Goods & Service Tax (GST)

Introduction

GST (goods & Service tax) is also known as Value Added Tax (VAT). The Malaysian government has decided to implement the GST in replacement of the current Sales & Service Tax system starting from 1st January 2007. However, many people still do not know what is GST. Some even never heard of the term GST.

MKMA has held 2 seminars in Batu Pahat and Kuala Lumpur respectively to educate our members and the public on the basic concept of GST with overwhelming response of 110 participants from 46 companies in total.

What is GST?

THE GST is a tax on domestic consumption. The tax is paid when money is spent on goods and services, including imports.

The GST charged to customers is called output tax and that paid on purchases by businesses is called input tax.

What happens to the current sales tax and service tax? 

The current sales tax and service tax will be abolished by 2007. All persons who are at present licensed under the Sales Tax Act 1972 and Service Tax Act 1975 will need to register for the GST. The registration process is scheduled to start in July 2006.

How will it affect a supplier, manufacturer, wholesaler and retailer?

The supplier, manufacturer, wholesaler or retailer would have to pay for GST on his business purchases which are standard rated before selling his product. This means that he may have to carefully plan his cash flow and turn around time to cope with his business activity. Improper planning may lead to a huge cash flow deficit as it may take a few months before his product can be sold to the consumer. 

GST is imposed on every stage of input, until the final goods is sold to the customer.

Registration for GST

Any person who is required to be registered needs to do so with the Royal Malaysian Customs Department. Registration can be done online or manually. A person who is not required to be registered can opt for voluntary registration and claim input tax credit on his purchases.  

How is GST levied on imported goods and services?

For imported goods, GST will be levied together with the import duty and excise duty, if any, by declaring on the Import Declaration Form, and is payable at the time the goods are cleared from Customs control. The value of the imports should be in Ringgit.

In addition, a number of imported goods that are listed under the Import Relief Order are to be exempted from GST.

What about exported goods and services? 

All goods exported out of Malaysia will be zero-rated. This means that the registered exporter does not collect GST on his exports but is able to claim credit for the GST that he has paid on his inputs. However, the exporter must retain supporting documents such as the Export Declaration Forms and copies of his invoices issued as evidence of export.

How to claim input tax credit?

The GST registered person, who is actually the supplier of goods or services, is eligible to claim input tax credits for any GST paid in the course of making the supply.

The net amount to be paid to the Customs is the difference between the input tax and the output tax. If the amount is positive, then that amount is payable to Customs. If it is negative, then a refund can be claimed. The reason for this is that GST, being a value added tax, is only payable on the portion of the value added to the goods or services.

How to prepare for GST?

Companies need to consider how to carry out the preparation for a smooth GST implementation and compliance. They may wish to seek professional assistance to review his current system to identify his business set–up and supply chain and to change or modify the system to be GST compliant by end 2006 without disruption to the day-to-day business activities.

The right accounting software package complete with GST capabilities is essential. It is important for the accounting software to be able to integrate all the relevant data from the modules of sales, procurement, inventory, receivables, payables and to generate accurate and complete reports and forms required by the Customs. Having an e-filing feature will be ideal.

To ensure efficient and effective implementation, a committee needs to be set up and headed by a senior person, ensuring all departments of the company understand what is required of them in order to comply with the GST.

Training is vital on the usage of the accounting software and GST implementations.

Conclusion

The GST legislation is expected to be passed sometime in March or April 2006. It is hoped that the Malaysian Government will start off with a low GST rate.

With a broader base for goods and services being subject to GST, the revenue for the Government is expected to be higher. The GST, being a consumption tax, is likely to have a temporary inflationary effect on taxpayers.

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