Saturday, December 12, 2009
By Chew Theam Hock and Tan Eng Yew
BASED on recent announcements, the Government has indicated that it plans to implement Goods and Services Tax (GST) effective from the last quarter of 2011. The GST, at an indicative rate of 4 per cent, is set to replace the current sales tax and service tax regime.
The introduction of GST will require businesses to comply with various requirements under the GST laws and regulations. This article sets out some of the main requirements as we move towards the GST implementation date.
SUPPLY OF GOODS AND SERVICES
GST is a consumption tax which is designed to tax the “private final consumption”. Generally, GST will be chargeable on a broad range of supply of goods and services (i.e. taxable supplies) consumed domestically. The basic principle is that GST is collected throughout the production and supply chain. Each business will charge GST on taxable supplies and where conditions are fulfilled, allowed to claim a credit on GST paid on inputs purchased. It should be noted that the credit is generally claimable on all purchases required to make the taxable supply.
Taxable supplies can either be standard rated or zero-rated. Standard rated supplies are subjected to a specific rate of tax, which has been indicated to be 4 per cent. Zero-rated supplies are supplies subject to GST at a rate of zero per cent. Paddy, rice, vegetables, livestock, exported goods and services are some of the supplies proposed to be zero-rated. All goods and services are taxable except those which are specified as exempt.
Where a supply is classified as exempt, GST is not charged on the supply. However, no input tax credit is claimable by the supplier. Some of the examples of supplies that are proposed to be exempted are financial services, sale or lease of residential properties, private health and education, domestic transportation of passengers, land for agricultural purposes and burial ground.
GST REGISTRATION
In order to charge GST and claim input tax credits, businesses have to be registered for GST purposes with the Royal Malaysian Customs (“Customs”). Registration will be compulsory for businesses where the annual sales turnover of its taxable supplies exceed the prescribed threshold. The liability to register is determined based on either taxable turnover of the current month and the preceding 11 months or taxable turnover of the current month and the next 11 months. Businesses whose annual sales turnover is below the prescribed threshold may apply for voluntary registration. The indicative threshold is RM500,000.
One of the reasons to voluntarily register for GST is to enable the business to claim the input tax credits. Businesses which fall below the threshold may also be compelled to be licensed by their business customers who wish to claim the credit on the supplies acquired.
Once registered, the business registrant must remain in the system for at least 2 years. We understand from the Customs Public Consultative meeting that pre-registration will be allowed a few months before the GST implementation date.
ACCOUNTING FOR GST / CHARGING OF GST
A GST registered person making a taxable supply to a taxable person must provide a tax invoice within a stipulated period (indicated as 21 days) after supply is made.
The GST “tax invoice” has to contain certain information as required by the law. Some of the information which is normally required is listed below:-
(a) The word ‘tax invoice’ in a prominent place;
(b) The invoice serial number;
(c) The date of issue of the invoice;
(d) The name, address and GST identification number of the supplier;
(e) The name and address of the person to whom the goods or services are supplied;
(f) A description sufficient to identify the goods or services supplied;
(g) For each description, the quantity of the goods or the extent of the services and the amount payable, excluding GST;
(h) Any discount offered;
(i) The total amount payable excluding tax, the rate of tax and the total tax chargeable shown as a separate amount;
(j) The total amount payable including the total tax chargeable;
(k) Any amount referred to in subparagraph (i) and (j), expressed in a currency, other than Malaysian currency, must also be expressed in Malaysian currency; and
(l) If the goods or services supplied are exempt or zero rated, they must be separately identified in the invoice and the gross total amount payable on them must be separately stated.
TAXABLE PERIOD AND FILING RETURNS
Businesses will be required to furnish GST returns and pay GST to Customs no later than a month after each taxable period. A taxable period is a regular interval period where a taxable person is liable to account for GST. Taxable periods may be 1 month, 3 months or 6 months depending on the businesses’ annual turnover.
At the end of a taxable period, if taxable supplies are made, GST registered businesses will need to compare output tax it charges to the input tax it incurs. Where the output tax is more than the input tax, businesses will need to remit the difference in the tax return to Customs no later than the last day of the month after the taxable period. If the input tax claimed is more than the output tax, businesses may be entitled to a refund subject to certain conditions.
Where there is late submission, a mandatory penalty at the prevailing rate will be imposed on any unpaid amount.
CLAIMING OF INPUT TAX CREDIT
To claim input tax credits, GST registrant business will need to have a valid tax invoice from the supplier of taxable supplies acquired. In addition, there are other conditions that need to be fulfilled by the GST registered business for the input tax credit claim. These include:
• The claimant must be a taxable person;
• Invoice (i.e. tax invoice) is issued under the name of the claimant; and
• Goods and services acquired are not subject to any input tax restriction. These are acquisitions whereby even though GST is paid, no input tax credit is allowed. These include the purchase of passenger motorcar (including importation), club subscriptions fee, medical and personal accident insurance premiums, medical expenses, family benefits, entertainment expenses and others. It should be noted that no GST is chargeable on the subsequent supplies of these items.
RECORD KEEPING
All business and accounting records relating to GST would be required to be kept in Bahasa Malaysia or the English language for a period of 7 years. If proper records are not maintained, the Customs may insist in making an assessment of tax which may not be due if full information in examined.
CONCLUSION
GST is generally not meant to be a tax on businesses, it imposes certain compliance requirements on businesses to account and remit the tax to Government. In case of non-compliance, businesses may be subject to penalties. As such, businesses are encouraged to exercise due care in preparing themselves to be GST compliant. As the implementation date approaches, the Government is anticipated to provide various avenues to help businesses do just that and businesses should make full use of this assistance.
The writers are executive directors of KPMG Tax Services Sdn Bhd.
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