Good Service Tax (GST)

Assalamualaikum...

we are now counting days to the implementation of GST, by now many should had have understand what is GST all about. Just in case you don't, i hope below sharing could assist you to have basic knowledge on this most talk about matters :)

WHAT IS GST ?

GST which is also known as Value Added Tax (VAT) in other countries is a tax on final consumption of goods and services in Malaysia.

GST is a broad based consumption tax and will be imposed on all goods and services made in Malaysia and import of goods and services into Malaysia [except goods and services categorized under zero rated supply and exempt supply orders as determined by the Minister of Finance (MoF) and published in the Gazette].

GST terminologies:

Input tax GST that a taxable person has incurred on the purchases of goods and services in the course or furtherance of his business

Output tax GST that a taxable person charges on his taxable supply of goods and services made by him in the course or furtherance of his business

Standard rated supplies Taxable supply of goods and services which are subject to GST at standard rate (i.e. 6%). The taxable person is eligible to claim input tax credit on his business inputs in making taxable supplies

Zero rated supplies Taxable supplies that are subject to zero rate. Although there is no GST to be imposed on these supplies, the taxable person is eligible to claim input tax credit on his business inputs in making taxable supplies

Exempt supplies Non-taxable supplies which are not subject to GST. Suppliers of exempt supplies are not eligible to claim the GST incurred on his business inputs

Scope of GST

•GST shall be charged on any taxable supply of goods and services made by a taxable person in the course or furtherance of business carried on by him in Malaysia.

•GST is charged on the importation of goods and services.

◦Goods imported will be charged GST at the time of importation.

◦Imported services will be taxed by adopting a “reverse charge mechanism” where a person who receive services from an overseas supplier is to account for GST as if such person had supplied the services to himself.

Example: Importation of services – reverse charge mechanism

•Importation of consultation services of USD10,000, @ RM3.4 = RM34,000, GST @ 6% = RM2,040

•When the recipient makes payment to the foreign supplier, the recipient has to account for output tax on the amount paid, i.e., output tax = RM 2,040. The amount shall be credited to the output GST account.

•In view that the recipient is in the business of providing taxable supply, the recipient can claim input tax credit on the GST paid of RM 2,040. The amount shall be debited to the Input GST account.

•At the end of the day, the entries of the output GST and input GST will cancel off each other. Nevertheless, the recipient MUST account for the transactions.

Unlike the present sales tax and service tax system which is a single stage tax, GST is a multi-stage consumption tax on goods and services. Payment of tax is made in stages by the intermediaries in the production and distribution process. Although the tax will be paid throughout the production and distribution chain, it is ultimately passed to the final consumer. Therefore, the tax itself is not a cost to the intermediaries and does not appear as an expense item in their financial statements.

A person is required to be registered for GST if he makes taxable supplies where the annual turnover exceeds RM 500,000.

A person who is registered under GST is required to charge GST on his output of taxable supply of goods and services made to his customers. He is allowed to claim as input tax credit any GST incurred on his purchases which are inputs to his business. His customer, if he is also in a business of making taxable supply of goods and services, in turn is allowed to claim input tax credit on GST paid on his output. Thus, double taxation will be avoided and only the value added at each stage is taxed.

Multi-stage collection and payment of GST

First layer Assuming a supplier making a taxable supply of goods sell the goods at the price of RM400 to the service provider. The GST charged by the supplier is 6% of RM400 = RM24. The amount that the service provider has to pay to the supplier is RM424. Assuming the supplier does not make any purchases in his business, i.e., no input tax incurred, the supplier will have to pay the output GST of RM24 to the Customs.

Second layer The service provider uses the goods purchased from the supplier to provide services to the local customer, and charge the customer a price of RM1,000 for the services rendered. The service provider will charge the customer a GST of 6% on the RM1,000, i.e., RM60. The total amount that the customer has to pay is RM1,060. The service provider’s output tax is RM60, i.e., what he charged to the customer. His input tax is RM24, i.e., what he paid to the supplier of the goods. The amount that he needs to pay to the Customs is the net, RM60 – RM24 = RM36. Note that GST is a form of value added tax, hence GST is imposed on the value add provided by the service provider, i.e. on the amount of RM600 [RM1,000 charged to the customer – RM400 paid to the supplier].

Third layer GST is borne by the individual end consumer.

Where output tax is more than the input tax, the GST registrant has to pay the net GST to the Customs.

Where output tax is less than input tax, a refund will be given by the Customs to the GST registrant.

There is no requirement to match input tax with output tax and the claim for input tax can be made when the expense is incurred and a GST tax invoice is issued by the vendor.