While presenting the recent Budget 2014, Prime Minister Datuk Seri Najib Razak announced the introduction of the Goods and Services Tax (GST) and when enacted, GST will be effective from 1 April 2015 and standard rated supplies will be subject to GST at a rate of 6%. With the introduction of GST, the current indirect taxation systems of sales tax and service tax will be abolished on the same date.
What is GST?
The Goods and Services Tax (GST) which is also known as the ‘value added tax’ (VAT) in many countries, is a multi-stage consumption tax on goods and services, which ultimately falls on the final consumer.
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, there is no compounding tax effect, regardless of the number of stages a product or service undergoes in the supply chain, as GST is only charged on the value added element at each stage in the supply chain. This is achieved through net of ‘output tax’ (the GST on the goods and services sold by you) minus ‘input tax’ (the GST you paid on the raw materials, equipment and services used in your business) mechanism adopted under the GST administrative process.
This process is illustrated by the following table:
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 specific goods and services which are categorized under zero rated supply and exempt supply orders as determined by the Minister of Finance.
Scope of Charge
GST will be charged on the taxable supply of goods and services made in the course or furtherance of business in Malaysia by a taxable person. It is also charged on the importation of goods and services.
A taxable supply is a supply which is standard rated (proposed 6%) or zero rated. Exempt and out of scope supplies are not taxable supplies. GST is to be charged on the value of the supply.
GST can only 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 proposed prescribed threshold of RM500,000 and therefore, cannot charge and collect GST on the supply of goods and services made to their customers. Nevertheless, businesses can apply to be registered voluntarily.
Preparing for GST Implementation
The introduction of GST and its implementation within your business could have a wide- ranging effect. GST is not simply a tax issue – it is a business issue. It affects some of your business functions and can have a negative impact on your cash flow.
The challenge is to identify and address all business issues during the GST implementation process and minimize, to the extent possible, any disruption to your business.
It is critical to be compliant with the GST laws and regulations. A structured and strategic approach ensures an efficient implementation, which takes into account your specific business issues while ensuring ongoing compliance with GST legislation.
What You Should Do
1. Analyse Impact
Business owners should identify and analyse the impact of GST on their businesses, develop an implementation plan, estimate costs and allocate the relevant resources.
2. Adjust business structure
You should evaluate which business processes and structure need to be changed to cater for the GST system and modify those processes and structures accordingly. You should also review arrangements with your suppliers and customers and educate and train your staff as well as conveying your business’ GST implementation plans and impact to your suppliers and customers.
Persons having businesses are reminded that registration is compulsory for those businesses that have met or are expected to meet the prescribed threshold of RM500,000. 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.
If you have not reached the prescribed threshold of RM500,000, you may choose to voluntarily apply for registration. However, once registered, you will remain in the system for at least 2 years.
The primary advantage of voluntary registration is that while you are now required to charge and collect GST on the taxable supplies, you will be entitled to claim input tax credit (therefore recovering part of your business costs) and eligible to enjoy all facilities provided under the law.
At TY Teoh International, addressing our clients’ business needs is core to our service proposition and GST implementation and compliance issues are crucial to the successful running of any business. With that in mind, our firm is pleased to announce that we have assembled a team of GST professionals to assist our clients in getting their businesses ready for the imminent implementation of the GST system in Malaysia.
Please contact us at firstname.lastname@example.org to let us help your business get ready for the GST implementation or simply send an email to email@example.com.
The information provided is without any representation or warranties either expressed or implied. While the author makes reasonable efforts to provide information which he believes to be reliable, the author makes no representations or warranties that the information provided is complete, accurate, up to date or non-misleading. The author expressly disclaim all and any liability to any person in respect of anything and of the consequences of anything done or omitted to be done by such person in reliance (whether whole or in part) upon any part of the contents of this publication. The information and views contained in this publication does not constitute professional advice and accordingly should not be relied upon as an alternative to such. You are advised to seek competent professional advice before acting on the views.