QUESTION 2

GST
Goods and services tax so-called GST, which is also known as value added tax
(VAT) is the government response to the tax levied on taxable goods and services
from the supplier to the retail stage at every stage of the supply chain in the
distribution. It is also including the import goods and services to all registered vendors
will serve as the government's excise tax to assist taxpayers. However, the GST paid
on the companys input is claimable. Which mean that the input tax incurred at the
previous stage by the intermediaries in the production and distribution process will be
deducted at the next businesses in the supply chain. Therefore, the tax itself is not a
cost to the intermediaries and does not appear as an expense item in their financial
statements

Consumption tax is a transaction-based tax system, so that each transaction must

obtain an invoice in order to be able to calculate the company's input tax and output
tax to calculate the company's tax payment or rebate. All imports goods and services
or made in Malaysia will be taxable except some specific goods and services which
are categorized under exempt-rated GST and zero rated GST as published in the
Gazette and determined by the Minister of Finance.

The sales-and-service tax will be replaced by 6% GST and starting on 1 st April

2015. Government clarified in the fiscal 2014 budget, the government stated that the
when purchase the assets and raw materials, the consumption tax levied is called input
tax, while the consumption tax incurred when consumers purchase goods or services
from the merchant is called output tax. A qualified businesses is allowed to claim their
input tax credit through the "consumption tax rebate mechanism" (input tax credit
mechanism), by way of automatic deduction in their accounting system.

Who should register for GST?

Only businesses who makes a taxable supply for business purposes with the
taxable turnover of RM500, 000 and above are liable to be registered for GST.
However, businesses with taxable turnover less than RM500, 000 are not liable to be
registered for the GST but they can apply for voluntary registration.

Scope and Charge

GST is to be imposed and charged at the proposed rate of 6% on the supply. Only if
the corporate is registered under GST will be imposed and charged by the GST. GST
is to be imposed on every stages of the distribution in supply chain. Goods and
services that supplied in Malaysia or imported from other countries is chargeable. The
supplies made by the Federal and State Government departments are not within the
scope of GST except for certain services arranged by the Minister of Finance or made
by the local authorities and statutory bodies in relation to regulatory and enforcement
functions are not within the scope of GST. GST levied on all business inputs such as
raw materials and capital assets is known as input tax whereas GST levied on all
supplies made (sales) is known as output tax. For qualified businesses, the input tax
incurred is wholly recoverable through the input tax credit mechanism from the
Government.

There are two type of supply which are taxable supply including standard-rated
supplies and zero-rated supplies and non- taxable supply including exempted-rated
supplies and out of scope supply. For standard-rated supplies such as vehicles, all
taxable goods and services is subject to a proposed rate of 6%. It must be indicated
6% of GST at the sales invoice, and also known as tax invoice. An eligible business
has to collect GST on the supply and is qualifies to claim the input tax credit on their
business inputs in making taxable supplies.

For zero-rated supplies such as foodstuff, agriculture products, supply of the first
200 units of electricity to a domestic household for a minimum period of twenty eight
days and other. Goods and services that sold by the businesses are charged at 0% of
GST. This is because the supplier would not charge the input tax at zero-rated.
Although there is no output tax on the supply business but it may incur input tax on
overhead expenses etc. Therefore the eligible businesses are entitled to claim the input
tax that charged by the supplier. At the end of the time, consumers will not be charged
for GST.

For exempted-rate supplies such as residential properties, private healthcare

services, private education services and so on. The supplies of goods and services sold
by the corporate are exempted from GST. For such businesses, they are not eligible to
claim the input tax that had been charged but the supplier. The final consumer does
not need to pay for the GST. Which mean that the GST paid on input by the
businesses cannot be claimed as tax credit. For example to the end user, you spend
one million to buy a house, the property company can no longer ask you a 6% for
consumption tax. However, house building materials has imposed GST. Therefore
your house price has been charged.
For out of scope supply, any supply which is not fall within the charging provision
of GST will not be taxable. For example, business fall below the threshold.

Types of supply

Output Tax

Input Tax

Standard-rated

6%

Claimable

Zero-rated

0%

Claimable

Exempted

No GST charged

Not claimable

Why implement GST?

The purpose to implement GST is to replace the sales and service tax (SST) which
has been used in Malaysia for a number of decades. The government is seeking an
additional revenue to counterweight its budget deficit. Our governments earns is less
than spending. It leads to a fiscal deficit, which was 4.5% of GDP in 2012.
Introducing a GST could help the government increase the additional revenue, to
narrow the fiscal deficit as the consumption increases. The GST implementation is
part of the governments tax reform programme to be more comprehensive and enrich
the capability, effectiveness, efficiency and transparency of tax management and
administration of generating revenue.
There are some benefits to impose GST:
1. To reduce the deficit
Since our country is in the deficit position successively for more than ten years
and the Government is under enormous pressure to reduce the deficit.
Therefore the government looks into increasing tax revenues in order to
balance the books by implementing GST.
2. Lower the business cost
With GST, the qualified businesses are eligible to claim the input tax on raw
material and some incurred expenses. Thus they are benefit from recovering
the input tax to reduce cost.
3. Increase global competitiveness
Exports prices of Malaysia will become more competitive on the global stage
as no GST will be charged on exported goods and services, whilst input tax
incurred along the supplies chain can be fully refunded. It means that all goods
and services exported are free of tax. Hence, it allows our export industry
become more competitive and helps our country to progress even further.
4. Enhance compliance
The current sales and services tax has many intrinsic weaknesses that making
administration difficult. However, GST system has it in-built mechanism to
make the tax administration self-policy. Thus, it will enhance compliance.
Reference
Malaysia Goods and Services Tax (2014) Retrieved February 7, 2015 from
http://gst.customs.gov.my/en/gst/Pages/gst_wi.aspx