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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.

transfer pricing issues  Stable source of revenue compared to income tax .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 .minimal impact during economic downturn due to consumption nature of GST .

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

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 .

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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 .

000 Input Tax Output Tax Component A RM1.GST Computation Example : Kemas Bhd produced 20.000 units of Product X in June 2010 valued at RM5.000 x 4% = RM 2.000 – RM74.000 x 4% = RM40.000.000 _________ Input Tax RM74.000 .000 x 4% = RM32.000 Therefore net GST due to customs = Output Tax – Input Tax RM200.000 x 4 % Utilities RM50.000 Component B RM800.000.000 Output tax RM200.000 Production RM5.000 = 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. .

000 RM 5.GST Computation Value of goods imported Custom duty charged (20% x 50.000 = RM2.000 RM10.000 ------------RM65.000 ======== GST due on import – 4% x RM65.000) Value for GST purpose - RM50.000) Excise duty charged (10% x 50.600 .

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 .

imported services. exempt supplies. zero-rated supply & deemed supply  Exclude: Supply of capital assets.Calculation of Threshold Include: Std rated supply. supplies under W/H scheme. supply within designated areas. .

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 RM500.00 • 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.00 (ii) Reasonable grounds to believe that taxable supplies for current month and next 11 months (Prospective Basis) will exceed RM500. .000.000.

economic and organisational links. regards having made to financial. .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.

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% .

Notify DG within 30 days of cessation of business.DEREGISTRATION • Deregistration is mandatory when taxable person ceases business of making taxable supplies. • • . 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 • • .

• 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 .VOLUNTARY REGISTRATION • Persons not liable to be registered and makes or intends to make taxable supplies can apply for VR.

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 .

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 • • • • . 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. exchange. license.g :– Involving rights of entry and release from obligations. certain supplies by societies etc.g. The same legislation may also provide anything done with no consideration as a deemed supply e. gifts. sale. pensions or provident funds. rentals.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. transfers as going concern. barter.

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 .

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

g.CONCEPT OF BUSINESS • • Various interpretation and includes any trade. 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 . 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.

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 .

• 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. 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.PLACE OF SUPPLY Place of supply shall apply in determining whether goods & services are supplied in Malaysia for the purposes of charge to tax.e has a business or fixed establishment in Malaysia or usual place of residence in Malaysia. agreement concluded and place of receipient is irrelevant in determining place of supply of services.

• 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. .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. then date of tax invoice is time of supply.

– Goods on sale or return basis or on consignment – when sale is confirmed or 12 months after removal whichever is earlier – Supplies of power. hiring or professional services – earlier of payment received or tax invoice issued by supplier .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.g. 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 . water.earlier of tax invoice or payment received – Supplies of service over a period e.

VALUE OF SUPPLY • GST is charged on value of supply i. • 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 .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.e consideration received • Consideration can in monetary or non-monetary form • Monetary consideration Value = Consideration – GST (Consideration = Value + GST) • Non monetary consideration i.

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 .

intra group supplies .certain supply by any society .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 .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 .gifts of industrial or commercial samples .transfer as going concern .contributions to provident or social security funds .

Module 5 Accounting for GST .

Quarterly basis if AT< RM5m Category C .6 months interval – special case subject to approval For any other category discretion of DG .Taxable Period Determined as follows : Category A .Monthly basis if AT > RM5m Category B .

nature & volume of business – GST accounted based on actual payment made or received – ITC can be only claimed after payment made .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.

.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

00 = RM2.00) = RM 17.000.00 .000.000.00 Recoverable % = RM 300.00) Exempt Supplies Residual Input Tax = RM 8.00 (Taxable Supply) x 100% RM 1.000.000.00) = RM 700.000.00 (Attributable Input Tax is RM 15.000.00 Total claimable ITC = (RM 15.00 (Total Supply) = 30% Note : Claimable Input Tax = 30% x RM8.000.00 (Attributable Input Tax is RM 35.400.000.EXAMPLE OF INPUT TAX APPORTIONMENT Taxable supplies = RM 300.00 + RM 2.400.400.

BLOCKED INPUT TAX There are a number of occasions when input tax is secifically treated as non-deductible. 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. These are :• • • • • Employee benefits e.g. .

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 .

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

TRANSITIONAL ISSUES .

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 .Non-Renewable Contract Any contract entered before implementation with no opportunity for review.

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 .

any contracts with no opportunity to review • .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 .

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 .

• Tax shall be due and payable on supply to the extent of value of supply exceeds value determined at implementation date.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. • 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 .

g storage charges) .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.

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”. .

when vouchers redeemed not considered supply & no GST is incurred.VOUCHERS. Discount vouchers .GST to be accounted for at time of supply of such vouchers .when vouchers redeemed the taxable person supplying the goods to account for GST Non monetary .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 .no GST due when redeemed . the value to be deducted from price of goods • • .if of monetary value.treated as supplies when sold or issued . STAMPS & TOKENS • • Categorized as monetary & non monetary Monetary vouchers .treated as medium of exchange .treated as non-monetary .

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 .

GST to be suspended exports to be zero rated local sales to be standard rated goods & services consumed in FCZ to be standard rated . GST treatment is proposed as follows:- • • • • goods brought into FCZ.FREE COMMERCIAL ZONES AT PORTS AND AIRPORTS Activities carried out in FCZ at ports & airports include break bulk. replacing etc.

. 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. GST is proposed as follows:• • • • goods brought into FCZ.FREE COMMERCIAL ZONES OUTSIDE PORTS & AIRPORTS Trading activities are allowed in FCZ outside Ports & Airports. GST is suspended goods brought into local market from FCZ.

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

GST suspended • Goods sold in DFS not subjected to GST .DUTY FREE SHOPS • Goods brought into DFS.

.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 .

accommodation & laundry services (If outsourced to another taxable person it will subject to GST) Health Proposed to be exempted .GST Treatment by Sectors Education Proposed to be exempted Includes related services – provision of meals.

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

life insurance & reinsurance.GST Treatment by Sectors  Financial services  Exempted : Granting of loans.  Std rated : fees commission & advisory management & financial services which attract  Zero rated : Exported financial services . underwriting & guarantee fees. standard instruction fees. cheque clearance commission. shared ATM services & provision of ATM cards. currency exchange & sale of securities.

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. 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 . property & construction (LPL) All supplies related to LPL be standard rated except : Granting of land by state govt Sale.

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.all petroleum products to be standard rated Related Upstream activities to be standard rated – – – . 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 .

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. 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. .xi) Exported / International Services The following supply of services is proposed to be zero rated when made by suppliers that belongs to Malaysia.

• 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. .xii) Government • Supply of public services are more regulatory and enforcement in nature.

.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.

• 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 .xiv) Clubs. Association & Other similar organization • Provision of facilities or benefits to members deemed business therefore membership subscriptions will attract GST.

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

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

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 .