Professional Documents
Culture Documents
TAX INVOICE
CREDIT NOTE & DEBIT NOTE
RECORD KEEPING
ACCOUNTING BASIS
TAXABLE PERIOD.
ACCOUNTING FOR GST & ADJUSTMENTS
PARTIAL EXEMPTION & ANNUAL ADJUSTMENT
DE MINIMIS RULES
Page 1
Tax Invoice
REFERENCE
GST Act :
Section 33 Issuance of tax invoice
Section 34 Production of tax invoice by computer
In some cases, the DG may allow the person to issue a simplified tax invoice
or a self billed invoice.
In rare cases, the DG may allow a registered person not to issue a tax invoice
if he is satisfied that it will not be appropriate for the person to issue a tax
invoice.
Goods sold by auction or otherwise than by auction, such person selling the
goods may issue documents to be treated as a tax invoice.
Page 2
Tax Invoice
DGs decision 06/15
Tax invoice for disregarded supply and out of scope supply
For disregarded or relief supply must use tax invoice
Tax value state NIL
Must state on the tax invoice at the tax element part Disregraded
or relief
Out of scope supply must not use tax invoice, normal invoice will do.
Amendment of Section33, Subsection 10 (wef 1.1.2017)
Any person who is not a registered person, except the persons mentioned in
subsections 65(4) and 5, shall not issue:
c) An invoice showing an amount which purports to be tax or an amount
inclusive of tax; or
d) An Invoice which purports to be a tax invoice with or without tax.
Page 3
Tax Invoice
Page 4
Tax Invoice
Issuance of Tax Invoice (Sec.33 GST Act)
Tax invoice shall be issued:
By every registered person
Who makes any taxable supply
In the course of furtherance of any business
In Malaysia
Must be issued within 21 days after supply has taken place or within
any longer period as the DG may allow.
Contains prescribed particulars ( as per GST regulations)
S.33 (2) - Any person who contravenes this section commits an offence.
Page 6
Tax Invoice
Tax Fraction
Tax fraction is the GST amount of the consideration
The calculation of the tax fraction is as follows:
Tax Fraction = Tax Rate
X Amount of the consideration
100 + tax rate
Example :
= 6%
X RM 100
100% + 6%
= 6
X RM 100 = RM 5.66
106
Page 7
Tax Invoice
Tax Inclusive
In retail business, it may be more practical to treat the sum of money
received from your customer ( consideration) as inclusive of GST.
The tax invoice should still show the GST as a separate amount and you
can state the GST inclusive prices and indicate with the words price
inclusive of GST
Example:
= RM 1,590 x 6/106
= RM 90.00
Page 8
Tax Invoice
Tax Exclusive
Tax exclusive refers to the amount of GST paid as shown in the tax
invoice with separate GST amount
Example:
Assume that you sell goods at RM 1,500
GST @ 6% = Price x Rate of tax
= RM 1,500 x 6%
= RM 90.00
Charge customer RM 1,500 + RM 90.00 (GST) = RM 1,590 and remit RM
90.00 to Custom.
Types of Tax Invoice
Page 9
Tax Invoice
Full Tax Invoice
Page 12
Tax Invoice
5. For each description , distinguish the type of supply for zero rate,
standard rate and exempt, the quantity of the goods or the extend of the
services supplied and the amount payable, including tax;
Page 13
Tax Invoice
The concession to issue simplified tax invoices is relevant for businesses
that deals with walk-in customers who are often end customers, e.g.
hypermarkets, minimarkets, cinemas, petrol kiosks, parking operators and
restaurants
The law requires the approval above to be preceded by a written application
by the registered person.
However, the DG, via his decision 1/2015, has granted blanket approval to all
GST registered person who make supplies to end consumers (i.e. not
businesses) to exclude the following particulars from the tax invoice:
List by the DG Remarks
1. The word Tax Thus, tax invoice may be titled as a Simplified tax
Invoice invoice of receipt or simple a tax invoice
2. The total amount These details must be included in the tax invoice
payable exclusive of upon request by the recipient
tax
3. The total amount Here, only the requirement to indicate total amount
payable exclusive of exclusive of tax is waived. There is no written
tax evidence available in public domain to waive the
requirement to state on the simplified tax invoice the
tax exclusive price of each supply. Many POS systems
overlook such requirement and instead state the
price inclusive of tax for each supply.
Page 14
Example of Simplified Tax Invoice
Total *7.40
Simplified tax invoice can be used to claim any amount of input tax
credit provided it contains the name & address of the recipient.
Simplified tax invoice which does not have the name and address of the
recipient, the maximum of input tax to be claimed must not exceed RM
30.00 (6% GST).
If the amount of GST payable is more than RM 30.00, the recipient can
only claim input tax of RM 30.00
Recipient must request to include his name & address in the simplified
tax invoice to enable him to claim the full amount of input tax if GST
payable is more than RM 30.00.
Page 16
Tax Invoice
Tax Invoice for Mixed Supplies
A supplier may make exempt, zero-rated and or standard rated supplies
simultaneously to the same customer.
Issues one invoice to document such transaction.
The tax invoice issued must clearly distinguish the taxability of the
supplies ( exempt, zero-rated or standard rated) made.
Indicate separately the applicable value and the GST rate charged (if
any ) on each supply.
Example:
Page 17
GST (6%) RM 60
Example of Tax Invoice for Mixed Supply
Megah Wholesalers Sdn
Bhd TAX INVOICE TAX INVOICE No: 000121
No,25 Jalan Besar, 45500 Suppliers Name
The words Tax
Ceras , Kuala Lumpur Address & GST Tax Invoice
Invoice clearly
Identification serial number
(GST ID No: 1000035/2012) indicated
NO.
Date : 25 / 11/ 2013
To : Ali Minimart Sdn Bhd
Customers Quantity of goods or Date of Tax Invoice
No.23, Jalan Murni 1, 71800 Name Address extend of service
Pajam, Negeri Sembilan supplied D/O No : 600578
GST Rate.
Add: GST @ 6% 300,000.00
Total
Total Sales
Amount of 12,300,000.00
GST charged.
Total Charged including GST.
Page 19
Simplified Tax Invoice Mixed Supply
Suppliers name, address & Tax Invoice
GST identification number serial number
Date of Tax
Crme Cracker Biscuits (Pack) Invoice
010611 1 3.90 3.90 S
Indicator for
Pringles Snacks 200g (Pcs) standard rated
004239 1 6.90 6.90 S supply
Sugar
002234 Description of 2 1.45 2.90 Z
goods & service Indicator for
supplied zero rated
supply
Item count 3
Total Amount
Total Sales inclusive GST @ 6% 13.70 payable
including GST
Rounding Adjustment 0
Cash 14.00
Balance 0.30
Total amount
GST Analysis Goods Tax of GST
S = 6% 10.18 0.62 charged
Z = 0% 2.90 0.00
Page 20
Tax Invoice
Cash Register Rolls / Point of Sales Receipt Rolls
If goods are bought from a wholesaler / retailer who is GST registered
person, the receipt given can be considered as a simplified tax invoice.
This receipt can be used to claim input tax if you are registered person
as long as it contains the particulars approved by the Director General:
Suppliers name and address & GST identification number
Date and serialized receipt number
Description sufficient to identify the goods supplied
Quantity and price for each line
Amount payable inclusive of tax; and
Total amount of GST charged
Other documents as a Tax Invoice
DG may allow a registered person to use a document to be treated as a tax
invoice. Registered person must apply in writing to the DG.
DG is satisfied that it will not be appropriate for the registered person to
issue a tax invoice.
Bank statement can be treated as an invoice as it is not practical for banks to
issue a tax invoice due to large volume of transaction.
Page 21
Tax Invoice
Self Billed Invoice
Self-billed invoice allows recipients to issue a tax invoice to himself in
respect of supply of goods or services to him by the supplier.
Application for self-billing to be made by recipient to the DG for such
invoice to be treated as a tax invoice if:
1. The value at the time of supply is not known by the supplier
2. The recipient and the supplier are both registered persons;
3. The recipient and the supplier agree in writing to a self billed
invoice.
4. The supplier and the recipient agree that the supplier shall not
issue a tax invoice
Examples
Total charge
including GST
Total amount of
GST charged
* The GST shown is your output tax due to the government
Page 24
Tax Invoice
in the case where the self-billed invoice is issued before the time of supply
of goods, the self-billed invoice shall be issued with payment; and
the supplier and recipient shall notify each other if either one of them
ceases to be registered for GST, transfers his business as a going
concern or becomes registered under a new identification number.
Page 25
Tax Invoice
Page 26
Tax Invoice
Page 27
Tax Invoice
Tax invoices issued by Agents (seller) on behalf of a principal
The principal is the seller and not the agent.
If principal is a registered person, the agent may issue a tax invoice
including credit /debit notes with the principals details.
Principal remains liable for accounting of tax.
If the agent is a registered person, he must issue a tax invoice to claim
the commission from the principal for his services as a selling agent.
Agent is liable for accounting of tax on agency commission
Page 28
Tax Invoice
Tax invoices issued by Agents (seller/buyer) in his own name
In case of an agent who buys or sells goods & services in his own name, he
is the buyer or seller.
If the agent is a registered person, he must issue a tax invoice in his own
name and be liable to account for GST.
Agents must keep a complete record of the name, address & GST number of
their principals in any transactions.
Invoice in a Foreign Currency
If the amount of the supply stated in a tax invoice is in foreign currency, the
following particulars in the tax invoice have to be converted in RM for GST
purposes:
Amount payable before GST
Total GST chargeable; and
Total amount payable including GST
Foreign currency converted into RM by using the open market rate of
exchange prevailing in Malaysia at the time when the supply takes place.
Proforma Invoice Is NOT regarded as a tax invoice.
Can only claim input tax on your GST return if you have proper tax invoice.
Supplier must provide you with a proper tax invoice for claiming GST.
Page 29
Tax Invoice
Duplicate copy of Tax invoices.
Issue one (1) original tax invoice for each transaction. If customer request
for duplicate copy due to damage of lost invoice, may issue a copy marked
copy only to enable recipient to claim input tax
Importation of goods & services
GST for imported goods are declared and paid at the time of importation
whereas GST on imported services (S.13) is accounted by way of reverse
charge mechanism.
Recipient has to pay tax for the imported services he receives and at the
same time claim input tax in his GST returns. Reverse charge mechanism is
an accounting procedure where recipient (as the customer) of the supply,
acts as both the supplier and the recipient of the services.
Page 30
Tax Invoice
The recipient of imported services does not hold a tax invoice for the
imported services. If the importer of the services is a registrant, the imported
service is deemed to be supplied to the recipient and he has to account for
the GST in the GST returns covering the taxable periods in which the
imported service was paid.
The recipient of imported goods does not hold a tax invoice for the imported
goods. GST is paid at the time of importation based on the invoice from the
overseas supplier using customer declaration forms ( Customer forms 1 & 9).
These declaration forms will be sufficient for the purpose of input tax claim
by the importer or buyer.
Page 31
Tax Invoice
If the tax invoices, receipts, credit notes are issued electronically, these
documents should be readily accessible and convertible into writing.
Page 32
Tax Invoice
The requirements for issuance of electronic documents are:
a. The intended recipients must confirm in writing that they are prepared to
accept electronic documents under the conditions set out.
b. Both the supplier and recipient of the supply must retain the documents in
readable and encrypted form for a period of 7 years from the date of supply.
c. Must also have access to the necessary codes or other means available to
enable Customs auditors to compare the documents in readable form from
those in encrypted form
d. For tax invoices, receipts, credit or debit notes that are issued manually and
is subsequently converted into an electronic form, these documents should
be retained in its original form prior to the conversion.
e. Taxable person must establish controls to ensure the electronic tax invoices
cannot be manipulated before and during transmission.
f. Taxable person should not issue tax invoice in paper form to customers
whom you have already issued electronic tax invoice. ( In the event that you need to
issue the tax invoice in paper form, you must take the necessary measures to prevent double
claiming of input tax by your customers e.g. invalidate either the paper form or electronic form of the
tax invoice issued)
g. The taxable person should print and keep a hard copy of the electronic tax
invoice issued if he does not intend to store the tax invoices in electronic
media.
Page 33
Tax Invoice
Production of tax invoices by computer-Amendments to S,34 (wef 1/1/2017)
Page 34
Tax Invoice
Production of tax invoices by computer-Amendments to S,34 (wef 1/1/2017)
Amended by inserting new section 34A and 34B
The registered person prescribed under subsection (1) shall:
At any time allow any officer of goods & services tax or any person approved
by the DG to install the device and to configure, integrate or inspect the
device installed at his business premises;
Make all effort to ensure:
1. That the device, after being supplied and installed, is not moved,
manipulated, tampered or interfered with; and
2. That the use of the device is not obstructed by any person or any other
device; and
3. Notify immediately the DG of any failure of functionality and operation of the
prescribed device in normal condition
FRS is a scheme that allows any person who is not liable to be registered
and is carrying on a business involving the prescribed activities such as crop
production, livestock and fishery to recover the embedded GST on their
purchases.
Under FRS:
Approved person shall issue an invoice and charge a prescribed flat rate
addition in the consideration for any supply of taxable goods to GST
registered persons (buyers)
Approved person is not allowed to claim ITC
Buyers (registered persons) can claim ITC based on flat rate addition
incurred
Approved person need not submit returns nor remit flat rate addition
collected to Customs
Approved person must submit annual sales statement to the Director
General
Page 36
Tax Invoice
Invoice for FRS:
An approved person shall only issue an invoice with a flat rate addition for
any supply of taxable goods to GST registered person with respect to the
prescribed activities of his business. Invoice issued under the scheme should
have the following particulars:
Page 37
Tax Invoice
Note:
DG decision 06/15
Page 38
ACCOUNTING FOR GST
&
ADJUSTMENTS
Page 39
IMPACT OF GST
With the repeal of the Sales Tax Act 1972 and the Service Tax Act 1975,
goods that have sales tax of 10%, 20% and 40% (or any % higher than
GST of 6%) should see some cost savings in their goods.
Page 40
IMPACT OF GST
The real impact of the GST is cash flow, which varies according to
industries. For example:
b) A retailer (e.g. supermarket) that has 100% cash or credit card sales.
Page 41
OVERVIEW OF ACCOUNTING ENTRIES
Revenue
Revenue for the sale of standard rated items
Dr Accounts Receivable
Cr Output Tax
Cr Revenue
There are business transactions that are not directly affected by GST,
e.g. :
Remuneration /Salary
Depreciation
Staff Allowances
Impairment of Assets
Accrual of expenses.
Page 44
ACCOUNTING FOR GST
Accounting Entry - Invoice
Sales
When a sale is made, the company is required to issue a tax invoice
incorporating the amount of the GST based on the total sales value of the
invoice. { refer to the section on full tax invoice, simplified tax invoice etc. }.
Example
Company issues a tax Invoice for RM 10,000 for the supply of goods plus GST
of RM 600.
The Account should reflect the following:
DR Debtors RM 10,600
CR Sales RM 10,000 AR
CR GST (Output Tax) RM 600
Purchases
For the same transaction above the purchaser will record the above transaction
as follows:
Dr Purchases RM 10,000
Dr GST ( Input Tax) RM 600
AP
Cr Creditors RM 10,600
Page 45
OVERVIEW OF ACCOUNTING ENTRIES
Example
Page 46
OVERVIEW OF ACCOUNTING ENTRIES
Example
Answer:
10 April 2015
12 April 2015
Dr Purchase 40,000
Dr Input Tax Credit 2,400
Cr Trade payables 42,400
15 April 2015
Page 47
OVERVIEW OF ACCOUNTING ENTRIES
Example
Answer:
25 April 2015
*The company shall issue tax invoice upon trading in this old asset.
Page 48
OVERVIEW OF ACCOUNTING ENTRIES
Example
Answer:
30 April 2015
Page 49
Credit Note & Debit Note
REFERENCE
GST Act :
Section 35 Credit Note & Debit Note
The change occurs after GST return for the supply has been submitted to the
Director General
Page 50
Credit Note
Credit Note ( Due to change in legislation )
A change in the rate of tax E.g. Standard rated to zero rated/exempted
A change in the description Tax charge on that supply is incorrect
Make an adjustment in the return for the taxable period where the change in
the rate or description took place
Supplier reduced output tax for the corresponding amount stated in the credit
note
Page 51
Credit Note
Credit Note ( Due to adjustment in the course of business )
Page 52
Credit Note
Credit Note ( Due to adjustment in the course of business )
Make an adjustment in the return for the taxable period in which the credit
note is issued or received.
Supplier reduced output tax for the corresponding amount stated in the credit
note
Page 53
Adjustment - Credit Note
Example 1
Company A ( Seller )
Jan 20 Output
Tax
Output tax : RM 1,000 x 6% = RM 60 (Jan 2016 return)
Feb 10 (Adjustment)
Page 54
Adjustment - Credit Note
Example 2
Company A ( Seller )
Jan 24 Output
Tax
Output tax : RM 1,000 x 6% = RM 60 (Jan 2016 return)
Feb 10 (Adjustment)
Page 55
Adjustment - Credit Note
Example 1
Example 2
Page 56
Debit Note
Debit Note ( Due to change in legislation )
A change in the rate of tax E.g. zero rated/exempted to standard rate
A change in the description (Tax charge on that supply is incorrect)
Make an adjustment in the return for the taxable period where the change in
the rate or description took place.
Supplier increases output tax for the corresponding amount stated in the
debit note
Page 57
Debit Note
Debit Note ( Due to adjustment in the course of business )
When goods invoiced as zero - rated should have been standard rated.
Page 58
Debit Note
Make an adjustment in the return for the taxable period in which the debit
note is issued or received.
Supplier increases output tax for the corresponding amount stated in the
debit note
Page 59
Adjustment - Debit Note
Example
On 20/03/XX WUB Enterprise issued a tax invoice to BHX Enterprise for RM
10,600 inclusive of GST 6% (RM 10,000 + RM 600 GST).
In March taxable period, WUB Enterprise includes the output tax of RM 600
(i.e. RM 10,000 x 6%) for that particular transaction, while BHX Enterprise
claimed an input tax of RM 600 ( i.e. RM 10,000 x 6%).
On 10/04/XX, WUB Enterprise raised a debit note for the amount of RM 1,060
inclusive GST 6%.
To clearly reflect the actual liability, in the April taxable period, WUB
Enterprise has to make adjustment by increasing the output tax by RM 60.00
(i.e. RM 1,000 x 6%) because his actual sales has increase by RM1,000.
Page 60
Credit & Debit Note
c. The name, address of the person to whom the goods or services is supplied.
Page 61
Adjustment - Discount
Discount given
Usually given directly through an invoice. Output tax is on the discounted
value.
If given later after invoice has been issued, then discount is usually given
through a credit note.
Supplier decreases his output tax.
Customers decreases his input tax.
Example
A trader gives RM 200.00 discount subsequent to the first invoicing. His account
should reflect the following:
Dr Sales RM 200.00
Page 62
Adjustment Bad Debts
Condition for relief of bad debts
Tax has been accounted for and paid on the supply.
No payment has been received in 6 months from the date of supply; or
The debtor has become insolvent before the period of six months has lapsed;
and
Reasonable efforts have been made by such person to recover the tax (shall
notify the debtor of his intention to claim bad debt).
Have written off the debt in the accounts.
Have transferred the debt to separate debt account.
The debt has not been sold of passed to a factoring company.
Still entitle to receive relief even though bad debts is not written off.
Entitlement of Supplier
Claim within 6 years from the date of supply
Claim relief as input tax
Subsequently receive payment after claiming the tax : -
Account as output tax in return for the taxable period he receives the
payment from the customer.
Page 63
Adjustment Bad Debts
Condition for relief of bad debts Issues
Para 59 of the RMCs Guide on Tax Invoice & Record Keeping states that in
order to claim GST relief on bad debts must show documented proof &
record to show sufficient effort have been taken to recover the debt.
Sufficient effort as defined here is more rigorous and may include letter of
demand or reminder from the company, letter from companys solicitor or
legal action taken, action by collection agency or the bad debt has been
written off in the companys account. This is inconsistent with the GST Act
and the GST General Guide.
d) The word month in s.58 of the GST Act refers to calendar month or
complete month.
The concept of bad debt relief is as follows: If an invoice is issued on 8 January
2016, the sixth month expiry is at the end of June and the bad debt must be
claimed immediately in the July taxable period.
This decision again is inconsistent with the GST Act and Guides as mentioned
above. The decision forces the company to claim the bad debt relief despite
there being no reasonable efforts or document proof.
DG decision 1/2014, item (ii) (b) - ( w.e.f. 28/10/2015)
Page 65
Formula for Bad Debt Relief
Supplier has not receive any payment. Supplier can claim for whole of the tax
paid.
Supplier received part payment for taxable supply. Supplier can claim for an
amount calculated in accordance with this formula:
A1
------------------- x C
B
Where :
Page 66
Formula for Repayment
A2
------------------- x C
B
Where :
Page 67
Adjustment - Bad Debt
Buyer (taxable person) fails to pay within six months from date of supply:
Pay back the input tax by accounting an amount equal to the input tax
as his output tax
Account for the output tax in his taxable period immediately after the
six months period
Claim back the output tax he pays to the supplier as his input tax for
the taxable period in which he made the payment
Page 68
Adjustment - Bad Debt
Payment not received after 6 months
Example 1
AR Sdn Bhd made a supply and issued a tax invoice on 5/2/2016 to RB Sdn
Bhd for RM 21,200 inclusive GST 6% ( RM 20,000 + RM 1,200.00 GST)
AR Sdn Bhd accounts for output tax for the month of February
The balance of RM 9,200.00 was received after six months from the date of
the tax invoice issued.
AR Sdn Bhd can claim bad debt relief in the month of August
RM 9,200.00
------------------------- x RM 1,200 = RM 520.75
RM 21,200.00
Page 69
Adjustment - Bad Debt
Example-1
If in the case of AR Sdn Bhd, assume that the customer pays only RM
3,900.00 (inclusive of tax) in 5/11/2016 i.e. after the expiry of six months from
the date of supply;
RM 3,900.00
-------------------------- x RM 1,200 = RM 220.75
RM 21,200.00
Page 70
Adjustment - Bad Debt
Example 2
A company issues an invoice to a customer for RM 106,000 (inclusive of GST)
dated 10 January 2016. What are the GST implication (journal entries) if:
The customers pays in October 2016; or
The customer never pays up and the debt is written off as bad debts on the
financial statements in December 2016. Subsequently, the bad debt is
recovered after being written off in Feb. 2017.
Answer:
10 Jan 2016
Dr Accounts Receivable 106,000
Cr Output Tax 6,000
Cr Sales 100,000
July 2016
Dr Input Tax Credit 6,000
Cr GST Bad Debt Relief 6,000
If the customer pays in October 2016, the corresponding entry is as follows:
Dr Bank 106,000
Dr GST Bad Debt Relief 6,000
Cr Accounts Receivable 106,000
Cr Output Tax 6,000
Page 71
Adjustment - Bad Debt
Example 2
If the customer never pays and the bad debt is written off as bad debts on the
financial statements in December 2016. Subsequently the bad debt is recovered
in February 2017. The following accounting entries illustrates two different
scenarios:
100% of the debt recovered
80% of the debt recovered.
July 2016
Dr Input tax credit 6,000
Cr GST Bad Debt Relief 6,000
December 2016
Dr Bad debt 100,000
Dr GST Bad Debt Relief 6,000
Cr Account Receivable 106,000
February 2017 (100% recovery)
Dr Bank 106,000
Cr Output tax 6,000
Cr Bad Debt Recovery 100,000
February 2017 (80% recovery)
Dr Bank 84,800
Cr Output Tax 4,800
Cr Bad Debt Recovery 80,000
Page 72
Adjustment - Bad Debt
Example 3
LLN Sdn Bhd is making wholly taxable supply and has monthly taxable periods.
The company has acquired raw materials from a supplier for which invoice of
RM 106,000 (inclusive of GST) was raised on 14 August 2015. The company
made the following payments to the supplier
14 August 2015
Dr Purchase 100,000
Dr Input Tax 6,000
Cr Account payable 106,000
December 2015
Subject to penalty if tax is remain unpaid after the last day which it is due
Or both
Page 75
Disbursements and Reimbursements
Registered persons may incur expenses and subsequently recover the
expenses from their customers.
The GST treatment for the recovery of such expenses depends on whether
those expenses are acquired by such registered persons as a principal or an
agent.
The principal is the registered person who contracts or acquires the goods
and services from the supplier in his own capacity and these supplies are
incurred in the course of furtherance of business.
Agent is the registered person who is the paying agent and no supply is
made by him. Thus the recovery of a payment by the registered person
incurred as an agent for another party is treated as disbursement. Such
recovery of expenses under disbursement does not constitute a supply and
not subject to GST.
Page 76
Disbursements and Reimbursements
Agent Disbursement (No GST)
Agent has no obligation to pay for the goods & services.
Agent is not a party to the contract and does not have the discretion to alter
the nature or value of supplies made between his customer (principal) and
third party supplier.
Agent is authorized by his customer (principal) to make payment to supplier
on his behalf.
Input tax claim You are entitled to claim Your are not entitled to any
input tax incurred on goods input tax claim since the
or services you procure if goods or services are not
the subsequent recovery of supplied to you but to your
such expenses constitutes principal
a taxable supply.
Page 77
Disbursements and Reimbursements
Decision by DG of RMC (w.e.f. from 30.4.2015)
GST treatment on disbursement and reimbursement are as follows:
Disbursement Reimbursement
Not a supply Is a supply
Not entitled for input tax claim Entitled for input tax claim
Are such transportation charges paid on behalf of Customer B which you will
subsequently recover from Customer B, a reimbursement or a disbursement?
Transport
You Customer B
Company
Paid Charged
The way to ascertain this is to check the tax invoice or the contract, i.e who
the tax invoice is billed to.
Page 79
Disbursements and Reimbursements
Example
a) If the tax invoice is issued to you and you have the contractual obligation to
pay, when you charge the cost back to your customer, this is a
reimbursement. You will have to charge GST on the recovery of the
expenses. Subsequently your customer can claim back the GST
Transport Customer B
You
Company Charged
Paid
b) If the tax invoice is issued to your customer and he has the contractual
obligation to pay, then this qualifies as a disbursement where no GST is
chargeable on the recovery of the expense.
Page 80
Disbursements and Reimbursements
Example
You are a legal firm. When you charge your client legal free, there are stamp
duty and out-of-pocket expenses incurred.
Are the stamp duty and out- of pocket expenses considered reimbursements of
disbursements.
Answer
Page 81
Transactions Affecting Assets Specific issues
Hire Purchase
Seller of the asset is the dealer and the purchaser is the hirer.
Ownership does not pass to the hirer until the hirer has exercise his option to
purchase or has fully settled the price agreed upon in the hire purchase
agreement.
For GST purpose, hirer can claim input tax credit on the tax charged by the
dealer when the asset is acquired through hire purchase agreement.
Page 82
Transactions Affecting Assets Specific issues
Finance Lease
The lessee makes periodic payments or installments to the lessor over a
specific period of time.
At the end of the lease term, the lessee will obtain the ownership of the asset.
Under such arrangement, the company can claim full input tax credit upon
acquisition of the asset.
Operating Lease
Generally, the operating lease agreement is subject to GST charge imposed
on each successive lease payment under a lease agreement than extend over
a number of taxable period.
Each payment is treated as though the lessee is making a separate purchase
for each taxable period.
The arrangement is similar to rental agreement whereby the lessor issues a
tax invoice every month/quarter (period as specified in the lease agreement).
The lessee will return the asset to the lessor at the end of the lease period
without any further obligations.
Page 83
Transactions Affecting Assets Specific issues
Disposal and write off of asset
The transfer or disposal of asset is a supply of goods.
Transfer or disposal can be made to any person and it may or may not
involve a consideration.
If company decided to dispose the asset and write-off the asset from the
books, company is required to account for GST on the market value of such
asset or scrap.
Most cases it is zero value and thus GST is not chargeable. Company will
write off the asset by posting accounting entries.
Disposal of blocked Items
In case of disposal of blocked items (e.g. motor car), in view of the fact that
when the company acquires the motor car, no input tax credit has been
claimed (blocked input tax), therefore no GST shall be chargeable upon
supply of such motor car i.e. it is considered an out-of-scope supply.
MAC Sdn Bhd acquired a lorry on 1 January 2015. On 1 January 2016, the
company decided to sell the lorry. What is the GST implications?
Answer:
When the company acquired the lorry, no GST is charged and no input tax credit
has been incurred. In view of the fact that the sale of the lorry does not comply
with Sch 2 of the GST Act, when the company decides to sell the lorry on 1
January 2016, GST shall be chargeable.
Example 2
MAC Sdn Bhd acquired a lorry on 1 May 2015. On 1 January 2019, the company
decided to sell the lorry. What is the GST implications?
Answer:
When the company acquired the lorry, GST is charged and there is input tax
credit incurred. Therefore, when the company decided to sell the lorry on 1
January 2019, GST shall be chargeable.
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Transactions Affecting Assets Specific issues
Example 3
MAC Sdn Bhd acquired a passenger motor car on 1 January 2015. On 1 January
2019, the company decided to sell the car. What is the GST implications?
Answer:
When the company acquired the motor car, no GST is charged and no input tax
credit has been incurred. In view of the fact that the sale of the motor car does
not comply with Sch 2 of the GST Act, when the company decides to sell the car
on 1 January 2019, GST shall be chargeable.
Example 4
MAC Sdn Bhd acquired a passenger motor car on 1 May 2015. On 1 January
2019, the company decided to sell the lorry. What is the GST implications?
Answer:
When the company acquired the motor car, GST is charged but the claim of
input tax credit is disallowed, i.e. blocked item. Therefore in compliance with
Sch 2 of the GST Act whereby no GST shall be chargeable upon sale of the
motor car (out of scope supply) as the sale of the motor car shall be treated as
neither a supply of goods nor a supply of service.
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Transactions Affecting Assets Specific issues
Trade-in
Generally, the trade-in of goods for another goods or the trade-in of assets
for another asset is treated as two separate transaction.
Example 1
On 1 January 2016, Song & Co, a manufacturing company, acquired a lorry for
RM 212,000 ( inclusive of GST) in cash. The company has a policy of
depreciation based on 20% straight line method.
On 21 December 2018, the company decided to trade-in the lorry in exchange for
a new model. At that time, the trade in value of the old lorry was RM 20,000
(exclusive GST) and the price of the new lorry is RM 150,000 (exclusive GST).
Answer:
1 Jan 2016
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Transactions Affecting Assets Specific issues
Trade-in
Answer:
31 Dec 2018 (Old Asset)
Dr Other Receivable 21,200
Cr Output Tax 1,200
Cr Disposal of Motor Vehicle 20,000
The company will issue a tax invoice upon trading in this old asset.
This entry is important as it zerorises other receivable account. i.e. RM 21,200. Some
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software will automatically make six months bad debt relief is account is not zerorised.
Dealing with Accruals & Prepayments
Accruals & Prepayments.
Prior to GST, companys accounts are not closed promptly and there are
instances where the company has incomplete recording keeping, practices of
backdating and re-issuing invoices and adjusting accounting entries after the
accounting period has ended.
All these are discouraged in the GST regimes and the RMC expects the
company to get it right the first time.
Example
THS Sdn Bhd has subscribed for building fire insurance which costs RM 200
(exclusive of GST) per month. On June 15 2015, the company decided to make a
prepayment for a year (i.e. July 2015 June 2016) for its building fire insurance.
What is the GST implication and related accounting entries?
At the same time, knowing that it will incur a software upgrade cost of its
accredited accounting software, THS Sdn Bhd has accrued a software upgrade
of RM 5,000 (exclusive of GST).
What is the GST implication and related accounting entries ?
On 2nd July 2015, the company receives the invoice from the software company
and on 15th July 2015, the company makes payment to the software company
Record Keeping
Section 36 of the GST Act requires both taxable and certain non taxable
person to keep full and true records of all transactions which affect or may
affect their tax liabilities
These records must be kept in Malaysia except as otherwise approved by the
DG and shall be in the national language or English language and
Should be preserved for a period of seven years from the latest date to which
the records relate.
All taxable persons should keep accounting documents and records of all
business supplies and acquisitions
To enable GST auditors to establish the nature , time and value of all taxable
supplies and importation of goods & services
To reconcile accounting records with the GST returns submitted.
Details of any exempt supplies & any method of apportionment used should
also be made available
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Record Keeping
Any person who contravenes Section 36 of the GST Act commits an offence
and shall conviction, be liable to a fine:
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Record Keeping
REFERENCE
GST Act :
Section 37 Accounting Basis
Current Treatment
Sales tax taxpayer declare based on invoice basis
Service tax tax paper declare based on invoice & payment basis
Two types of GST accounting basis
Accounting for tax on:
Invoice basis (accrual)
Payment basis
Accounting for tax on Invoice Basis
Account for output tax on the date tax becomes due (at the time of supply)
Basic Tax Point
Date of invoice or the date of payment, whichever earlier;
The date of Invoice ( 21 days rule)
Claim input tax on the date of a valid invoice.
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Accounting Basis
Advantages
Can claim GST input before payment is made
Easy to account for sales and purchase transactions
Disadvantages
Have to account for GST before receiving payment from customers
Tax payer may face cash flow problems
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Accounting Basis
Accounting for tax on payment basis
The following are the business factors that are favorable for the approval of an
application to use payment basis: (RMC Guidelines)
The annual taxable turnover is not expected to be more than RM 1 Million
Small size of the business (taking into account the number of employees,
quantum of overheads and quantity of trading stock)
Most sales (at least 80%) are made for immediate cash e.g. barber shop,
convenience store, restaurant or bakery).
No formal policy or procedure to extend credit and collect debts.
The business involves making high volume, low value supplies.
The business does not rely on circulating capital or consumables to produce
supplies
Low reliance on the use of capital items
The business records its transactions on a cash basis in its accounting
system as using invoice basis would involve administrative difficulties.
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Accounting Basis
Every taxable person shall account for GST on an accrual or invoice basis
Easy to account for sales and purchase transactions
However, the Director general may allow a registered person to account for
tax solely on a payment basis
A person may apply in writing to the Director General to account tax on a
payment basis
Persons approved under this scheme:
Account for tax on the day on which payment or other consideration is
received
Claim input tax on the date on which payment is made or other
considerations given
Approval under this scheme is effective for a period of three years only and
is subject to extension by the Director General
Any person who ceases to use the payment basis because it has expired has
to account for and pay tax on an invoice basis
Where there is a change in accounting basis, the registered person has to
make adjustments to tax and inform the officer of GST regarding the tax
payable in respect of the change in the basis of accounting.
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Accounting Basis
Where payment basis does not apply:
Even a person who has been approved to account for tax on a payment basis
is required to account for tax on an invoice basis on any supply of goods or
services:
a) Made under any lease, hire purchase or credit sale agreement where title will
pass at some time in the future
b) Where a tax invoice is issued and the full payment of the amount shown on
the invoice is not due for the period of more than 6 months from the date of
the invoice
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Adjustment Change of Accounting Basis
Registered person has to prepare up to the last day of the taxable period
before change takes effect:
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Adjustment Change of Accounting Basis
[A-B]
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Adjustment Change of Accounting Basis
Must pay the difference if GST on creditors is higher than GST on debtors
Include the amount as output tax payable in the first return where the change
in the accounting basis takes effect
If GST on debtors is higher than GST on creditors, you are entitle to a credit.
Can increase your ITC
Once under the payment basis, you can only claim a credit when you pay for
the supply and account for output tax only when you receive payment for the
supply.
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Adjustment Change of Accounting Basis
Creditors List end of the month (A) Debtors List end on the month (B)
Co. Amount Paid Balance Co. Amount Paid Balance
A 1,600 400 1,200 AA 1,300 1,000 300
B 2,100 1,200 900 AB 1,900 700 1,200
C 1,600 900 700 AC 1,800 900 900
D 1,500 300 1,200 AD 1,600 500 1,100
Total 6,800 2,800 4,000 Total 6,600 3,100 3,500
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Adjustment Change of Accounting Basis
[C-D]
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Adjustment Change of Accounting Basis
Creditors List end of the month (C) Debtors List end on the month (D)
Co. Amount Paid Balance Co. Amount Paid Balance
A 2,100 1,100 1,000 AA 1,500 900 600
B 1,400 900 500 AB 1,900 700 1,200
C 1,900 900 1,000 AC 2,100 900 1,200
D 2,300 1,300 1,000 AD 1,800 1,000 800
Total 7,700 4,200 3,500 Total 7,300 3,500 3,800
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Adjustment Change of Accounting Basis
Must pay the difference if GST on debtors is higher than GST on creditors.
Include the amount as output tax payable in the first return where the change
in the accounting basis takes effect.
If GST on creditors is higher than GST on debtors, you are entitle to a credit.
Can increase your ITC.
Once under the invoice basis, you can only claim a credit when you receive a
tax invoice for the acquisition and must account for output tax when you issue
invoice for the supply.
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Taxable Period
REFERENCE
GST Act :
Section 40 Taxable Period
Regular interval period where a person accounts & pays GST to the government.
The registered person will be allocated monthly and quarterly taxable periods
according to the annual business turnover on the approval of GST registration as
below:
Below RM 5 Million Quarterly
Above RM 5 Million Monthly
The default taxable period is the quarterly taxable period.
Taxable person may request in writing to the DG for a taxable period other than
the two taxable period. (e.g. businesses which are small or seasonal in nature may qualify for
half yearly taxable period)
The DG may, as he deems fit, reassign the taxable person to any taxable period
other than the period he has been previously assigned.
The registered person may also apply to vary the length of any taxable period or
the date of which any taxable period begins or ends ( Due to the accounting nature of the
business). Example, the varied taxable period may begin other than the first day of the month for e.g,
15th of the month.
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Taxable Period
The filing frequency of the various taxable periods are as follows:
Jan-Jun, July-Dec
Feb-July, Aug-Jan
Half Yearly
Mar-Aug, Sep-Feb
(Apply in writing to DG)
Apr-Sep, Oct-Mar
May-Oct, Sep-Apr
Jun-Nov, Dec-May
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Declaration and payment by person other
than taxable person on imported services
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Imported Service
Sec. 13(3)-a person other than a taxable person shall be liable for any tax
due and payable on the supply of imported services
Thus GST is accounted for as an output tax by him in the taxable period in
which the payment is made to the supplier.
( The law appears to be ambiguous on whether the payment to non-resident should be multiplied with the rate of 6% of the tax fraction
(i.e .6/106) in arriving at the amount of output tax to be accounted for. The RMC favors the former DG decision 1/14)
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Imported Service
Example
A Bhd, a steel manufacturer, seeks engineering services of XYZ plc, a company
that belongs to Italy and does not have any business presence in Malaysia. XYZ
plc flies its employees to Malaysia in January 2016 for a period of 2 weeks to
render the service. In Feb. 2016,XYZ plc invoices A Bhd an amount equivalent
to RM 140,000. A Bhd pays XYZ plc RM 100,000 in March 2016 and RM 50,000
in April 2016 (total is greater than RM 140,000 due to foreign exchange losses).
It is statutory deemed that A Bhd made a supply of RM 100,000 in March 2016
and RM 50,000 in April 2016 and thus has to account for GST of RM 6,000 and
RM 3,000 in the respective months.
If A Bhd is making wholly taxable supplies, it will claim input tax credit of RM
6,000 and RM 3,000 in the respective months and thus the net effect on the
imported services on the GST payable to the RMC is nil.
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Accounting for Supply of imported Service
Recipient is a taxable person
Declaration in return GST - 03
Account as output tax
Entitle to claim input tax if imported service is used to make taxable supplies
If imported services are used for making both taxable & exempt supplies
(subject to proportion)
Recipient is a not taxable person
Declaration in return GST - 04
Pay tax not later than the last day of the subsequent month from the month in
which the supply is made.
Note that the time of supply for imported services is the date when payment
with regards to the supply is paid.
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Accounting for Supply of imported Service
Example.
What is the amount of tax payable and the due date for payment of tax ?
CIPS Sdn Bhd is not a taxable person. It entered into a service contract as
follows:
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Accounting for Supply of imported Service
Summary of GST treatment on imported services
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GST Return & Declaration
(1) Every taxable person shall, in respect of his taxable period, account for
tax in a return as may be prescribed and the return shall be furnished to
the Director General in the prescribed manner not later than the last day
of the month following after the end of his taxable period to which the
return relates.
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GST Return & Declaration
Page 116
GST Return
Manner of Submission
Personally
By electronic service
Tax Declaration
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GST Return
Normal period - not later than the last day of the month following
after the end of his taxable period [sec 41(1), sec 41(5)]1
Other period as approved by DG - Not later than the last day of the
30 days from the end of the varied taxable period, [sec.41 (1-3),
sec.41(5)]
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GST Returns
When to submit GST Returns
Normal Period
Monthly Taxable Period
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GST Returns
When to submit GST Returns
Normal Period
Quarterly Taxable Period
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Partial Exemption
A person who makes both taxable and exempt supplies is known as mixed
supplier
Eligible to claim full amount of input tax credit if the input tax incurred is
exclusively attributable to the taxable supplies
Not entitled to claim input tax incurred if the input tax incurred is exclusively
attributable to the exempt supplies.
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Apportionment
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Apportionment
a) The value of any supply of capital assets used by the taxable person for the
purposes of his business. If an asset or part of an asset is disposed of as Transfer
of Going Concern (TOGC), such value also should be excluded from the standard
method.
b) The value of any supply made by a recipient in accordance with the Approved Toll
Manufacturer Scheme under section 72 of the Act;
c) The value of any supply referred as incidental exempt supplies in Part VI of GST
Regulations that are made by him where such supply is incidental to one or more
of his business activities.
d) The value of any exempt supply of land for general use (i.e. burial ground,
playground or religious building) made by a taxable person to any public body
where that supply of goods by the taxable person is made in compliance with the
requirement enforced by any public body.
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Apportionment of Input Tax Other Methods
Alternative methods of apportionment
DG may direct a taxable person to use a specific method of apportionment:
If he is satisfied that the standard method of apportionment does not provide the
taxable person a fair and equitable recovery of residual input tax.
Alternatively, a taxable person may apply to the DG to use an alternative method if he
considers the standard method does not provide a fair and reasonable result.
Other Methods:
a) The number of taxable transactions made
b) Quantities of output
c) Floor space occupied by staff involved exclusively in taxable activity
d) Time spent exclusive on taxable activity
e) Input cost
f) Taxable input tax divided by total input tax.
Approval must be obtained in writing to use any of the alternative methods. DG may
propose amendments or modifications.
Any alternative method approved or directed shall also exclude the value of any
supplies as stated in the standard method of apportionment Page 127
Apportionment of Input Tax Other Methods
Example
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Apportionment
Example 1
ABC Co. Sdn Bhd., whose current tax year ends on 31/12/2016, his current
taxable period is May 2016, made some mix supplies and at the same time
incurred residual input tax as follows :
RM
T Value of all taxable supplies (exclusive tax) 200,000
O Value of capital goods disposed off (exclusive tax) 50,000
O Value of incidental exempt supplies 20,000
E Value of exempt supplies 40,000
Residual Input Tax 10,000
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Apportionment
Amount of residual input tax that ABC Sdn. Bhd can be claimed for
May 2016.
ABC Sdn. Bhd. can only claim RM8,824 out of the RM10,000 of the residual
input tax incurred by him in that taxable period (i.e. May 2016).
Example 2
The following information relates to Universal Sdn Bhd, a company that closes
its account on 31 March each year and accounts for GST on a quarterly basis.
Residual input tax chargeable for the year = 88.71% x RM 82,500 = RM 73,185.75
As the residual input tax claimable for the year (RM 73,185.75) is lower than the
residual input tax credit claimed provisionally (RM 77,305.20), the difference (RM
4,119.45) is treated as an output tax for the second taxable period of the following
year (July to September 2016)
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De Minimis Rule
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De Minimis Limit
Exempt input tax can be recovered in full in any taxable period or a longer
period if satisfies the following conditions:
And
5% of the total value of total supplies (all taxable and exempt supplies) made
in that period.
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De Minimis Rule
Example 1
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Partial Exemption & Annual Adjustment
Example 2
Taxable period = One month
Value of taxable supply = RM 200,000
Value of exempt supply = RM 4,000
Input tax attributable to taxable supply = RM 10,000
Input tax attributable exempt supply = RM 2,000
Residual input tax = RM 1,000
Test for de-minis rule first.
Value of exempt supply does not exceed RM 5,000 and 5% of total supply ?
If yes, All residual input can be claimed Otherwise use the formula.
In this case de-minimis rule is fulfilled.
Therefore all exempt input tax can be claimed
Total ITC can be claimed in January = RM 10,000 + RM 2,000+ RM 1,000 =
RM 13,000
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Longer Period Adjustment /
Annual Adjustment
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Longer Period Adjustment
The proportion of residual input tax recovered may not be reflective or fairly
attributed to the taxable supplies
DEFINITION
Longer period" means
A tax year or
A period comprising of 2 or more taxable periods or part thereof
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Tax Year
Page 139
Longer Period
if a taxable person who incurs exempt input tax during any tax year, then a
longer period shall correspond with that tax year.
If he did not incur exempt input during his immediately preceding tax year,
his longer period shall :
begin on the first day of the first taxable period which he incurs exempt
input tax;
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Longer Period
If the first partial exemption period falls on the last taxable period of the tax
year, longer period is not applicable to work out adjustment for that tax year.
In some cases, first longer period may be less or even more than a period of
12 months depending on the length of his first tax year.
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Monthly taxable period
Example
Assuming a taxable persons tax year runs from 1st.
January 2016 to 31st.Dec 2016 and he is subject to monthly
taxable period. He starts to make exempt supply on 15th.
August 2016, his first longer period would run from 1st
August to 31st. December 2016
Tax Year
1 2 3 4 5 6 7 8 9 10 11 12
Longer Period
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Quarterly taxable period
Example
Assuming a taxable persons tax year runs from 1st.
January 2016 to 31st.Dec 2016 and he is subject to
quarterly taxable period. He starts to make exempt supply
on 15th. August 2016, his first longer period would run from
1st July to 31st. December 2016
Tax Year
1 2 3 4 5 6 7 8 9 10 11 12
Longer Period
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Partial Exemption Period falls on the final tax period
Example
Assuming a taxable persons tax year runs from 1 st. January 2016
to 31st.Dec 2016 and he is subject to quarterly taxable period. He
starts to make exempt supply on 3rd. November 2016. His first
partial exemption period would run from 1st.October to 31st.
December 2016 and no longer period is applicable to him
Tax Year
Longer Period
1 2 3 4 5 6 7 8 9 10 11 12
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Longer Period Adjustment
201,610
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Longer Period Adjustment
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Longer Period Adjustment
RM 1,510,000 RM 30,000
=
RM 1,510,000 RM 30,000 + RM 330,000
= 81.7679%
= 81.77% (2 decimal places)
Input tax claimable = 81.77% x RM 67,500
= RM 55,193.37
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END
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