Malaysian GST : Basic GST model in Malaysia

What is GST ?  Basic GST model in Malaysia

• GST is also known as VAT (value added tax)  in many countries. 
   It is a multi-stage consumption tax on goods and services
  
• GST is levied on the supply of goods and services at each stage of the supply chain from the supplier up to the retail stage of the distribution.
  
  Even though GST is imposed at each level of the supply chain, the tax element does not become part of the cost of the product because GST paid on the business inputs is claimable. The input tax incurred at the previous stage is always deducted by the businesses at the next step in the supply chain
  The end user or consumer is the one who finally bear the Goods and Services Tax.  
  
• GST is a broad based consumption tax covering all sectors of the economy i.e all goods and services made in Malaysia including imports except zero rated supply and exempt supply orders as determined by the Minister of Finance and published in the Gazette.

•  The basic fundamental of GST is its self-policing features which allow the businesses to claim their Input tax credit by way of automatic deduction in their accounting system. This eases the administrative procedures on the part of businesses and the Government. Thus, the Government’s delivery system will be further enhanced.  

How is GST charged

• GST is levied and charged on the taxable supply of goods and services made in the course or furtherance of business in Malaysia,  by a taxable person. 
  GST is also charged on the importation of goods and services.
• A taxable supply is a supply which is standard rated or zero rated. Exempt and out of scope supplies are not taxable supplies.
• GST is to be levied and charged at the proposed rate of 4% on the value of the supply. 
• GST can only to be levied and charged if the business is registered under GST. 
  A business is not liable to be registered if its annual turnover of taxable supplies does not reach the prescribed threshold. 
  Businesses can apply to be registered voluntarily (so that it can claim the input tax credit).  
  Non GST-registered company cannot charge and collect GST on the supply of goods and services made to their customers. 

Definition of 'supplies' under GST  

• Standard-rated supplies

      Standard-rated supplies are taxable supplies of goods and services which are subject to a proposed rate of 4%. A taxable person who is registered under GST has to collect GST on the supply and is eligible to claim input tax credit on his business inputs in making taxable supplies. 

• Zero-rated supplies

Zero-rated supplies are specific goods and services which are subject to GST at zero percent rate.   In this respect, businesses do not collect any GST on their supplies but are entitled to claim credit on inputs used in the course or furtherance of the business. To view the full list of zero rated supplies, 

• Exempt supplies

Exempt supplies are supplies of goods or services which are not subject to GST. In this context, businesses do not collect any GST on their supplies and are not entitled to claim credit on his business inputs. To view the full list of exempt supplies,  

• Supplies not within the scope of GST

Supplies which do not fall within the charging provision of the GST Act include non-business transactions, sale of goods from a place outside Malaysia to another place outside Malaysia as well as services provided by the Government sector.

Source:    Official website of the Malaysian Goods and Services Tax (GST).  In Malaysia, GST will be under the purview of the Royal Malaysian Customs department.

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Why the Malaysian GST may not be such a bad thing after all

This article  Why the goods and services tax may not be such a bad thing after all
appeared in the Star as a run up to the Malaysian Budget 2013.

The writer has taken the example of the implementation of the GST in Australia  and shed some light as to what to expect when the Malaysian GST is implemented.  The Australian GST system was implemented in year 2000.

Here are the points mentioned in the article, with added comments on our part.    

1. GST gave the Australian Tax Authorities an opportunity to abolish outdated and complex tax structures.     The Malaysian GST will replace the Sales and Services Tax.   

GST is a simplified form of tax collection, and is more transparent that sales and Services tax (SS).   GST workings is easier to understand and thus easier to implement in the business.  There will be a savings in terms of time and compliance costs. 

Under GST environment, the tax that the business collects from the customer is called 'Output tax'.  The tax that the business pays to the supplier for purchases of materials, supplies and services, is called 'Input Tax'.  When the business submits the amount collected for 'Output Tax',   the business can deduct the 'Input Tax' paid, and only settle the difference to the Customs Department.  To make it more transparent, the amount of tax charged should be clearly indicated on the Tax Invoice.   

2. GST was also able to plug the cash economy, and reduced tax evasion in Australia.

Those companies that conduct their business entirely on cash basis do not have income traceability, and are thus able to report lesser or no taxable income.  Some owners of  profitable companies employ tax consultants to minimize their company's and their personal income tax liability .

GST is a consumption tax. With the introduction of GST, whenever these companies or individuals buy a luxury item, such as a car or mansion, with their untaxed income  they will have incurred GST.  Thus, the Malaysian Government will collect taxes.which has earlier escaped their net.   In this respect, GST is a fairer means of tax collection for development purposes.

3. In Australia, GST brought with it a cut in income tax rates for individuals and companies.  

A lower company tax rate will improve the country's economy, as international investors will be attracted to do business in the Country.  As it is, Malaysia has one of the highest company tax rates among the neighbouring countries, and it places Malaysia in a less competitive situation as far as foreign investment is concerned.

4. The GST makes it possible to abolish wholesale tax in Australia, making Australian exports to be more competitive. 

Malaysian manufactured products may contain an element of sales tax which makes exports quite expensive. When GST is introduced in Malaysia, we can expect sales tax to be removed. In addition, GST is a tax on local consumption, and as such exports are also not subjected to GST.  These combined effects will make Malaysian exports even more competitive.

5. GST also reduces Australian Government's reliance on income tax revenues.

GST is a more consistent and reliable source of revenue for the Government as it is based on consumption.  Income tax is based on profits or employee's income. In a downturn economy, the Government's revenues will be affected by the reduction in profits.

Because GST is based on consumption, Australian GST is not charged on basic food, education  and healthcare.in order to look after the interests of the lower income group.  Malaysian Government also proposes to exempt basic necessities from GST.



6. Short terms inflation of 3% in Australia for two quarters post-GST but returned to pre-GST levels six months later. 
   
At its inception, the Australian GST rate was fixed at 10%.  This caused an inflationary pressure on the prices of goods and services. The Australian government established a price control watchdog to monitor prices and penalised companies that was caught profiteering under the GST.  So it should hopefully not cause an escalating inflation in the Malaysian economy.

The Malaysian Government has recently enacted the Price Control and Anti-Profiteering Act 2010 ahead of the Malaysian GST implementation, in a bid to control inflation and prices.

7. Australian companies and individuals defer or accelerate their purchases ahead of the GST implementation.

Depending on the tax composition of the goods and services, some goods and products will be cheaper or more expensive after GST is introduced.  Consumers will make their purchases based on their analysis of the situation, and this may temporary skew the economic situation either way.

Summary

GST is a more transparent and equitable tax system. It broadens the Government's tax base as anyone who spends will pay the Goods and Services Tax..  In addition, Malaysia needs desperately to reduce its dependence on petroleum revenue, and GST is seen to be an effective replacement for that.

Of course, the Government should make sure that the poor and elderly, and small businesses will not be worse off under GST.  


My one sen worth :

Knowledge is power.  With the above information, you should start to analyse your product's tax structure and work out how GST will impact your business cash flow and process flow.   

If you are a business owner, you should start asking your accounting software vendor whether their software will be able to handle GST when it is introduced in Malaysia. GST will have an impact on everyone's life once it is introduced, and you should be ready to embrace it.


Extracts for this post is taken from the full article here.

We would like to thank the writer for making time to write a reassuring article on Malaysian GST. 

When will GST be introduced in Malaysia?

When will GST be introduced in Malaysia?  There was speculation that the GST will be tabled for second reading in the Parliament session in Sep 2012.  However, the Deputy Finance Minister announced today the GST will not be imposed in 2012 because the Malaysian government is focusing on creating awareness on the new taxation mechanism among the people.

 "It's not likely to be tabled in the next Parliament session as the awareness campaigns will not have concluded by then," said the Deputy Finance Minister Datuk Donald Lim Siang Chai  **

Just to recap, the first reading of the GST Bill was tabled in Dec 2009.  The second reading which was originally scheduled for March 2010 has been postponed  until now.   GST was supposed to be implemented in middle of 2011 to replace the sales and services tax.

Every important person in the Finance Ministry has mentioned that "we want everybody to understand it first" before GST is being impleemnted.

However, in my opinion, after 3 years, there is still lack of 'awareness' program being held.  Apparently 122,000 companies will be affected by the GST implementation.  Has the government gone to these companies (or their associations) to get them prepared?

So, another year has passed by since the hoohah on GST announcement 

**  Read more: Malaysia not imposing GST this year http://www.btimes.com.my/Current_News/BTIMES/articles/20120912125601/Article/index_html#ixzz26GDFRaQa

Official website for Malaysian Goods and Services Tax (GST)

The Royal Malaysian Customs has created an official website for the Malaysian Goods and Services Tax

This is in preparation for eventual implementation of GST

There is a draft guideline on Tax Invoice & Recordkeeping,  which you may want to read and give your feedback before finalisation by the Customs Department. 

The guideline specifies the requirements when issuing Tax Invoice, Credit Notes, Debit Notes and what type of records you need to maintain.  All  records must be kept for 7 years