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Is GST for Everyone?

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How will you be affected? Is it business as usual? GST is also known as Value Added Tax (“VAT”) in some other countries which has the similar principles of GST which would be implemented by Malaysia come 1 April 2015. GST is under the purview of the Royal Malaysia Custom Department (“RMCD”).

GST in Malaysia is charged on the following principles:

1. Taxable supply of goods and services; and
2. Made by a taxable person; and
3. In the course of furtherance of business; and
4. In Malaysia.

GST is also charged on imported goods and services.

This simply means that for GST to be charged on any goods or services, these goods or services have to be made by a taxable person (a person is considered as a taxable person if he is a GST registered person of which his annual turnover is more than RM500,000.00) and the production of goods or services have to be made in the course of a business (hence, the business test is crucial to distinguish between hobbies, leisure, windfall or one-time off) and in Malaysia as any arrangement or production of goods or services outside Malaysia (for example Singapore to Hong Kong), GST is not applicable.

Currently, Sales Tax Act 1972 and Services Tax Act 1975 were implemented in Malaysia. Under these two (2) Acts, the indirect tax paid on the Sales Tax and Services Tax are deemed as final. However, under the GST Act 2014, the input tax i.e. GST paid on the purchase or usage of goods and services for the production of taxable supply is allowed as an input tax claim to offset the output tax i.e. GST charged, and only the net GST is payable to RMCD.

Let us put one simple example to illustrate the principles of GST so as to avoid confusion on its implication come the implementation date.

Let us assume that you are the wholesaler. When you purchase your materials from a manufacturer who is a GST registered person, the manufacturer will charge you GST on the materials. Let us assume that the GST rate is 6%. Hence, assuming you purchase the materials at RM1,000.00, the manufacturer will charge you RM1,060.00 and you will pay the manufacturer RM1,060.00.

Question: What is your cost of the materials? Is it RM1,000.00 or RM1,060.00? If your answer is RM1,060.00 then Malaysia will have a higher inflationary pressure as you do not understand the concepts and mechanisms of GST. The correct answer is RM1,000.00 as cost of material. This is because when you sell your product, let’s say to the retailer at RM1,250.00 (assuming that your profit margin or value added activity is RM250.00) and if you are a GST registered person, you will charge GST on the RM1,250 as a result you will collect RM1,325.00 from the retailer. But how much is your obligation or remittance to RMCD when you submit your GST-03 returns? Will you submit and pay RM75 (RM1,325.00 – RM1,250.00) to RMCD? No, in your GST-03 returns, you will record an input tax of RM60.00 and an output tax of RM75.00, which means that net GST payable to RMCD is only RM15. As such, the RM60.00 which you have paid to your manufacturer is only a cash flow timing difference and not an impact to your profitability as you will collect RM75.00 from your retailer. If your turnover is more than RM5 million, you are required to submit and pay your GST on a monthly basis. If however your turnover is less than RM5 million, you are required to submit and pay your GST on a quarterly basis. Hence, cash flow planning and timely record keeping is highly encouraged.

Conclusion, as a business owner, you have to assess the impact of GST to your business and pricing of your products and services as there will be cash flow timing differences as GST is to be paid to the RMCD regardless whether you have received payment or not of which you have given credit terms to your customers. As a consumer, we have to be wiser and thrifty in our spending patterns as GST is here to come and stay. GST is charged when you consume the goods or services.


Article is written by Ng Choon Jin, CA(M), FCCA, ACTIM, Executive Director of S.L. NG Tax Services Sdn Bhd. Ng was among the 16 speakers at the homefinder Property and Investment Exhibition 2014. Log on to www.slng2u.com for more information. The article represents his personal views.