According to Malaysia Budget 2014, a 6% Goods and Services Tax (GST) will be introduced from April 1, 2015.This means that The current Sales Tax and Service Tax will be abolished It will impact every aspect of your business if your business falls within the GST threshold of RM 500,000 sales annually You can claim back GST paid by your business. To do this, you need to be GST- registered and compliant with the new regulations This can also impact your business even if you do not fall into the threshold if you make purchases of goods and services from companies which are GST registered. You will now need to pay the 6% GST GST accountability begins on April 1, 2015 and you must be GST registered to avoid penalties Companies can commence registration for GST from October 1, 2014

Goods and Services Tax (GST) is proposed to replace the current consumption tax i.e. the sales tax and service tax (SST). The introduction of GST is part of the Government’s tax reform programmed to enhance the efficiency and effectiveness of the existing taxation system. Various benefits that GST can offer to Malaysian consumers and businesses are:

  • Improved Standard of Living
  • The revenue from GST could be used for development purposes for social infrastructure like health facilities and institutions, educational infrastructures and public facilities to further improve the standard of living.
  • Lower Cost of Doing Business
  • Under the current system, some businesses pay multiple taxes and higher levels of tax-on-tax (cascading tax). With GST, businesses can benefit from recovering input tax, thus reducing cost of doing business.
  • Nation-Building
  • GST is a better and more efficient method of revenue collection for the government. More funds can be channeled into nation-building projects for progress towards achieving a high income nation.
  • Fairness and Equality
  • With the GST, taxes are levied fairly among all the businesses involved, whether they are in the manufacturing, wholesaling, retailing or service sectors.
  • Enhanced Delivery System
  • GST will be administrated in a fully computerized environment, therefore speeding up the delivery, especially for refund claims. This makes it faster, more efficient and reliable.
  • Increase Global Competitiveness
  • Prices of Malaysian exports will become more competitive on the global stage as no GST is imposed on exported goods and services, while GST incurred on inputs can be recovered along the supplies chain. This will strengthen our export industry, helping the country progress even further.
  • Enhanced Compliance
  • The current SST has many inherent weaknesses making administration difficult. GST system has in-built mechanism to make the tax administration self-policing and therefore will enhance compliance.
  • Reduces Red Tape
  • Under the present SST, businesses must apply for approval to get tax-free materials and also for special exemption for capital goods. Under GST, this system is abolished as businesses can offset the GST on inputs in their returns.
  • Fair Pricing to Consumers
  • GST eliminates double taxation under SST. Consumers will pay fairer prices for most goods and services compared to SST.
  • Greater Transparency
  • Unlike the present sales tax, consumers would benefit under GST as they will know exactly whether the goods they consume are subject to tax and the amount they pay for.
  • Malaysia Goods and Services Tax applicable at 6% commences April 1, 2015.
  • GST Tax Rates for Purchase
    • 6% : on taxable supplies
    • 6% : for import of goods
    • 0% : imports under special schemes (examples : Approved Trader Scheme, ATMS Scheme)
    • 6% : incurred but not claimable (example : medical expenses for staff)
    • 0% : purchases from non GST-registered supplier
    • 0% : purchase from GST-registered supplier (example : supplier provides transportation of goods that qualify as international services)
    • 0% : exempted from GST (example : purchase of residential property or financial services)
    • 6% : transactions out of the scope of GST legislation (example : purchase of goods overseas)
    • 6% : attributable to incidental exempt supplies
    • 6% : attributable to non-incidental exempt supplies
    • 6% : not directly attributable to taxable or exempt supplies
    • 0% : disregarded under GST legislation (example : purchase within GST group registration)
    • 6% : adjustment made to Input Tax (example : Bad Debt Relief, Debit Note & other input tax adjustment)
  • GST Tax Rates for Supply (Sales)
    • 0% : Zero Rated supplies
    • 0% : Incidental Exempt supplies
    • 0% : Non Incidental Exempt supplies
    • 6% : Deemed supplies (example : transfer or disposal of business assets without consideration)
    • 0% : Out of Scope supplies
    • 0% : Exempt supplies (Refer to Tax Budget Speech Appendix A1 and A2)
    • 0% : Relief supply
    • 0% : Disregarded supplies
    • 6% : Adjustment made to Output Tax (example : Longer period adjustment, Bad Debt Recovery & other Output Tax adjustment)

The first step to being GST-ready is to register for a GST identification number. All companies with taxable supply of goods and services will be liable to register for GST. GST Registration is mandatory where the annual sales turnover exceeds RM 500,000 Persons include an individual, sole proprietor, partnership, company, trust, estate, society, union, club, association or any other organization including a government department or a local authority which is involved in the business of making taxable supplies in Malaysia.

The annual sales turnover can be determined based on either:

  • The total value of taxable supplies of the current month and the previous 11 months, or
  • The total value of taxable supplies of the current month and the next 11 months.

The companies also need to decide on the type of registration best for their business:

  • Voluntary Registration
  • Group Registration
  • Divisional/Branch Registration
  • GST could lower business costs as input tax paid by your company is claimable
  • If your company is a supplier to larger businesses who are GST registered, you may be required to register voluntarily for GST in order to continue supplying to these customers
  • GST will usher in greater transparency as it eliminates double taxation and ensures competitive prices for your products

Standard-rated supplies Standard-rated supplies are goods and services that are charged GST with a standard rate. GST is collected by the businesses and paid to the government. They can recover credit back on their inputs. If their input tax is bigger than their output tax, they can recover back the difference. How GST is charged at each level of supply chain standard rated supply :

How GST is charged and collected at the wholesale level for standard rated supply:

Zero-rated supplies These are taxable supplies that are subject to a zero rate. Businesses are eligible to claim input tax credit in acquiring these supplies, and charge GST at zero rate to the consumer. How GST works on a zero rated supply:

How GST works on a zero rated supply at the wholesale level:

Exempt supplies These are non-taxable supplies that are not subject to GST. Businesses are not eligible to claim input tax credit in acquiring these supplies, and cannot charge output tax to the consumer. How GST works on an exempt supply:

How GST works on an exempt supply by a service provider:

Issuing Tax Invoices When you charge GST, you need to issue a tax invoice showing the amount of GST and the price of the supplies separately. The tax invoice has to be issued within 21 days after the time of the supply. Particulars to be shown in the tax invoice:

  • The words ‘tax invoice’ in a prominent place;
  • The invoice serial number;
  • The date of issuance of the invoice;
  • The name (or trade name), address and GST identification number of the supplier;
  • The name and address of the recipient of the supply;
  • A description of the goods and/or services supplied;
  • The quantity or volume of the goods and/or services supplied, for example, litres of petrol, kilos of meat or hours of labour;
  • Any discount offered;
  • The total amount payable excluding tax, the rate of tax and the total tax chargeable shown as a separate amount;
  • The total amount payable including the total tax chargeable.
  • The Director General of Customs may upon request allow the tax invoice to be varied from the above whether in term of particulars in the tax invoice or issuance of other type of tax invoice e.g. simplified tax invoice.

The Director General of Customs may upon request allow the tax invoice to be varied from the above whether in term of particulars in the tax invoice or issuance of other type of tax invoice e.g. simplified tax invoice. Simplified Tax Invoice An invoice that does not contain all the particulars as required in the standard tax invoice and subject to the approval of the Director General. Simplified tax invoice can be used by the GST registrant to claim ITC provided the value of the invoice (inclusive GST) does not exceed RM500. DG may allow the simplified tax invoice to be issued containing:

  • The name (or trade name), address and GST identification number of the supplier;
  • The date of issuance of the invoice;
  • The invoice serial number;
  • A description of the goods and/or services supplied;
  • The total amount payable including the total tax chargeable; and
  • For each rate of tax chargeable, the gross amount payable including tax and the tax rate applicable

Accounting for GST Basically, all taxable persons will be required to account for GST based on accrual (invoice) basis of accounting i.e. all output tax and input tax are to be accounted and claimed based on the time when the invoice was issued or received. However, certain categories of taxable persons may be allowed to use the payment (cash) basis of accounting. This facility may be given to businesses who carry out their activities solely on a cash payment basis. All business and accounting records relating to GST transactions are to be kept in Bahasa Melayu or English for a period of seven (8) years. Filing GST Returns GST returns must be submitted to the GST office not later than the last day of the following month after the end of the taxable period. Taxable period is a regular interval period where a taxable person is liable to account and pay to the government his GST liability. The standard taxable period is on quarterly basis.

Failure to file the GST return can result in a fine not exceeding RM 50,000 and/or imprisonment for a term not exceeding 3 years Directors are jointly and severally responsible for GST compliance of their business Penalty on late payment of GST will range from 5% to 25% of GST payable

Malaysia Goods and Services Tax (GST) is a multi-stage tax on domestic consumption. GST will be applicable for all taxable supplies of goods and services in Malaysia except those specifically exempted. GST will also be charged on import of goods and services into Malaysia. GST is applicable to the entire supply chain in the economy including manufacturing, distribution and retail industries. Almost all supplies in the manufacturing sector will be subjected to GST, including sale of finished goods,stocks, capital assets and services rendered to other establishments Payment of tax will be made in stages by the intermediaries in the production and distribution process. Although the tax will be paid throughout the production and distribution chain, only the “value added” to the product or service at each stage is taxed, thus avoiding double taxation For GST Registered Companies :

  • The company will be required to charge GST on taxable supplies to customers. Such GST charged to customers will be termed as “Output Tax”
  • GST paid on business purchases and overheads will be termed as “Input Tax”. The company will be allowed to claim “Input Tax”
  • Output Tax will be offset by Input Tax. If Output Tax is more than Input Tax, company will pay the difference to Royal Malaysian Customs Department (RMCD)
  • However, if Input Tax exceeds Output Tax, RMCD will refund the surplus Input Tax to the company.

Does your ERP Software / accounting software capture data required in the format prescribed by Royal Malaysian Customs Department (RMCD)? Is your ERP Software / accounting software capable of generating the file for automatic Malaysia Goods & Services Tax (GST) Form-3 filing? Can your ERP Software / accounting software handle additional compliance work mandated by GST as well as account for the tax, tracking of the input taxes paid, undertaking reconciliations and filing of the GST return? If you are already a FACT User, call us today to enquire how you seamlessly upgrade to GST compliant FACT ERP.NG If you are using any other ERP Software / accounting software, call us today to know more about how you can become GST compliant

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