GOODS AND SERVICES TAX

Issues and Implications

Presented by: Krishnan KSM

Module 1
Overview of GST system

What is GST?
Multi stage tax levied at every value added stage in the distribution chain Tax on consumption Indirect tax charged on imports and on value added to goods & services sold by one business to another or to end consumer Replaces current sales & services tax Basically a VAT Only value added at each stage taxed.

Rationale for GST

Broad based more tax can be collected at lower rate Overcoming the inherent weaknesses in the current GST system Cascading effect & double taxation price distortions - transfer pricing issues Stable source of revenue compared to income tax - minimal impact during economic downturn due to consumption nature of GST

Rationale for GST

More efficient effective & transparent tax system - less bureaucracy - self policing - enhances tax compliance Hidden / shadow sectors / industries encouraged to be in GST system - GST on input is claimable

How does GST works?

A Simple illustration
Assumption : GST rate is 4%
Output (Invoice)
Net Remitted
Tax RM4

Supplier
RM100 + RM4 (GST) = RM104

RM4

Tax Credit (RM4)

Manufacturer
RM300 + RM12 (GST) = RM312
Tax RM12 Tax credit (RM12)

RM8

Tax Authority
RM8

Retailer
RM500 + RM20 (GST) = RM520

Tax RM20

Consumer

-----------RM20 =======

Total tax collected RM20 (Equals Final Tax Paid by Consumer

How GST Works?

Inputs Taxable person

Outputs

Tax paid on inputs

Tax charged on outputs

Difference between Tax on outputs and Inputs remitted to government

GST Computation
Value for GST GST charged on value of the supply GST amount due calculated as value of supply multiplied by GST rate Value of Supply If consideration is cash the value of supply will be : Consideration = Value + GST If consideration not in money, the value of supply is the open market value

GST Computation
Example : Kemas Bhd produced 20,000 units of Product X in June 2010 valued at RM5,000,000 Input Tax Output Tax Component A RM1,000,000 x 4% = RM40,000 Component B RM800,000 x 4% = RM32,000 Production RM5,000,000 x 4 % Utilities RM50,000 x 4% = RM 2,000 _________ Input Tax RM74,000 Output tax RM200,000 Therefore net GST due to customs = Output Tax Input Tax RM200,000 RM74,000 = RM126,000

GST Computation
Value of imported goods & services Comprises the following : The value of goods for computing custom duty in accordance with custom rules The amount of custom duty paid or payable The amount of excise duty paid or payable The value of imported services shall be the consideration paid to the overseas vendor.

GST Computation
Value of goods imported Custom duty charged (20% x 50,000) Excise duty charged (10% x 50,000)
Value for GST purpose

RM50,000 RM10,000 RM 5,000 ------------RM65,000 ========

GST due on import 4% x RM65,000 = RM2,600

SCOPE AND CHARGE TO TAX

GST will be levied on :i. any supply of goods and services made in Malaysia and ii. any goods and services imported into Malaysia Tax on goods imported shall be charged & levied at the time of importation Imported services will taxed by adopting a reverse charge mechanism where recipient of services is treated as made the supply to himself and accounts for output tax

TEST FOR GST

The following criteria must be met before any person is subjected to GST:(i) there must be a supply of goods or services (ii) supply must be made in Malaysia (iii) must be a taxable supply (iv) the supply must be made by taxable person (v) the supply must be made in the course or furtherance of a business

Module 2
Mechanism of GST

Module 3
Registration Procedures

Liability To Register
Any person making taxable supplies of goods & services in Malaysia above a prescribed threshold of RM500,000, required to register for GST
Exemption applies when:
Making exempt supplies or taxable supplies below the prescribed threshold If making zero-rated supplies may apply for exemption

Calculation of Threshold
Include: Std rated supply, zero-rated supply & deemed supply
Exclude: Supply of capital assets, imported

services, supplies under W/H scheme, supply within designated areas, exempt supplies.

CALCULATION OF TAXABLE SUPPLIES

Any person who is not registered who makes taxable supply is liable to be registered if :(i) Taxable supplies for current month and preceding 11 months (Retrospective Basis) exceeded RM500,000.00 (ii) Reasonable grounds to believe that taxable supplies for current month and next 11 months (Prospective Basis) will exceed RM500,000.00 Above basis is also applicable if business is transferred to another person as a going concern. Person shall apply for registration within 28 days from the end of month where he has exceeded the threshold and shall be registered on the 1st of following month.

SINGLE TAXABLE PERSON

If there is artificial separation of business DG can make a direction for person to be treated as a single taxable person, regards having made to financial, economic and organisational links.

LATE REGISTRATION
Liable for late registration penalty equivalent to the specified percentage of tax which should have been payable during the late registration period as follows :a) b) c) d) 5% if within 30 days additional 5% after 30 days but not exceeding 60 days additional 3% for subsequent 30 days or part thereof and subject to a maximum of 25%

DEREGISTRATION
Deregistration is mandatory when taxable person ceases business of making taxable supplies.
Notify DG within 30 days of cessation of business. Must account for output tax on all balance of assets and stocks in hand.

GROUP REGISTRATION
Entitles a group to be registered as a single entity Conditions for group registration (i) each company to be first registered individually first (ii) each company must make wholly taxable supplies (iii) one member to be nominated as representative member (iv) taxable supply made to or by group shall be treated as made by representative member (v) supplies between members of group to be disregarded as a supply All members of group jointly and severally liable Registration at the discretion at the of DG

BRANCH REGISTRATION
Upon request by the branches and at discretion of DG Likely to be approved if:(i) single registration to cause difficulties (ii) each branch maintain independent records (iii) each branch separately identifiable by nature of activity or location (iv) each branch has some taxable period Corporate body remains accountable Branches shall remain registered for minimum of two (2) years

VOLUNTARY REGISTRATION
Persons not liable to be registered and makes or intends to make taxable supplies can apply for VR. Persons not liable to be registered but makes or intends to make taxable supply outside Malaysia and has a business establishment / residence in Malaysia and does not make / intend to make taxable supply in Malaysia can apply for registration VR is at discretion of DG Remain registered for period of 2 years Advantageous if dealing with registered businesses Advised to do a cost benefit analysis before submitting application

PARTNERSHIP
Registration will be in the name of partnership All partners liable for any taxes due and payable Changes in partnership must be notified Partner shall be still regarded as partner upon cessation until DG is informed of cessation

PERSONAL REPRESENTATIVES
PR carrying on business upon death, liquidation, bankruptcy etc of taxable person to notify DG within 21 days and shall be deemed a taxable person

Module 4
Important Concepts in GST

WHAT IS SUPPLY
GST can be charged only on supplies GST would classify any transaction or activity as supply In case of goods any transfer of property or possession will constitute supply In case of services anything done for a consideration will be a supply Supply not only involves supply of goods and services it will also cover other transactions e.g : Involving rights of entry and release from obligations, sale, barter, exchange, license, rentals, gifts, dispositions Anything which is not a supply of goods but is done for a consideration is supply of services In Malaysia legislation may deem certain supplies as not supplies e.g. transfers as going concern, pensions or provident funds, certain supplies by societies etc. The same legislation may also provide anything done with no consideration as a deemed supply e.g disposal of business assets business gifts donated goods For GST purposes the place of supply and time of supply must be established to determine liability to tax

TAXABLE SUPPLY
A supply of goods and services made in Malaysia other than an exempt supply but includes zero rated supply All supply of goods & services are taxable unless exempt The legislations will provide for exempt supplies Only taxable supply is subjected to GST

TAXABLE PERSON
Is a person who makes or intends to make taxable supplies Required to be registered under this Act Includes individuals, partnership, firms, companies, club/associations etc involved in business A taxable person cannot charge GST on supplies as long as he is unregistered

CONCEPT OF BUSINESS
Various interpretation and includes any trade, commerce, profession vacation or similar activity whether it is for pecuniary profit or not The following is deemed to be carrying on a business:(i) (ii) (iii) (iv) provision of facilities for a subscription e.g. clubs the admission for a consideration of persons to any premises anything done in connection with termination or intended termination of business disposition of any business as a going concern

Tests in UK to determine whether an activity constitutes business

(i) (ii) (iii) (iv) (v)

serious undertaking actively pursued with reasonable continuity conducted in a regular manner making taxable supplies for a consideration Making taxable supply for a profit

Types of supply
Taxable supply Standard-rated supply Zero-rated supply Non-taxable supply GST incurred on purchases Is NOT recoverable
GST incurred on purchases Is recoverable

Exempt supply

PLACE OF SUPPLY
Place of supply shall apply in determining whether goods & services are supplied in Malaysia for the purposes of charge to tax. The place of supply rules are different for goods and for services Supply of goods treated as made in Malaysia when goods originate from a place in Malaysia to a place in or outside Malaysia the place of supply is where the goods are located when goods are removed or made available to customers goods removed from outside Malaysia to another place outside Malaysia or from outside Malaysia to Malaysia the goods are treated as supplied outside Malaysia location of person making the supply does not have any effect on the place of supply of goods Supply of services treated as made in Malaysia if supplier belongs in Malaysia i.e has a business or fixed establishment in Malaysia or usual place of residence in Malaysia. if he has an establishment in more than one country then he belongs to the establishment most directly concerned with that particular supply. place where services performed, agreement concluded and place of receipient is irrelevant in determining place of supply of services.

TIME OF SUPPLY
This refers to the time when supply is made (referred to as tax point) This determines when the taxable person should charge tax and liability for GST arises. The basic tax point for supply of goods is when goods are removed or made available The basic tax point for supply of services is when services are performed In general time of supply is earliest of: when goods are removed or made available or services are performed tax invoices is issued when supplier receives payment If tax invoice is issued within 21 days of goods are removed or made available or services are performed and no payment is received, then date of tax invoice is time of supply.

SPECIAL TIME OF SUPPLY RULES

Under certain circumtances special rules are needed to determine time of supply. These operates by ignoring basic tax point and using the earlier of the invoice date or payment received date. Goods on sale or return basis or on consignment when sale is confirmed or 12 months after removal whichever is earlier Supplies of power, water, gas and light Vending or coin operated machines when coins are removed Imported services when services are paid Continuous services when invoice issued or payment received whichever is earlier Supplies in constructions contracts - earlier of tax invoice or payment received Supplies of service over a period e.g. hiring or professional services earlier of payment received or tax invoice issued by supplier

VALUE OF SUPPLY
GST is charged on value of supply i.e consideration received Consideration can in monetary or non-monetary form Monetary consideration Value = Consideration GST (Consideration = Value + GST) Non monetary consideration i.e partly in money terms Value = Open Market Value (OMV) Determination of OMV is subject to Third Schedule of GST Act where factors like circumstances of supply and connected persons are taken into account.

Value of imported goods shall be the sum of the:(i) value for purpose of customs duty (ii) amount of duty paid or payable (iii) amount of excise duty paid or payable Value of imported services is the consideration paid to the overseas supplier

EXEMPT SUPPLY
Non-taxable supplies not subjected to GST Exempt trader to pay GST on his inputs but not eligible to claim credit for tax paid All tax exempt goods shall bear some tax content Where tax exempt goods imported into Malaysia no tax shall be chargeable

ZERO RATED SUPPLY

Taxable supply subjected to zero rate Zero rated supplier not required to charge tax but is entitled to claim input tax credit (ITC) All goods exported are zero rated and other supply of goods & services as determined by Minister Any goods claimed to have been exported (and zero rated) if found in Malaysia tax shall become due and payable and goods liable to seizure

OUT OF SCOPE SUPPLY

Is a supply falling outside the scope of GST Input tax incurred on making out of scope supply cannot be claimed The following are deemed as out of scope supply :(i) where laws deems that there is no supply - intra group supplies - transfer as going concern - gifts of industrial or commercial samples - contributions to provident or social security funds - certain supply by any society - supplies excluded from any credit (ii) transactions outside Malaysia (iii) supply by non-taxable persons (iv) transactions not in the course of business (v) supply before implementation date

Module 5
Accounting for GST

Taxable Period
Determined as follows : Category A - Monthly basis if AT > RM5m Category B - Quarterly basis if AT< RM5m

Category C

- 6 months interval special case subject to approval

For any other category discretion of DG

ACCOUNTING BASIS
Taxable person to account for tax in accordance with time of supply (tax point) Invoice Basis (Accrual) standard accounting basis GST to be accounted on date invoice is issued claim for input tax when invoice is issued Payment Basis may be allowed depending on value, nature & volume of business GST accounted based on actual payment made or received ITC can be only claimed after payment made

TAX INVOICE
GST is a invoiced based system Registered persons shall issue a tax invoice:a) Containing prescribed particulars b) Within 21 days after time of supply or any longer period as determined by DG c) Stating separately the value, rate of tax and total tax chargeable except as otherwise allowed by DG The DG upon request may dispense with the requirement of a tax invoice or allow for simplified tax invoices Self billing invoices and documents issued by auctioneers to buyer may be treated as tax invoices with prior approval from DG No tax invoice shall be issued on :(a) Supply of goods & services which is not a taxable supply (b) On any zero rated supply (c) By any non-registered persons No tax invoice is required for :(a) Zero rated supply (b) Supply without consideration (c) Supply of second hand goods (d) Supply of imported services

Any person who contravenes the above commits an offence.

KEEPING AND FILING OF RETURNS

All records of goods and services supplied e.g tax invoices, invoices receipts, debit and credit notes, import / export declaration forms etc. Records to be kept for period of 7 years Mandatory to submit tax returns for each taxable period To be submitted not later than last day of month following end of taxable period Taxable person to submit final returns if he ceases business and account for tax on balance of assets Non-taxable persons e.g. recipients of taxable services, auctioneers and toll manufacturers to submit returns on last day of following month Late registration to furnish returns for unaccounted period To submit nil returns Penalty for non-compliance, fine not exceeding RM50,000.00 or imprisonment not exceeding 3 years or both

INPUT TAX CREDIT

ITC can be claimed based on following conditions: claimant must be a taxable person goods & services acquired for purpose of making taxable supply there must be valid tax invoice invoice must be under name of claimant goods & services not subjected input tax restriction e.g motor cars The mechanism of ITC claim is as follows: setting off of ITC is subject to a time limit of 6 years from date of return required to be made refund of ITC may be offset against future output tax or against unpaid taxes e.g. customs duty excise duty, or unpaid GST ITC to be refunded within 14 days for online submission and 28 days for manual submission If supplies are for both taxable and non-taxable purposes. ITC must be apportioned. Supplies for non-taxable purposes cannot be claimed.

INPUT TAX APPORTIONMENT

Applicable when goods and services are used for both business and non business or taxable and non taxable supplies Input tax attributable to taxable supply can be claimed Input tax directly attributable to exempt supply cannot be claimed Input tax attributable to both taxable and exempt supply (residual input) need to be apportioned by a formula based on turnover method

Y (recoverable %) = Taxable Supply Taxable Supply + Exempt Supply

x 100

If standard method cannot be used other methods such as input based method, transaction based method or cost centre accounting can be used subject to approval

EXAMPLE OF INPUT TAX APPORTIONMENT

Taxable supplies = RM 300,000.00 (Attributable Input Tax is RM 15,000.00) = RM 700.000.00 (Attributable Input Tax is RM 35,000.00)

Exempt Supplies

Residual Input Tax = RM 8,000.00 Recoverable % = RM 300,000.00 (Taxable Supply) x 100% RM 1,000.00 (Total Supply) = 30% Note : Claimable Input Tax = 30% x RM8,000.00 = RM2,400.00 Total claimable ITC = (RM 15,000.00 + RM 2,400.00) = RM 17,400.00

BLOCKED INPUT TAX

There are a number of occasions when input tax is secifically treated as non-deductible. These are : Employee benefits e.g. club subscription fees & motors cars ( non-business ) Family benefits (non business) Medical and personal accident insurance Medical expenses (non business) Entertainment expenses (non business) except employees

Input tax made non-deductible in this way is referred to as blocked and no GST will be imposed on subsequent supply of the above items.

BAD DEBTS PROVISION

Refund for bad debts may be given provided following condition is satisfied :(i) (ii) (iii) (iv) tax has been paid no payment is received 6 months from date of supply debtor becomes insolvent before period of 6 months all reasonable efforts taken to recover debt

Taxable person can make a deduction or make a claim Amount of relief is governed by following formula:Output tax Paid x Outstanding Consideration Total Consideration

In the event the debt is recovered tax must be repaid by using this formula :GST previously claimed x Amount of dent recovered Outstanding Consideration

Module 6
1. Transitional issues 2. GST applicable to various sectors 3 .Getting ready for GST & Implications 4. Special treatment / rules

TRANSITIONAL ISSUES

Non-Renewable Contract
Any contract entered before implementation with no opportunity for review, shall be treated as zero-rated supply for 5 years or until review opportunity arises whichever is earlier provided it is a taxable supply and recipient is GST registered

Special refund stocks on hand subjected to sales tax

Refund of actual sales tax amount shown on the invoice / import documents (For manufacturers) If sales tax paid amount not shown in the purchase invoice the special refund calculated as : - Actual purchase price x 20% x sales tax rate

Rights granted for life

Not subject to GST if
Granted for life Granted for period not less than 30 years

Subject to conditions
Granted & exercisable before GST commencement Paid in full before commencement of GST

Note : Applicable to Club membership etc

PROGRESSIVE OR PERIODIC PAYMENT

If supply is made over a period or progressively over period which straddles GST implementation date:(i) for goods the proportion of supply on or after implementation shall be chargeable to tax (ii) for services it shall be taken to have been made continuously and uniformly throughout the period The above shall not apply to :- supply of warranty where value of warranty is included in the price - provision of services where service tax has been paid - any contracts with no opportunity to review

RETENTION PAYMENTS
All retention payments in respect of any supply made after implementation date shall be chargeable to tax even if contract is entered before implementation

CONSTRUCTION AGREEMENT
Supply of goods & services under an agreement before implementation date and made available after implementation date the value of work shall be determined as at beginning of implementation date. Tax shall be due and payable on supply to the extent of value of supply exceeds value determined at implementation date. An architect certificate to be produced

PAYMENTS & INVOICES BEFORE IMPLEMENTATION

Tax shall not be charged on supply of goods and services or importation before implementation date However :(i) if payment is received before implementation for supply which is to take place after implementation ; or (ii) an invoice issued for supply which is to take place after implementation then GST to be accounted for in the first taxable period after implementation If imported goods have not be released at the time of implementation, it shall be treated to be imported when goods are released from customs control

Unredeemed Vouchers
Goods or services supplied after GST implementation date in respect of vouchers issued before GST implementation date shall be subject to GST

SPECIAL SCHEMES

Special Schemes
Objective : To provide cash flow relief
Approved Trader Scheme
Facility given to major exporters where GST on imports is suspended

Approved Toll Manufacturer Scheme

Facility given to local toll manufacturer to disregard tax on value added charges to overseas client

Approved Jewellers Scheme

GST suspended on gold & precious metal acquired by jewellery manufacturers

Special Schemes
Flat Rate Scheme
To allow farmers to collect additional charges at specific rate from buyers of their produce so as to recover their cost (input tax) on their purchases

Margin Scheme on Second hand goods

GST charged only on the margin (SP CP) Formula to be applied GST on margin = Tax fraction x (SP CP) Where tax fraction = Rate of GST 100 + Rate of GST

Special Schemes
Warehousing Scheme
GST suspended on goods received into warehouse Goods released into principle customs area subjected to GST GST suspended when goods moved from one LW to another Goods released to overseas market to be zero rated All value added services inside LW to be standard rated (e.g storage charges)

Special Schemes
Objective : To promote tourism
Tourist Refund Scheme
Tourist allowed to claim GST paid on purchase

Designated area
No GST in Labuan, Langkawi & Tioman

Agents
Agent acting in his own name should account for GST as taxable person If acting on behalf of principal, than principal should account for GST Agent importing on behalf of non-taxable person will be treated as principle and must account for GST

CAPITAL GOODS
The proposed treatment of capital goods are as follows:a) capital goods to be standard rated b) input tax can be claimed at once except motor cars c) capital goods used for non taxable supplies the input tax to be apportioned d) adjustment to input tax that has already been claimed if taxable use increases or decreases over the period e) intangible assets to be treated as out of scope supply.

VOUCHERS, STAMPS & TOKENS

Categorized as monetary & non monetary Monetary vouchers - treated as medium of exchange - disregarded for GST purpose - if monetary vouchers are sold for more than the face value the taxable person to account for GST on the excess - when vouchers redeemed the taxable person supplying the goods to account for GST Non monetary - treated as supplies when sold or issued - GST to be accounted for at time of supply of such vouchers - when vouchers redeemed not considered supply & no GST is incurred. Discount vouchers - treated as non-monetary - no GST due when redeemed - if of monetary value, the value to be deducted from price of goods

FRINGE BENEFITS

Two forms of fringe benefits (i) employer provides free goods to its employees (ii) employer bears private expenses incurred by employees If goods & services acquired are given as fringe benefits to employees they are considered as used for business purposes Proposed treatment as follows (i) GST charged on cost of free goods except motor cars (ii) employer cannot claim input tax credit on motor cars & club subscriptions which will be blocked and no GST on subsequent supply (iii) value of fringe benefits is based on OMV

FREE COMMERCIAL ZONES AT PORTS AND AIRPORTS

Activities carried out in FCZ at ports & airports include break bulk, replacing etc. GST treatment is proposed as follows:-

goods brought into FCZ, GST to be suspended exports to be zero rated local sales to be standard rated goods & services consumed in FCZ to be standard rated

FREE COMMERCIAL ZONES OUTSIDE PORTS & AIRPORTS

Trading activities are allowed in FCZ outside Ports & Airports. GST is proposed as follows:

goods brought into FCZ, GST is suspended goods brought into local market from FCZ, subjected to GST goods/services supplied or consumed within FCZ to be regarded as out of scope supplies goods/services supplied from PCA to FCZ is to be zero rated.

FREE PORTS OF LANGKAWI, LABUAN & TIOMAN (Designated Areas)

goods currently subjected to sales tax in free ports to be standard rated goods & services brought into PCA subjected to GST goods & services consumed within free ports are regarded as out of scope supplies goods & services from PCA to free ports to be zero rated.

INLAND CLEARANCE DEPOTS

goods brought into ICD, GST suspended goods released from ICD to local markets, subjected to GST goods exported to be zero rated goods consumed inside ICD is subjected to GST

DUTY FREE SHOPS

Goods brought into DFS,GST suspended Goods sold in DFS not subjected to GST

LMW and FIZ

Normal GST rules applies:(a) (b) local sales to be standard rated. export sales to be zero rated.

GST TREATMENT BY SECTORS

GST Treatment by Sectors

Education
Proposed to be exempted Includes related services provision of meals, accommodation & laundry services (If outsourced to another taxable person it will subject to GST)

Health
Proposed to be exempted

GST Treatment by Sectors

Transport
International flight passengers to be zero rated Domestic transportation of passengers for mass public transport by rail, ships, boats, ferries, express bus, stage bus, workers bus, school bus, feeder bus & taxi International transportation of freight to be zero rated. But domestic transportation to be standard rated. Any other forms of passenger transport not classified above to be standard rated

GST Treatment by Sectors

Financial services
Exempted : Granting of loans, currency exchange & sale of securities, life insurance & reinsurance, underwriting & guarantee fees, standard instruction fees, cheque clearance commission, shared ATM services & provision of ATM cards.

Std rated :
fees

commission & advisory management & financial services which attract

Zero rated :

Exported financial services

GST Treatment by Sectors

Electricity
Supply of electricity to domestic & business customers std rated First 200 units of electricity to domestic customers zero rated

Water
Supply of water / water waste treatment (sewerage) std rated First 15 cubic meters to domestic users zero rated

GST Treatment by Sectors

Land, property & construction (LPL) All supplies related to LPL be standard rated except :
Granting of land by state govt Sale, lease or rental of residential land & agricultural land Sale, lease or rental of residential houses Govt rent

Telecommunications
Std rated if rendered and consumed in Malaysia

v) Agriculture & Mining

Generally agricultural supplies are proposed to be standard rated but certain supplies that are food for human consumption are proposed to be zero rated: Paddy, rice & vegetable Livestock supplies Live or meat or fish

Forestry & Mining activities to be standard rated vi) Petroleum Petroleum divided into upstream and downstream activities Upstream activities - to standard rate supply of crude oil & gas in domestic market Export sales to be zero rated Downstream activity - all petroleum products to be standard rated Related Upstream activities to be standard rated

xi)

Exported / International Services The following supply of services is proposed to be zero rated when made by suppliers that belongs to Malaysia. a) services wholly performed out of the country b) services supplied directly in connection with land or any improvements to land thereto situated outside Malaysia c) services related to export of goods d) services relating to handling, repair and maintenance of foreign going ships and aircraft e) services which directly benefit a person who belongs in a country other than Malaysia and not in Malaysia when the services are performed.

xii)

Government Supply of public services are more regulatory and enforcement in nature. GST treatment of such services is proposed as follows : all types of supply by federal/state government to be treated as exempt supplies with few exceptions such as supply of water

taxable supplies by local authorities/statutory bodies in the course of furtherance of business to be standard rated.

xiii)

Charities Charities do not charge for supply of goods / services. GST treatment is proposed as follows:a) donated supply of goods/services to charities are exempt and donor allowed to claim ITC b) cash donations are not subject to GST c) one off fund raising activities by approved charities to be regarded as non-business activity d) free supply of goods/services by approved charities not subjected to GST e) business activities conducted by charities subjected to GST and includes sales of donated goods.

xiv) Clubs, Association & Other similar organization

Provision of facilities or benefits to members deemed business therefore membership subscriptions will attract GST. However non-profit entities are proposed to be exempted. The following regarded as non-profit: trade unions and similar organization professional associations an association whose main purpose is the advancement of a particular branch of knowledge an association whose main purpose is to make representations to the government

GETTING READY FOR GST

( GST IMPLICATIONS )

Areas Pricing Policies

GST Implications

Changes in selling price of supplier due to abolishment of SST and replaced by GST Negotiate with supplier / vendors on prices of raw materials / trading stocks Sensitivity of price with regards to Sale & Demand Input tax claimable Value should not increase & GST should not have cascading effect Customer reaction on price Anti profiteering Act will come in force

Areas
Cash Flow

GST Implications

Need to analyze cash flow impact with taxable period GST payment would impact cash flow Cash is recovered from customer before GST is due To create a one time fund to cater for GST payment up-front Timing differences may impact cash flow of business Credit Terms May result making payments of GST before collection from customers Need to review credit terms and issuance of invoice

Areas

GST Implications Ensure a proper matching of payment of tax to government and payment received from customers Ensure GST compliance by review of accounting / recording system Bad debts claims evidence of reasonable efforts to recover the debt Discount may result Goods & Services selling below open market value

Bad debts

Discounts

Areas

GST Implications

Purchase from non registrant is not eligible Voluntary to ITC Registration Non registered entity less attractive to registered person Small business may voluntarily register to remain competitive (level playing field) Cost benefit analysis before registering Requirement to show price as GST Advertising inclusive Marketing strategy in comparison of competitors price

Areas

GST Implications

Gifts & promotional items Commercial samples Gifts RM500 made in furtherance of

Price structure with regards to gifts &

Structure

business given to same person in the same year (no GST) Commercial samples in a form not ordinarily available for sale to the public Review of marketing function for efficiency (compare in SST vs GST)

Areas
Procurement

GST Implications
Type of each supply Standard Rate, Zero Rate, exempt or out of scope Pricing negotiation GST inclusive / exclusive Amount of ITC to company Whether suppliers registered person or not

Possession of valid tax invoice / import declaration required for claiming ITC Documentation Simplified tax invoice RM500 Full tax invoice Accounting system able to capture and keep track GST in financial year

Areas

GST Implications

Trade-in goods, GST is accounted based on Trade in Hire open market value Purchase Hire purchase GST is accounted on the full value of goods at time of purchase (excluding interest payments). Subsequent installment payments not subject to GST
To identify whether taxable or not in order to pass cost to recipient Contract negotiation GST inclusive / exclusive in price Trade terms & funding for GST payments may not be received before GST payable

Supplies

Areas
Reporting

GST Implications
Infrastructure accounting system Format of reporting

Issuance of 21 days rule Tax Invoices Format comply to GST Regulations

Full or simplified tax invoice

Systems / software

Online submission to customs GST ready software / system may not be up to standard Replacing existing system

Areas
Staff Training

GST Implications
To upgrade understanding of GST (e.g. Fringe benefit) To avoid unnecessary mistake False / wrong information declared may open for audit case Monitor business stocks (e.g. raw materials) - Special refund - Conduct stock take Computerized accounting system
Legal advice with regards to contract Avoid long term contract without legal review

Contract

Areas
Compliance

GST Implications
Rulings Penalties for non-compliance 7 years Language Electronic form / manual form

Keeping Records

Risk Management Policies and procedures to be review

Customs Risk Rating

High rating may delayed process of refund Subject to compliance audit