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Goods & Services Tax (GST Malaysia) & How It Will Affect You

The nation has been buzzing with everything to do with Goods and Services Tax (GST Malaysia) ever since it was confirmed last year that it will be implemented effective 1st of April 2015.

The GST rate is fixed at 6% and the sales and service tax will be abolished. At present, the sales tax and service tax rates range between 10% and 6%. Many companies and businesses have been scrambling to prepare for the implementation of GST and it has been a harrowing journey for some.

The government has said that GST will improve accounting, reduce tax fraud, and facilitate enforcement of the upcoming Anti-Profiteering Act and it could also end help end dishonest business practices. Despite these good points, there have been concerns that GST about how the tax would be applied to medical products and services, which are essential to many people, especially how it will affect low-income Malaysians.

During the unveiling of the national budget, it was announced that the following items and services would be exempted from GST:

  • RON95 petrol, diesel, and LPG
  • Piped water for domestic consumers
  • Electricity up to 300 Kwh for domestic consumers
  • Transportation services such as bus, train, RT, ferry, boat, highway tolls and taxi.
  • Education
  • All local and imported fruit
  • Types of bread, tea, coffee, and noodles
  • Medication for the treatment of 30 diseases
  • Reading materials and newspapers
  • Lobsters
  • Government healthcare

If you’re looking for more information about it, check out the official website for the Malaysia Goods & Services Tax (GST) Royal Malaysian Customs Department.

This Facebook page, Apa tu GST makes GST relatively easy to understand. We also came across a list of questions from which you may find useful. Here are some Frequently Asked Questions (FAQ) related to GST that could help you understand GST better:

1. What is GST?

  • GST means Goods and Services Tax and it is a consumption tax based on the value-added concept.
  • GST Malaysia is imposed on goods and services at every production and distribution stage in the supply chain including importation of goods and services.

2. Is GST a new consumption tax?

  • GST will replace the present consumption tax comprising the sales tax and the service tax (SST).
  • The difference between GST and the present consumption tax is in terms of its scope of charge which is more comprehensive, inclusive of the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on business inputs.
  • When compared with the present consumption tax system, the sales tax is imposed only at the manufacturing stage that is at the time when the goods are manufactured or when the goods are imported.
  • On the other hand, service tax is imposed on specific services at the time when the services are provided to the consumer.

3.   Why the sales tax and service tax (SST) need to be replaced with GST?

  • GST is a more comprehensive, effective, transparent, and business-friendly tax system.
  • GST can overcome the various weaknesses inherent in the present consumption tax system.
  • The inherent weaknesses under the present tax system are the cascading tax, double tax and pyramiding tax, tax erosion, and leakages through transfer pricing and other means.
  • Besides that, GST is expected to increase tax compliance and is easier to administer in view of its self-policing method.
  • The businesses are required only to submit simplified tax returns based on prescribed formats.
  • All records and documents relating to the relevant transaction are required to be kept in the business premises for audit by the GST auditor.

4.   Why does the government want to implement GST?

  • The GST implementation is part of the government’s tax reform program to enhance the capability, effectiveness, and transparency of tax administration and management.

5.   Why the government proposes a GST rate which is lower than the current tax rate

  • The purpose of the government in proposing the GST at a lower rate is to neutralize GST impact on the rakyat and consumers so as not to unduly burden the rakyat especially the lower-income group.
  • By imposing GST at a lower rate, it is expected that the consumers will benefit from the price reduction in most of the goods and services.

6.  Is it true that those earning below RM4,000 per month who are not liable to pay income tax will now have to pay tax under GST?

  • This perception is not correct as the scope of charge for both types of tax is vastly different.
  • The scope of charge for income tax is based on income received by an individual whilst the imposition of GST is based on the consumption of goods and services.
  • Presently, those not liable to income tax still pay sales tax and service tax on goods and services that they consume.
  • The issue is, most consumers are not aware that the tax element has been embedded in the price of goods and services sold by the retailers.
  • As a matter of fact, the imposition of GST will not make any difference to the tax burden of those earning below RM3,000 monthly as they would have paid tax on the consumption of those goods and services.

7.   How does GST work?

  • GST is charged and collected on all taxable goods and services produced in the country including imports.
  • Only businesses registered under GST can charge and collect GST.
  • GST collected on the output must be remitted to the government.
  • However, businesses are allowed to claim the input tax credit through the following mechanism and method:
    i. GST collected on the output (output tax) is deducted against the GST paid on input.
    ii. If there is excess, the amount shall be remitted to the government within the stipulated period.
    iii. If there is a deficit, businesses can claim for a refund from the government.

8.  Who will collect GST and remit to the government?

  • GST can only be collected by persons who are registered under GST and the tax shall be remitted to the government within the stipulated period.

9.  How will the government ensure that the business will remit the right amount of tax collected to the government?

  • To ensure that businesses remit the right amount of tax, the government will conduct an early detection program through desk audit and transaction audit on the tax returns submitted by businesses for every taxable period.
  • The GST audit team will conduct field audits on records and accounts of businesses to ensure there is no tax manipulation by businesses.
  • Besides that, the GST risk assessment system, a computerized checking system, will trigger alerts relating to high-risk cases.

10. Will the GST rate be increased in the near future like what has been done by the Singapore government?

  • The main objective of the government is to ensure the smooth and efficient implementation of the GST.
  • The government has no plans to increase the GST rate like what has been done by the Singapore government.
  • The government is concerned and always take into consideration the interest and welfare of the rakyat before making any policy changes.
  • It is important to note that even though the sales tax was implemented since 1972, the rate has been increased only once in 1983, whilst the rate of service tax has never been increased since its introduction in 1975.

11. Are all goods and services subject to GST?

  • In principle, GST is imposed on all goods and services produced in the country including imports.
  • However, certain basic foodstuff likes rice, sugar, flour, cooking oil, vegetable, fish and meat, eggs and essential services such as health and private education, public transportation, residential property, and agricultural land are not subject to GST.
  • Such exemption is to ensure that the lower-income group is not burdened by GST.

12. What benefits will the rakyat get?

  • Based on a GST rate of 6%, it is expected that there will be a price reduction between 0.08% to 2.71% in respect of eight components of goods and services.
  • With this price reduction, the rakyat will benefit from cheaper goods and services such as clothing and footwear, basic food, communication, furnishings, hardware and maintenance, transport, housing, water, electricity, gas, and fuel.
  • The tax burden borne by the rakyat and consumers is expected to be lower compared with that under the present tax system.
  • This is due to the reason that various basic needs such as rice, sugar, flour, cooking oil, vegetables, fish, meat, eggs, and essential services such as public transport, private education and health, residential properties and agricultural land are not subject to GST.

13. Do all businesses need to be registered under GST?

  • Only businesses with an annual sales turnover of RM500,000 and above are liable to be registered under GST.
  • Businesses having an annual sales turnover of less than this amount are not liable to be registered under the GST.
  • However, such businesses can apply for voluntary registration.

14. How to apply for GST registration?

  • The online application can be made by accessing the form from the GST website.
  • For manual application, the application form can be obtained from any Customs Office or downloaded from the GST website.

15. Where and when an application for GST registration can be made?

  • Customs Office is open to accept GST registration from 1 June 2014.
  • Businesses that have reached the RM500,000 threshold shall apply for registration within 28 days from the end of the month in which the threshold is reached.
  • Applications for manual registration shall be submitted to any nearest Customs Office.
  • Online applications can be submitted directly to the One-Stop Processing Centre.
  • Online applications can also be made by using the computer and internet facilities provided at all GST offices nationwide.

16. Is there a registration charge for GST registration?

  • There is no charge for the GST registration processing.

17. Are exports of goods and services subject to GST?

  • Exports of goods and services are not subject to GST (subject to tax at zero-rate) to ensure that exports are more competitive in the international market.

18. How is the government going to control prices?

  • The government will take stern measures to ensure that the businesses do not take advantage of the GST implementation to increase the prices of goods to make excessive profits.
  • Measures to be taken by the government include introducing the Anti Profiteering Act, intensifying enforcement action through the National Pricing Council, distribution of Shoppers’ Guide, as well as making the hypermarkets act as price setters.
  • Heavier fines and penalties will be imposed to make sure that the businesses comply with the rules and procedures formulated.
  • These measures are aimed at changing the profit-centered attitude and unethical practices of the businesses.

19. Who will administer the GST?

  • The government has decided that the Royal Malaysian Customs Department (RMC) manages and administers the GST to be implemented in Malaysia.

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