Taxing times ahead?

Introduction
At Malaysia’s Budget 2014 on 25 October 2013, the Prime Minister of Malaysia, Dato’ Seri Najib Tun Razak announced that the GST will be introduced in Malaysia at the rate of 6 percent. The GST Bill 2014 was passed on April 7, 2014 and the GST Act 2014 (the GST Act) was gazetted on June 19, 2014. It took effect from April 1, 2015.

The GST has replaced the previous sales tax and service tax of 10 percent and 6 percent respectively which, in comparison, were single-stage taxes imposed on domestic consumption of particular taxable goods and services, calculated on an ad valorem¹ basis.

The GST implementation is part of the Malaysian government’s tax reform programme to enhance the capability, effectiveness and transparency of tax administration and management. The Malaysian government, therefore, proposed a lower rate of 6 percent as opposed to the previous 16 percent of the combined sales tax and service tax.

Understanding GST
The GST is a multi-stage consumption tax which is levied on all taxable supplies of goods and services made by a taxable person in Malaysia in the course or furtherance of any business.

The GST is levied on the supply of goods and services at each stage of the supply chain, from the supply right up to the retail stage of distribution. Although GST is imposed on each stage of the supply chain, it is not part of the cost of the business product, as GST paid on business inputs is claimable.
However, only a registered person may charge and collect GST on the taxable supplies of goods and services made by him. The GST is also imposed on supplies made only by taxpayers who are carrying on commercial activities and not just by any private individual.

Registration for GST
Individuals, sole proprietors and partnerships, amongst others, must register if they fulfil the following conditions, namely that: they make taxable supplies of goods and services; such goods and services are in the course or furtherance of business; such businesses are in Malaysia; and the registrants have a taxable turnover above the threshold of MYR500,000.

Only businesses with an annual turnover of over MYR500,000 are liable to be registered under GST. However, those with a turnover of less than MYR500,000 may apply for voluntary registration. The advantage of registering on a voluntary basis is that such businesses may be entitled to input tax credits² for GST on goods or services acquired.

Impact of GST on consumers
A change in the taxation system is bound to cause confusion amongst the consumers as they may face difficulties understanding the impact of GST on them. However, the greatest concern about the implementation of GST would be the effect of pricing on consumers. Based on the GST model in Malaysia, such effects are minimal. This is due to the fact that basic supplies and essential food items are zero-rated while public amenities will be exempted. Production costs for businesses are also lower since GST paid on input is claimable. Thus, savings that businesses make from input tax credits should be realised in the form of lower prices for goods and services.

In addition, the government has also taken measures to ease the burden on society. The measures taken are, namely, to: provide one-off cash assistance of MYR300 and MYR650 to individuals and households; reduce individual income tax rates by between one percent and three percent; and review the individual income tax structures to ensure a more progressive tax structure which includes increasing the chargeable income, subject to the maximum rate of excess between MYR100,000 and MYR400,000.

Conclusion
Lack of knowledge, misunderstanding and confusion regarding the scope and concept of GST are amongst the reasons for negative public perception. Thus, the government is now making an effort to have continuous awareness programmes, in order to better educate the public so as to ensure the smooth implementation of the GST for both businesses and individuals.