Goods and Services Tax (GST) is a broad-based consumption tax levied on the import of goods and services, as well as nearly all supplies of goods and services in Malaysia, except for zero-rated & exempt supplies.

In some countries, GST is known as the Value Added Tax (VAT).

What does GST mean for a Malaysia company?

It means that if you are GST registered, you are required to collect GST tax from your customers for the goods and services rendered by you and then pay the tax collected (or not yet collected) to tax authorities.

For example, if you charged RM100 for your services to a customer in Malaysia, you must invoice your customer RM106 (RM100 for your service plus 6% GST tax).

This GST amount invoiced collected on behalf of the tax authorities from the customer must subsequently be remitted to Royal Malaysian Customs Department (RMC) on a quarterly or monthly basis via GST tax filing.

Is my company required to register for GST?

GST is a self-assessed tax and businesses are required to continually assess the need to be registered for GST. GST registration falls into two categories: compulsory registration and voluntary registration.

Compulsory registration

Registering for GST is compulsory when the turnover of your business is more than RM500,000 for the past 12 months – known as the retrospective basis OR you are currently making sales and you can reasonably expect the turnover of your business to exceed RM500,000 for the next 12 months – known as the prospective basis.

Please note that failing to register will attract penalties. There are anti-avoidance provisions to ensure that entities are not established merely to keep turnovers less than the threshold and thereby avoid registration.

Voluntary registration

You may apply to voluntarily register for GST if you are not liable to compulsorily register and you satisfy the following conditions:

1. Your annual turnover is not more than RM500,000;
2. You only supply goods outside Malaysia (out-of-scope supplies);
3. You make zero-rated supplies.

The advantage of voluntary registration is that you can enjoy the benefits of claiming input tax incurred in the course of your business. This is especially so when you make purely zero-rated supplies.

Please note, once you are voluntarily registered, you must remain registered for at least two years and you have to maintain all your records for at least seven (7) years, even after your business has ceased and you have deregistered from GST. You may also have to comply with any additional conditions that are imposed by the Royal Malaysian Customs Department.

Is a Malaysia company required to collect GST tax?

No. Your company is required to register for GST and collect GST only if its annual turnover exceeds RM500,000.

When paying GST tax collected from customers, can the Malaysia company offset the GST tax charged by its suppliers?

Yes. The GST charged by a company to its customers is known as output tax whereas GST paid by the company to its suppliers is called input tax. What you pay to (or claim back from) the Customs Department is difference between your output and input tax.

If a Malaysia company is not GST registered, can it collect GST tax?

No. Goods and Services Tax in Malaysia can only be collected by GST registered entities.

Must a Malaysia company collect GST when exporting goods or services out of Malaysia?

No. Export goods and services are called zero-rated supplies and GST is not applicable.

If a company is not required to register, is it beneficial to register for GST?

It depends. If you are required to register for GST, you have no choice. Otherwise however, you should consider the following pros and cons of GST registration:

Benefits
To the government:

1. It generates a stable and predictable tax income in both good and weak economic environment.
2. It is an efficient tax due to the comparatively lower cost of administration and collection.
3. It allows the Government to lower corporate and personal income taxes, which in turn encourages more foreign direct investment. This leads to overall economic growth.

To businesses and individuals:

1. Most large, established businesses are GST registered – getting your business GST registered is often a signal to customers that your business is an established business and has certain size.
2. GST is a fairer tax system. It taxes the self-employed and wage earners only when they spend their money.
3. GST taxes apply only on consumption. Savings and investment are not taxed. This will encourage people to save and invest in productive activities.
4. Cost of doing business is reduced, thereby contributing to lower prices. Businesses do not suffer a tax cost due to the multi-stage credit mechanism since the real taxpayer is the end-user.

Drawbacks

1. The disadvantage of GST registration is the administrative burden that comes with discharging the duties and responsibilities of GST registration.
2. One must either study the intricacies of GST or pay an accountant to undertake this work which in some cases can be a reasonably high cost.
3. Being GST registered effectively increases your selling price by 7%. Your customers who are not GST registered would not be able to recover the GST you charge. So although your costs are reduced because you can recover GST, your customers might not be too pleased.
4. GST can be a burden to lower income groups, especially during times of high inflation when the 7% tax is paid on the increasing price of daily essentials.

Tax invoice is standard format invoice required under GST system. All companies who have registered with Royal Customs Malaysia (RMC) must issue Tax Invoices to their customers.

Failure to issue CORRECT Tax Invoice may result in fine & penalty of not more than RM300,000 or imprisonment of not more than 2 years or both.

A GST-registered company must have a valid Tax invoice from the supplier in order to claim back the GST they have paid on the purchase for their business. A tax invoice is the primary evidence to support an Input Tax Credit claim.

The name of Profoma invoice, Temporary invoice or Sale invoice are not allowed to be used by the registered companies.

When to issue Tax Invoice?

Tax invoice must be issued within 21 days from the time of the supply (means date of goods delivered or services rendered).
Tax invoice is not required for Zero-Rated Supply and also cannot be issued for supply of second-hand goods and imported services.

Particulars to be shown in the tax invoice are as follows:

• Words of ‘Tax Invoice’ must be clearly stated
• Invoice serial number
• Date of the invoice
• Name, address & GST Registration Number of the Registered Company
• Name & address of the customer
• Detailed description of the goods and/or services supplied
• Quantity of the goods and/or services supplied
• Discount, if any
• Total sale amount before GST
• Rate of tax (6%)
• Total GST charged
• Total sale amount including GST

Click here to view Large Image

The Director General of Customs may upon request allow the invoice to be varied from the above whether in term of particulars in the invoice or issuance of other type of invoice e.g. simplified tax invoice.

Do not amend your supplier’s tax invoice

If a supplier sends you an invoice on which the GST is incorrectly calculated, do not alter it!

The tax invoice, which does not show the right amount of GST, is not a valid tax invoice and RMC could therefore disallow you to claim the GST paid, of which you may have paid incorrectly!

Just ask your supplier to re-issue the tax invoice with correct amount of GST stated.

What is Simplified Tax Invoice?

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 RM30.00 (6% GST).

If the recipient wants to claim the full amount of input tax (more than RM30.00), then he must request for his name and address to be included in the simplified tax invoice.

Director General of RMC may allow the simplified tax invoice to be issued containing:

• Name (or trade name), address and GST Registration number of the Registered Companies
• Date of invoice
• Invoice serial number
• Detailed description of the goods and/or services supplied
• Quantity of the goods and/or services supplied
• Total sale amount before GST
• Rate of tax (6%)
• Total GST charged
• Total sale amount including GST

Input Tax Credit (ITC) is Goods & Services Tax (GST) paid or payable by a registered person on the purchases or expenses incurred for the business activities.

Even though you have not paid any amount to your supplier, you can still claim the credit & get refund from the Customs Department.

For example, an hypermarket or superstore will normally have 3-6 months terms with their suppliers, they can claim the credit or even ask for refund from Customs Department after just receiving the tax invoices from their suppliers.

Criteria To Claim Input Tax Credit

Goods & Services Tax (GST) will be charged on any supply of goods or services if it is:

• A taxable supply;
• Made in Malaysia;
• Made by a taxable person; and
• In the course or furtherrance of any business

In addition, GST will also be charged on:

• Imported goods; or
• Imported services.

Section 9 of GST Bill 2014:

“A tax to be known as goods and services tax, shall be charged and levied on –

1. any supply of goods or services made in Malaysia, including anything treated as a supply under this Act; and
2. any importation of goods into Malaysia.”

Taxable supply made by a taxable person in the course or furtherance of any business carried on by him.

Goods

Any kind of moveable and immovable property and goods exclude money

Examples of goods are:

• Products
• Land & building (include deed of assignment, strata title)
• Change in business use for business assets
• Transfer of assets due to cessation of business

Services

Anything which is not supply of goods but is done for a consideration is a supply of services

Example of services are:

• Insurance services
• Rental of properties
• Granting of rights (license, trademark, copyrights)
• Imported services (reverse charge to self account GST)
• Services to a connected person for no consideration

If the tax invoice is issued by supplier within 21 days from the date of goods delivered or services performed and no payment is made since then, the date of invoice will be considered as Time of Supply.

However, if the tax invoice is not issued within 21 days from the date of goods delivered or services performed, then the Time of Supply will have to fall back to the date of delivery.

Assumption: Both above companies have their GST Submission Period from January to March (3 months) & from April to June (3 months).

CASE 1: Company A has received tax invoice from supplier on 15 April with tax invoice date the same. Company A can claim Input Tax Credit for the period from Apr to Jun.

CASE 2: Company B has only received tax invoice from supplier on 28 April with tax invoice date the same. Company B must report & claim Input Tax Credit for the period from Jan to Mar!

TIME BOMB IN GST

Since Company B received the tax invoice after 21 days, the date of goods delivered will be the TIME OF SUPPLY in this case.

If Company B has already submitted GST Return for the period from Jan to Mar to Customs Department without reporting the above tax invoice, it means Company B has reported the Tax Return INCORRECTLY due to late invoice issued by the supplier.

Worse still, Company B can NOT claim the Input Tax Credit of the above tax invoice for the period from Apr to Jun.

Options for Company B: Not to claim Input Tax Credit of the late tax invoice OR submit Revised GST Return and get fine!

6 months rule applies when a registered company has claimed the Input Tax Credit arising from the purchases he made from a supplier, but has subsequently failed to pay his supplier within 6 months from the date of supply.

At the expiration of the 6 months, he has to pay back the Input Tax Credit to Customs he claimed earlier due to non-payment to his supplier.

Once he has later paid the supplier, he can then claim again the Input Tax Credit from Customs Department.

Important Notes To Claim Input Tax Credit

A company can claim Input Tax Credit from Customs Department once he receive tax invoice from the supplier, even though he has not paid the supplier!

The same goes to Supplier, the supplier will need to pay the GST to Customs Department he charge to his customer, even though he has not collected any payment from his customer.

The supplier can apply for refund from Customs Department if the customer remained unsettled with the outstanding, provided that there are proof from supplier that the supplier has been sending statements & put in efforts to get his customer pay the outstanding amount.

There are some Goods & Services Tax (GST) you can’t claim even though you have already paid for it when you made your purchases or expenses.

Those GST you can’t claim is called Blocked Input Tax Credit.

No Input Tax Credit is available for the following:

• Supply or importation of passenger car (including lease of passenger car)
• Club subscription fee (recreational or sporting purposes)
• Medical and personal accident insurance premium
• Medical expenses (for example, wheel chair)
• Family benefits for employees
• Entertainment expenses except for employees and existing customers

Deemed Supply may apply where no consideration is received for the supply of goods or services.Examples of Deemed Supply are:

• Barter arrangements where goods sold are settled by other goods from customer
• Free gift worth more than RM500 to staff
• Hamper worth more than RM500 to customer
• Free bottles of regularly sold shampoo to customers

Exempt Supply means goods and services sold by the companies are free from Goods and Services Tax (GST). No GST will be charged on these goods & services.

For company and business, GST paid on the assets, purchases or expenses for their businesses cannot be claimed as Input Tax Credits. Ultimately, the GST paid will be absorbed by company or busienss as part of their business costs.

In order to maintain the profit margin, these companies will have no choice but to increase the price of their goods or services.

List of Exempt Supply

The following are the businesses or services fall under the list of Exempt Supply:

1. Financial Services
2. Public Transport Services
3. Private Education Services
4. Tolled Highways or Bridges
5. Childcare Services
6. Funeral, Burial and Cremation Services
7. Private Healthcare Services
8. Supplies Made by Societies
9. Residential Land or Building
10. Agriculture or General Use Land

Public Transport Services Under Exempt Supply

• Mass public transport by rail (LRT, ERL, MRT, Monorail, etc)
• Ships or Boats
• Ferries
• Express bus
• Workers’ bus
• School bus
• Feeder bus
• Taxi

Land, Building and Lease of Property Under Exempt Supply

1. Goods – Land used for residental or agricultural purposes or general use (for example, burial ground, playground or religious building)
2. Goods – Building used for residential purposes
3. Services – Right to use or license to occupy residential property (land or building or both)
4. Services – Right to use or license to occupy land for agricultural purposes or general use (government building, burial ground, schools, playground, parks, etc.)

For full list of Goods & Services that exempted from GST, please download here: P.U. (A) 271 – Goods and Services Tax(Exempt Supplies)