1.

What is GST

GST (Goods & Services Tax), which is also known as VAT or the value added tax in
many countries is a multi-stage consumption tax on goods and services. GST is levied on the
supply of goods and services at each stages 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.
Hence, it does not matter how many stages where a particular good and service goes
through the supply chain because the input tax incurred at the previous stage is always
deducted by the businesses at the next in the supply chain.
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 and published in the Gazette.
The basic fundamental of GST is it's 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.
GST is to be levied and charged at the proposed rate of 6% on the value of the supply.
GST can be levied and charged only if the business is registered under GST.
GST shall be 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 6% on the value of the supply.
GST can be levied and charged only of the business is registered under GST. A business is not
liable to be registered of its annual turnover of taxable supplies does not reach the prescribed
threshold. Therefore, such businesses cannot charge and collect GST on the supply of goods
and services made to their customers. Nevertheless, businesses can apply to be registered
voluntarily.
GST to be introduced at four different rates:
Standard Rated is charged on any taxable supply of goods and services by businesses
Malaysia. GST is also charged on importation of goods and services. GST is applied at the
standard rate unless there is a provision that states that it can be treated differently. There are
some reliefs and exemptions for certain specific goods and services, and for very small
businesses
Zero rated: This is a taxable supply, meaning when you sell you do not change VAT
because the rate is 0%. But GST incurred by the business can be recovered. If you make
wholly zero-rated supplies, then it is likely that you will be in a refund position with
Customs. Examples include for example certain agricultural products, foodstuff, water to
domestic consumers, electricity supply (with limits) to domestic users, export of goods and
international services.
Exempt: This supply means no GST is charged on the supply. This does not mean that
you are GST-free. It also means that there is no entitlement to recover GST. If you make
wholly exempt supplies, then you will not be able to register for GST. Therefore GST would
become an added cost to the business. Examples include private healthcare, private education
and certain financial services.

Out of scope: These supplies are outside the GST system. Therefore no GST is
payable or recoverable. Examples include transfer of going concerns and supplies made by
the Government, such as issuance of passports and licenses, except some supplies of services
prescribed by the Minister of Finance.

The GST rate announced is 6%. This will replace Sales Tax and Service Tax which
has been payable annually, whereas GST is payable monthly. Because of this, SMEs should
plan for additional cash and be aware that GST is payable whether they have received
payment from their customers or not. There are also penalties and interest payable for any
delay in submitting returns or not paying on the due date.

It is worth illustrating how GST works with a very simple example:

Suppose Firm A (a Manufacturer) makes a sale to Firm B for RM100 plus 6% GST
RM106 in total.

Firm A will pay VAT to the tax authorities at the end of the month less the GST they
pay on goods they buy.

Firm B (a Distributor), uses what it has bought to make products worth RM150; RM9
VAT is due when these products are sold to Firm C, but Firm B can also reclaim the RM6
GST charged on goods they buy.

Firm C (a Retailer) sells its products to final consumershouseholdsfor RM350

plus 21 VAT. (Illustration table below)

The impact on prices and any price increase will need to be considered by all
businesses. This is complicated by different types and rates of GST. Therefore an early GST
review and impact is advisable for particularly SMEs.
The following measures will be effective from 2015. There may be changes during
the process of the Bill being approved and enacted into law by the Government:
Corporate income tax will be reduced by 1% from 25% to 24%. Income tax rate for
small and medium enterprises (SMEs) will be reduced by 1% from 20% to 19%. Reductions
will take effect in the year of assessment 2016.
i. Cooperative income tax rate will be reduced by 1% to 2% from the year of
assessment 2015.
ii. Secretarial and tax filing fees (subject to limits) are allowed as tax deductions from
the year of assessment 2015.
iii. Accelerated capital allowances on the cost of information and communications
technology (ICT) equipment and software are extended to the year of assessment 2016.
iv. Expenses incurred for training in accounting and ICT relating to GST are to be
given a further tax deduction for the years of assessment 2014 and 2015.
vi. Grants for GST training of employees in 2013 and 2014 and financial assistance to
SMEs for the purchase of accounting software in 2014 and 2015 will be provided.

2. The difference between GST and Sales Tax

There has been much confusion over GST ( Goods and Services Tax) which is proposed at
6% and the existing GST ( Government Service Tax) at current 10%. Since the inauguration
of GST, the perception is that GST will replace the existing Sales and Service Tax.

Sales Tax

Under the Sales Tax Act 1972, manufacturer with sales over RM 100,000 will have to collect
a 10% sales tax from the products. There are certain items which are exempted from the Sales
sales tax. These items are not limited to
i. All exported items
ii. Essential food items such as meat, seafood, goat, milk, fruits and vetables
iii. Photography equipment
iv. Motorcycle below 200cc and bicycle for adults
vi. Machinery for clothing and food industry
vii. Commodities such as coco, rubbers and many more
viii. Helicopters, ships and much more

Service Tax
GST (Goverment Service Tax) if often confused with GST (Goods and services tax). This tax
stands at 6% which is applicable to certain taxable service industry and luxury items in
Malaysia. Special designated reas such as Langkawi, Tioman and Labuan are exempted from
Service Tax.

The tax is not limited to food and beverage outlets and tobacco. Service Tax is also applicable
to professional industries such as lawyer, engineers, insurance firms, accountants and
architect. From industry perspective, a Sales Tax would be applicable to companies with
turnover from RM 150,000 to RM 500,000.

GST or Goods and Services tax is a consumption based tax and is totally different tax
from the current tax system. All items and services from all chain levels are subjected to GST
(minus some essential items) thus GST generally has a far wider coverage compared to
existing tax system. In GST the final tax burden will ultimately will be borne by consumer.

It is proposed that Goods and Service Tax (GST) is replacing the current Sales Tax &
Service Tax (SST). Although it has been postponed, there are quite a few things that you
should understand it beforehand - especially for Corporates.

First of all, the concern for business persons is: Rate. The rate of 4% is proposed to
replace different rates in different categories of SST. In short, the rate is fixed. The rule of
thumb would be:

GST is charged on the taxable supply of goods and services made by a taxable person
in the course or futherance of business in Malaysia. Of course, it applies to any important
goods or services as well.

Despite the lower of tax rate, GST will be a multi stage consumption tax compare to
SST. For example, under current SST system, if a taxable supply (goods or services) is sold
by a taxable person, a tax of 5 - 10% of the invoice amount will be chargeable to the first
buyer. First buyer will pay the tax and if he re-sale the item then no further SST to be
imposed. This means that SST is a single stage of consumption tax compare to GST.

The differences were being summarized as following:

Taxable Period - In SST it is always 2 months, but in GST it will varies between 1 month, 3
months or 6 months.
Return filing deadline - 28th day after the end of taxable period for SST (i.e. for
taxable period from Jan - Feb, filing deadline will be 28th of March). For GST, it will be the
last day of the month after the end of taxable period (i.e. if taxable period is one month March, deadline will be 30th April and so on).
Penalty for late payment - SST will charge a penalty of 10% on originally overdue
amount for every 30 days for the maximum of 50% (which max is 5 times) and GST will
imposed a penalty for 5% on the originally overdue amount for the first 2 times and 3% for
the next 5 times which represent a maximum of 25%.
Tax free inputs - SST is allowed for raw materials and components only, but GST
allowed for all business inputs and offset against output tax in the GST return.
Treatment of exported goods: SST - no tax on exports, while GST - all exports are
zero-rated.
Compound: SST - maximum of RM5,000 and GST - Maximum half of the fine prescribed for
offence.

The above will allow the public a brief understanding on how GST works and the
differentiation compare to SST. There will be more to understand - i.e. When to charge GST,
How to charge and pay GST, What to charge GST, and Who can offset the paid GST and
received GST.

The Government has announced that essential goods such as basic foodstuff will be
zero rated. This means that no tax will be charged on the sale of these goods. Any tax paid by
the supplier of the goods will be fully recoverable ensuring that the tax will not become
embedded in the final selling price to the consumer.

Exempted supplies will also not be subject to GST upon sale to the consumer,
however, any GST incurred by the supplier will not be recoverable. This GST will become
part of the supplier cost base and will form a part of the total cost to the consumer. However,
the value add of the final supplier will not be subject to tax. Therefore, the price of exempted
supplies may potentially increase due to the introduction of GST.

Exempted supplies are generally limited to services where the value added by the
service provider is considerable compared with the cost of his purchases, for example
healthcare and financial services. Therefore the additional cost of the embedded GST may not
be significant.

Under the existing sales tax system, businesses cannot recover tax paid on their
purchases. The tax is treated as a cost to business. When the business applies a mark-up to
that cost, the sales tax is also marked up.

Because sales tax is paid early in the supply chain, by the time the consumer pays the
final price of the goods, sales tax has been marked up several times, increasing the cost to
the consumer at each stage. This is known as tax cascading.

The input tax credit mechanism allows GST-registered businesses to claim the tax that
they pay on their purchases as a credit. Therefore, GST does not form part of the cost base of
the business and is not included in the mark-up. Businesses will impose GST based on the
value added by them at each stage in the supply chain, resulting in the consumer paying a
final 6% tax on the purchase price, rather.

For illustration purposes, please refer to the diagram which illustrates the difference
between the existing sales and service tax, and the proposed GST tax, on the price of a
carbonated drink sold at a hotel.

Under the current legislation, employees with chargeable income are required to lodge
a tax return by April 30 following the year of assessment. To simplify the process for
employees whose annual tax liability is equivalent to the total monthly tax deductions
remitted to the IRB, taxpayers no longer need to submit tax returns on the basis that the
monthly tax deductions made is equivalent to the final tax paid.

However, this requirement is only waived for employees who receive employment
income only and are currently paying taxes through the monthly tax deduction system and
have served under the same employer for at least 12 months in a calendar year. Add that if
youve under or overpaid, still need to file.

As an immediate measure to alleviate the tax burden of lower middle-income

taxpayers prior to the introduction of the new individual tax rates and GST in 2015, a special
one-off tax relief of RM2,000 will be given to resident tax payers earning up to RM8,000 a
month or an annual income of RM96,000 for the year 2013 only.

The measure is expected to provide a maximum tax saving of RM480 per annum
(RM2,000 x 24%) depending on the amount of tax payable after taking into consideration all
other allowable deductions and reliefs.

References

Govt may impose GST at 4%: Husni". SinChew. 26 November 2009. Retrieved 26 February
2010.
GST Implementation Is To Place Malaysia At Par With Developed Countries, Says Ahmad
Husni". Bernama. 19 February 2010. Retrieved 26 February 2010.
GST May Bring Down Other Forms Of Taxation, Says MIER". Bernama. 11 February 2010.
Retrieved 26 February 2010.
Parliament: GST Bill tabled for first reading (Update)". TheStar Online. 16 December 2009.
Retrieved 26 February 2010.
Finance minister: No second reading of GST Bill for now". Malaysian Insider. 14 March
2010. Retrieved 15 March 2010.
Pakatan flays government over GST delay". Malaysian Insider. 15 March 2010. Retrieved 15
March 2010.
Government defends GST delay, scoffs at PRs victory claims". Malaysian Insider. 15 March
2010. Retrieved 15 March 2010.

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Creating awareness on GST is needed, says NGOs, by Azreen Hani. The Malay Mail, 15
March 2010
Malaysia to introduce GST at 6% from April 2015 - SE Asia - The Straits Times".
straitstimes.com. Retrieved 11 January 2015.

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