Technical Partner

Solution Partner

OVERVIEW of Goods and Services Tax

3/21/2014

Why GST ?

Part of the governments tax reform programme to make it more efficient, effective, business friendly, transparent and capable of generating a more stable source of revenue

Effective (self-policing and overcomes inherent weaknesses of SST)

Efficient (less bureaucracy)

capable of generating a more stable source of revenue (not susceptible to economic downturn)

business friendly (lower cost)

Transparent (long-term benefit in terms of pricing)

Broader base give opportunity to reduce reliance on income tax

Everybody including foreigners, tourists will have to pay tax

Why GST?

What is GST ?

Business

Goods

Services

INPUT OUTPUT

GST on inputs

Input tax

GST on outputs

Output tax

Goods (Office

equipment,

stationary &

other goods)

Services (rental

telephone,

insurance,

electricity etc)

What is GST?

Business PAY

Output Tax Less Input

Tax

VAT/GST IN ASEAN COUNTRIES

No threshold

Baht 1.8 mil

SGD 1 mil

Peso 1.5 mil

Lao Kip 400 mil

Riel 30 mil 125 mil

Rupiah 600 mil

Registration Threshold

(National Currency)

- 10 10 1999 Vietnam

59,000 10 7 1992 Thailand

782,000 7 3 1993 Singapore

34,000 12 10 1998 Philippines

49,000 10 10 2009 Laos

7,000 30,000 10 10 1999 Cambodia

68,000 10 10 1984 Indonesia

Registration Threshold

(USD)

Current Rate (%)

Initial Rate (%)

Year Country

Only Brunei, Malaysia and Myanmar have not implemented VAT/GST

PROPOSED GST

MODEL

Supply Output tax Input tax

Standard-rated

Zero-rated

Exempted

6%

0%

No GST charged

Claimable

Claimable

Not Claimable

Types of Supply

Agriculture products paddy & fresh vegetables etc Beef , mutton, swine Fish, salted fish, prawns, crabs etc Rice,sugar, table salt, plain flour, cooking oil etc Selected poultry eggs First 200 unit of electricity domestic use Exported goods and services Selected services related to export

Zero Rated Items (summarised into broad categories)

Public transportation rail, bus, taxi etc Tolled highways or bridges Land for residential , agriculture or general use Funeral package services Private healthcare & education Childcare services Selected accommodation services Selected supplies made by societies

Exempt Items (summarised into broad categories)

Other than

Zero Rated & Exempt

Items

Standard Rated Items

Wholesaler

Price: RM50 GST: RM 3

Tax remitted to Government

Output tax = RM 3.00

Input Tax = RM 0

RM3.00

Total amount [1+ 2 +3] remitted to

Customs = RM 12.00 (paid by customer)

Retailer

Consumer

Price: RM100 GST: RM 6

Price: RM200 GST: RM 12

Output tax = RM 6.00

Input tax = RM 3.00

RM 3.00

Output tax = RM 12,00

Input tax = RM 6.00

RM 6.00

GST @ 6%

How GST Works for Standard-Rated

Consumer

pays

6%

GST only

Manufacturer

Assumption: GST 6 %

2

1

3

GST

Issues &

What to do ?

IMPACT

Supply Cost

Bad Debts

Invoicing

Contracts

Human Resource

Cash Flow

GST Implications on Supply Cost

Need to identify the existing suppliers

Will they be registered under GST

Need to talk to small suppliers to get them registered

Need to negotiate prices? WHY?

Impact on purchase cost ?

How to ensure that your suppliers pass on cost savings to you?

Pricing strategy will affect your competitiveness

Price control and anti-profiteering Act will come into force in 2011

GST Implications on Cash Flow

Need to analyze cash flow impact on the business

Cash flow is minimized through credit invoicing method under the GST model ( but could still be an issue for many businesses)

Most imports would attract GST unlike the present sales tax. Need to look at your imports vs local purchases

GST payment could impact cash flow especially for large businesses who are on a monthly taxable period

Need to provide for one time fund to cater for GST payment upfront

Make use of group provisions (limitations?)

Export orientated businesses will have little output tax to offset input tax. ATS Eligibility?

GST Implications Bad debts

Bad debt relieve is available for payment not received within 6 months from the date of supply.

Need to monitor payment from customers

Ensure a proper matching of input & output taxes

Ensure GST compliance by review of accounting / recording system

Bad debt claims need to understand evidence of reasonable efforts to recover the debt

GST Implications- Human Resource

Fringe benefits are taxable under GST

Need changes to the employment agreements?

How to introduce the changes

What are the risks?

Need to review policy on FBT liabilities, incentives, reward schemes

GST Implications Stock

Special refund is given on stock on hand

Full refund is given if you have documents showing sales tax has been paid but only 20% will be given if documents doesnt

show sales tax element. Need to review your purchasing policy?

What else?

Need to conduct stock take on the transition date. Audit certificate is required by customs.

Although special refund will be given, you may want to review your stock management policy to minimize cash flow impact.

Special refund will only be given in 8 instalments over a period

of two years. Economic order quantity may change due to

changes in the demand.

GST Implications Invoicing

To identify each type of supply whether standard rate, exempt, zero rate or out of scope.

Contract negotiation GST inclusive / exclusive price

Simplified tax invoice RM500, eligibility to claim is restricted to RM30

Full tax invoice if necessary

Accounting system able to capture GST liability

21 days rule

GST Implications Output Tax

Gifts more than > RM500 attract GST liability

Gifts RM500 made in furtherance of business given to same person in the same year (No GST)

Commercial samples in a form not ordinarily available for sale to the public, no GST

Deemed supply attracts GST, eg, private use, disposal of business assets, etc.

GST Implications Input Tax

Not all business purchases are claimable

Blocked inputs are not claimable, is IT system and accounting system capable to differentiate.

ITC claim on sundry purchases from retail stores with a simplified tax invoice, is restricted to RM500 value only

(including the tax)

Claim of input tax for advance payments?

Apportionment of input tax

GST Implications Contracts

Legal advice with regards to contract (reviewable or non-reviewable)

Avoid long term contract without legal review

To absorb or not to absorb GST

How would competitors would react?

Pricing strategy?

System and Processes

Review system and processes.

Need to do a complete mapping of

transactions to identify changes that need to

be made

GST liability for every type of transaction

Advantage of online submissions to Customs

GST ready software or to develop own?

Registration &

Compliance

Requirement to Register and Compliance

Any person who makes taxable supply of goods

and services in Malaysia

Registration is mandatory for businesses with turnover that has

exceed the prescribed threshold RM500,000

Calculation of turnover for registration is based on the total

value of the taxable supplies for a 12 month period

If turnover RM5 million and above, monthly submission.

If turnover below RM5 million, quarterly submission.

Appointed Date (AD) 1 April 2015

Mandatory to register 3 months prior to AD by 31 December 2014

Failure to register by 31 Dec 14 will be considered committing an offence under

the proposed GST Act.

The determination of threshold

Taxable Turnover :

Includes Excludes

Standard Rated Supplies

Zero Rated Supplies

Deemed Supplies such as private

use, etc.

Exempt Supplies

Sale of capital Assets

Imported Services

Out of scope

Designated areas

Custom WEB portal www.gst.gov.my

GST READINESS

GST

Readiness

Human

Resource

Sales &

Marketing

System

& Processes

Accounting

& Finance

Purchasing

& supply chain

Government

Thank You

Audit Tax Advisory

D-3-4, Level 4, Setiawalk Persiaran Wawasan 47160, Puchong Selangor D.E. Malaysia Tel : +603 5882 2054

www.nk.com.my Puchong : Ipoh : Sitiawan : Alor Setar

No. 90-1, Block 1, Biz Avenue 2 Neocyber Lingkaran Cyber Point Barat 63000 Cyberjaya Malaysia Tel : +603 8601 0698

www.mysoft.com.my Cyberjaya : Maluri, KL