage. In this regard, we will have to consider sub-paragraph 5(7) of the First Schedule that ought to be read conjunctively with s 65(5) of the GST Act.

Sub-paragraph 5(7) of the First Schedule of the GST Act provides that:

In this instance, it can be surmised that the borrower, in the event of default, will be deemed to be the person supplying the goods if the mortgagee chooses to enforce his right of sale over the vessel to recover the debt under the facility. However, this matter does not end here. In furtherance to the above sub-paragraph 5(7), one must also consider s 65(5) of the GST Act which provides as follows:

This section addresses the question of “liability”. In short, although the borrower is deemed as the “taxable person” in a mortgage scenario, according to s 65(5) of the GST Act, the party selling the vessel is the one ultimately accountable for GST arising out of the sale. In other words, the burden to account for GST shifts from the taxable person to the person carrying out the sale. Ordinarily, this consideration turns on the manner in which the sale is done, either through the enforcement of the mortgagee’s debenture by a receiver and manager, or pursuant to a power of attorney or by virtue of a court order.

Sale of a ship by way of judicial sale

There are two main modes of judicial sale: sale by private treaty and sale by public auction. In normal circumstances, upon the execution of a warrant of arrest on the res (which is usually a ship), unless the owner of the res furnishes security for the claim, the res is likely to be subjected to judicial sale. In such case, the vessel will be sold by the sheriff free of all encumbrances by virtue of a court order. Once the vessel has successfully undergone the sale process, the proceeds of judicial sale will then be utilised to satisfy the plaintiff’s claim and the claims of other parties, if any, according to an established order of priorities.

The authority to carry out a judicial sale is vested in the sheriff by virtue of a court order to sell the vessel. It is worth noting at this juncture that when the vessel is arrested, it enters into the care and custody of the sheriff, although possession of it is not thereby transferred. The question then is: Who is the actual vendor in a judicial sale of a vessel? This question plays a crucial role in determining who is in fact liable for GST in this regard.

There is no clear authority to suggest that the sheriff, in reality, carries out the judicial sale on behalf of the vendor in an enforcement of mortgage scenario, i.e. the mortgagee in this case. In light of this, we considered how the courts have interpreted the term “vendor” in a judicial sale in foreclosure proceedings, which is similar to the enforcement of mortgage deeds. The Malaysian courts have on several occasions held that the “chargee” must be regarded as the vendor in judicial sale for foreclosure proceedings. If the same rationale applies, regardless whether the judicial sale of a ship is by way of public auction or private treaty, although the sale of the vessel takes place in the name of the sheriff, the mortgagee of the ship remains the actual vendor in the judicial sale.

This proposition is consistent with the GST Act. The term “any person who sells” in sub-paragraph 5(7) ought to reflect the person who has the “power to recover any debt” as provided in s 65 of the GST Act. Reference to the word “power” in this instance certainly must be the mortgagee. Therefore, we take the view that the obligation to pay GST ultimately lies with the mortgagee in a judicial sale of a vessel.

(i) By way of private treaty sale

Principally, the implication of GST in judicial sale — or rather known as a “court sale” — is no different from an ordinary private tender exercise, i.e. GST at standard rate is applicable. As for potential bidders who place a deposit to register their interest in the tender exercise, there is no obligation to pay GST on the receipt of the “deposit” until the said deposit forms part of the full payment made by the successful bidder towards the purchase of the vessel. Accordingly, if their bid becomes unsuccessful, their deposit will be returned without any additional charges.

One may also wish to take note that although court-related services are exempted supply, GST at standard rate is still chargeable for the additional services rendered towards the sale. For instance, this may include advertisement of the sale and/or expenses incurred by the sheriff during the arrest period. In order to ensure GST is claimable at the conclusion of the sale from the purchaser, solicitors acting for the mortgagee (who usually assists the sheriff in the preparation of the proclamation of sale) must be minded to specifically include conditions with respect to the payment of GST in addition to the contract price, example of which is set out below.

(ii) By way of auction process

In our opinion, the blanket statement that an auctioneer only acts as an agent for the owner or financier as provided in the GST Guide on Auctioneer is inaccurate. More often than not, an auctioneer is called to assist the sheriff, the receiver and manager or persons executing the power of attorney to sell a ship by way of public auction. The auctioneer is engaged to merely carry out the auction exercises while the mortgagee remains the selling party. Therefore, the auctioneer’s liability is limited to his duty to account for GST in so far as it concerns the services rendered by him to assist the court as an auctioneer. He will not be liable to pay for GST on the sale of the vessel, which will be the duty of the mortgagee instead as discussed earlier. It is nonetheless imperative that before the vessel is auctioned, the auctioneer must first inform bidders that the vessel is subject to the payment of GST.

Suggested solutions

We know that the essence of GST is based on a value-added concept. From our understanding, the solution to s 65(5) of the GST Act is relatively simple. The person selling the vessel must ensure that the conditions of sale, whether in the form of a contract for sale or proclamation of sale, provide for the payment of GST in addition to the contract price.

A sample GST term would read as follows:

In summary, the terms in the agreement leading to the sale and purchase of a vessel and/or proclamation of sale must specifically spell out that GST charges ought to be borne by the purchaser, in addition to the purchase price. Otherwise, the mortgagee could be held accountable for those charges. Whether this is a fair burden placed on the mortgagee, who is merely enforcing his rights under the facility, warrants an article by itself.

Conclusion

It is undeniable that the GST will affect all individuals and industries. However, the extent of its impact varies, depending on the type of activity. Compared to other industries, the GST is likely to have minimal impact on the merchant shipping sector and maritime supply chain as most international trade activities are zero-rated. The rationale for this is to maintain competitiveness of the seaborne trade in Malaysia.

Apart from the million-dollar question as to whether Malaysia is in fact ready for the GST, the implication of GST should not be taken lightly as it has a proven track record in countries that have implemented it thus far. With proper understanding of and education on the impact of GST, it may well be a way forward in tackling the nation’s fiscal deficit.

Source: mondaq

Malaysia raises April palm oil export duty to 5%

Malaysia raised its tax on crude palm oil (CPO) exports to 5% for April, a government circular showed on Tuesday, ending a duty-free policy held since May 2015.

The higher tax could dent exports from the world’s No.2 palm oil producer after Indonesia and drag benchmark Malaysian prices of the tropical oil, which hit one-month highs this week amid output worries due to a crop-damaging El Nino weather event.

“Big plantations will be rushing to take out CPO from the country. That should put some pressure on domestic figures and supplies and take exports higher before the tax kicks in,” said a trader based in Kuala Lumpur.

After that exports are expected to come down, the trader added. “Producers will be most affected, big players who have been exporting a lot of CPO will be at a disadvantage.”

A CPO export tax is, however, good news for local refiners as it will help keep more crude palm oil at home, weighing on domestic prices and improving downstream margins. There are no duties on Malaysian exports of refined palm oil products.

“This … will change the export percentage between CPO and processed palm oil products,” said Alan Lim, a plantations analyst at MIDF Research.
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“We do expect some reduction in CPO exports but this will be compensated. If we compare this against Indonesia’s US$50 a tonne levy on CPO, Malaysia is still more competitive.”

The reference price for Malaysia’s export duty is set based on a formula taking the average of spot palm prices for a period of 30 days prior to when the tax is set.

The Southeast Asian nation calculated a reference price of RM2,500.34 (US$607.17) per tonne for April. A price above RM2,250 incurs a tax, which starts from 4.5% and can reach a maximum 8.5%.

Palm oil futures are now at RM2,594, near a one-month top of RM2,632 hit on Monday. Last week at an industry meet, experts said they see benchmark prices trading between RM2,700 to RM3,000 by June as dryness linked to El Nino hurts output growth.

But an ongoing slump in export demand, which is expected to worsen once the Malaysian tax kicks in, should help offset the impact of lower output, traders said.

“Exports will not look good, there has been no demand for months. Everyone is waiting for India to buy,” said another trader from Kuala Lumpur. “Ramadan demand will come in April, but they will buy palm olein.”
Source: Reuters

The South China Sea is one of the world’s freest and safest shipping lanes, Chinese Foreign Minister Wang Yi said on Tuesday, arguing that Beijing’s control over the disputed waters was justified because it was the first to “discover” them.

China has come under fire from the United States and its allies in recent months over its land reclamation activities in the South China Sea, through which $5 trillion in ship-borne trade passes annually.

The U.S. Navy has carried out freedom of navigation exercises, sailing near disputed islands to underscore its rights to operate in the seas.

Those patrols, and reports that China is deploying advanced missiles, fighters and radar equipment on islands there, have led Washington and Beijing to trade accusations of militarising the region.

The freedom of navigation does not equal the “freedom to run amok”, Wang told his yearly news conference on the sidelines of China’s annual parliament meeting.

“In fact, based on the joint efforts of China and other regional countries, the South China Sea is currently one of the safest and freest shipping lanes in the world,” Wang said.

“China was the earliest to explore, name, develop and administer various South China Sea islands. Our ancestors worked diligently here for generations,” Wang said.

“History will prove who is the visitor and who is the genuine host,” he said, adding that China would “consider inviting” foreign journalists to islands under its control when the conditions are right.

China was neither the earliest country to deploy weapons to the South China Sea nor the country with the most weapons there, Wang added, without saying which country was.

Beijing claims almost all of the South China Sea, but Brunei, Malaysia, the Philippines, Taiwan and Vietnam have overlapping claims.

U.S. Defense Secretary Ash Carter has warned of “specific consequences” if China takes “aggressive” action in the region.

He has said the U.S. military was increasing deployments to the Asia-Pacific region and would spend $425 million through 2020 to pay for more exercises and training with countries in the region that were unnerved by China’s actions.

Wang was also asked about the Philippines case against China in an arbitration court in The Hague on the South China Sea dispute. Manila has asked Beijing to respect the decision, which is expected in May.

China refuses to recognise the case and says all disputes should be resolved through bilateral talks.

Wang repeated that China was quite within its rights not to participate and accused unnamed others of being behind the case.

“The Philippines’ stubbornness is clearly the result of behind-the-scene instigation and political manipulation,” he said, without elaborating.

Source: Reuters (Additional reporting by Michael Martina; Editing by Michael Perry)

SINGAPORE: Malaysia’s drive to develop a world-class infrastructure and transport network propelled it to the fourth spot in a closely watched annual ranking of the world’s 45 leading emerging markets.

Malaysia surged past Saudi Arabia (5), Brazil (6) and Indonesia (7), according to 2016 Agility Emerging Markets Logistics Index.

The index ranks emerging markets based on their size, business conditions, infrastructure and other factors that make them attractive to logistics providers, freight forwarders, shipping lines, air-cargo carriers and distributors.

“Malaysia has shown a sustained commitment to economic diversification and to its drive to develop and upgrade its infrastructure. It has world-class ports, airports, road and rail networks, industrial parks and technology parks,” said Chris Price, chief executive officer, Asia-Pacific for Agility Global Integrated Logistics on Tuesday.

“It is going to lead the way as Asean countries continue to work toward economic integration,” he said.

The Index is into its seventh year and offers a snapshot of the logistics industry sentiment among more than 1,100 global logistics industry executives.

China, the world’s second-largest economy, remaind the leading emerging market by a large margin in the index.

At fourth placing, Malaysia trailed only China, United Arab Emirates (2) and India (3). Rounding out the top 10 were Mexico (8), Russia (9) and Turkey (10).

Only the United Arab Emirates ranked ahead of Malaysia in the area of the index that measured connectivity – infrastructure, transpsort links and customs efficiency. Malaysia’s business climate ranked 10th in the Index.

Supply chain industry executives surveyed, as part of the index, placed Malaysia at number 10 among countries with the most potential to grow as a logistic markets.

Of the top 10, only Vietnam (5) has a smaller economy.

Agility is one of the world’s leading providers of integrated logistics. It is a publicly traded company with more than US$4.8 billion in revenue and more than 20,000 employees in over 500 offices across 100 countries. – Bernama

Source From: The Star Online