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Getting GST-Ready

Are Malaysian businesses ready for a Goods and Services Tax?

THE GOODS AND SERVICESTax (CGST) which was first announcedby the GGowernincnt of Malaysia in2064 to be implemented in b la]a}viaurr Jan r, 2007. is irow in the filialstage of implementation stud, by theCoveNinlefl1.

The GST addresses the need for[lie Government to ensure increasedrevenue flows in the coming yearsby expanding the tax hMe. Uponirnplementaliun ofthe GST, the existingService Tax and Sales Tax in Malaysiawill be abolished.

The GST Ail I operate similarly to thatin other countries v,th :i {;Y- or 4'.4'f(ValuuAdded Tax) svstetn, There will be

crates - a zero-rat{. which wilt applyto must goods and ser'iu .ti exhortedfrrapi ,Malaysia, and a standard rate, }'ertobeannouticed, bul expected to be less011111 5%- In Comparison, the {;S'T' ratesof the tlosost ueiglibouririt} euunlricsare 7% in Singapore and Thailand andio% in Endonesin.

'l`hc UST will .'apply on t1TC'supply' ofmost goods and services consumed inMalaysia, There will be fourcategr,rirof supplies for GST' purposes.I St x ndard-rated (tax able) - subject to

the CGST at the relevant rate

I Zero-rated(alsotaxable)-subjecttryIlie ar r)

I Exempt - nut suhiecL lu GSTI+utwith

input tax restriction:Ott! of scope - Pet subject to USTliability for GST uii slandaaci-raLCel

taxahlksrtpplies rests with the supplier;therefore suppliers neeei to ensure;that they collect the (;S3' from theircustomers. Registered busioesseesproviding standard-rated supplies(subject to GST) or zero-rated suppi[CS(e.g, exports - suhjcct to the tat butatu%)are entitl.&I to ol1 e.t their GST- l iabi] ire (ifany) on supplies made by the GST paidon inputs (input tax). This is known asthe input LPLX Credit (ITC). This should

SG TH IN

rtslrrr that in roast instances, the GSTshould not lie a cost to business, unlikethe current Service Tax and Sales Tax.GST should in slid east~s, ultimatelyhe borne by the end eumNunier,

The exeeplien to the above is theexempt supplies. These are exp acdLu include' certain sC:1'vieeti pro idedby financial institutiuns, residentialproperty devrkipois, educational andhealth cart or};anisittions. No t1S'1' ischarged on most supplies provided bythese [altl lies, but there is no entitlementto an input tax credit t'orCST incurred

MY

GST rateso Sales tax

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.T ma GST Ir itCl- IS riT Ea Irf n-H r tl, LI5' -]

Ref: 59811631

Malaysian Business01-Nov-2009Page: 42General NewsBy: Peter DevlinRegion: MalaysiaCirculation: 25000Type: Malaysia - English MagazinesSize: 1407.37 sq.cmsFrequency: Fortnightly

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Other, In Lltis inutance. input GST wiltbe a cost era these; lTL]S111a'.sties tltat will

either be absorbed or passed onto thecustomer. In other c i n tries opcnd t i ii g

CST type systems, certain cwnteswionsor limited rxrliefs are provided to 1h .eKCT1113t s etors to provide partial ITC-type credits to offset the input GS'fcosts to [11e fsnpplierc of such Sur 'iies.It is unklkowu whether such similarpartial ITC credits will he. available10 tlnr. ciipplim {]f exempt services inMahvsi a.

All of these wsill riot ncee tilriiv resultill F1,a[;ty'siryrl uousUmers automatically'

pu}'in higher prig when [1L1kTllaci[1F;ewe.rvday go ids and s rvit'ex- TheMalaysian GST system as proposedwill extend the ' e.rrrratiitg t .tegory toitic'lttde eecrtain other goods used byall consumers and Can-Md4.rud basicnec!eSsities. ikl[1LLdin ; I7r,sic groceries. In

addilion, certain services Ihat are 'itdl toboth the health wid development of a] Idal lvaiiii will be exempted from the

CYST-'lhiswi]lirxhkdehealth ar{. Ei-w sprovided by the Govern]neut, universityand private hospitals and climes,

Mass donwstic public Iransprirt.ati trnservices such as rail {K'I'M, LRT. ER 1,and Monorail), s]]ips, boats, ferries,express Inks, stage bus, workers hug,school bus, Feeder how al id taxi swrviceswill also l)c CxCml)ted,

The Government has also iildieatedthat ih,e (L81' will nut apply to the-',u ppLy of residential real estate. Thismeans that the tiale, ret]tal or [east of arcriidential home would not attract theGST as ski ch rvio:s will be consideredcxcriipt from the CST.

While examining the GST impacton roost 1 w l:ll:iysian consumers, it hasbeen found that in certain industries.UST should have a l ertelicial impactto the k'ntlsuiller. Take for example anew vehicle purchased in MaLlavsia.C'nrrentlv the Sales Tax on that newwhite is to' . Lender the L i 4' l- [}roposud

for Malaysia, he UST e'harged will heless tllall 5'%. This should re.sitlt in adirect cost savings to the consumer.

irnilar (j ST cost analyses have hee.iconducted by the 4invertai5L,'nI lur uvariety- of gont1} ii Ilki services across

CURRENTLY THE SALESTAX ON THAT NEW VEHICLEIS 10%. ONDER THE GSTPROPOSED FOR MALAYSIA,THE GIST CHARGED WILLBE LESS THAN 5%.

various industry sectors as part of theGovernErle nt's overall study of the SciciadiFn pact of the GST.

The Malaysian (;S'1 system is likelyto he :] pioneer in how the UST willimpact lslarnic frnanci-0[ services.Other jtkriadie'tjOLlti with dvitanrieIslamic financial arrangements areal,wo planning for ltax reforms whichi110wic the ILitlruduction of GST or VTsystems- The United Arab H.mirates(U_\li) rind iTii otl]ur lis't' 111MELbers Of

the Gulf Ccioperatinn Council (GCC}have deferred the introduetioil oflIST ltttt work has been done ondrafting legislation, Pakistan is ahsocurrently in tl]e early stages of draftinga corn prehensive VAT legislation- .1Malkysia!] GST law which adequatelyand fairly addresses they impact of theGS r on Ts}amic financial services islikely' to became a useful reference toolFor these and other 'i}kmirje.s as theydraft LILUir own CST rules.

A.s w]th any Legislative or regv[ntnrvrefc,rni, cr] ttriltg ewmpliailce with thenew rules will lie a challenge for theauthol-iti[es. (.I a way Lu acconll)]ish thiswuLLli be for the Ministry of Financeand the Royal Malaysian Customs Loimtkpheme'nt a coordinated approachto ensure that all M8llaysiails andMalaysian businesses are adequatelyinformed of the impending UST andtheir rt,_gpo rsil.,iIities,

Will Malaysian businesses he readyfor a 0S1'that inigllt N--gin in the secondhalf of 2011? Eighteen months shouldbe a sufficient tinge-frame for evenlarge businesses to be prepared. For thelargest Malaysian businesses, naane.]y.thoseopcratitlg on a wider global-scale,the expectations are that they wouldhave already drolly siinie type of GSTprfil}a!'al i 0116 thur in-house or using tax

advisers. This may include looking athow the Coinpany'S fotrign ope.rat[oilsoperate under an existing GST or V'-kTframework.

When the Glnvernnlent of Malaysiaannounced the deferrne.ut of the CASTin }'ehruorv 2c?ik6, the reason wasto allow Malavsiait businesses ]notetime to prepare and get ready for thechanges the GST would bring. Buthow many Malaysian businesses havetake.kt the opportunity provided bythe Government to do so? Many haveindicated that they w6[l lint begin anyrCST preparations until such timewhen the. (Yove.rnnient has announceda start-date,

! 1 alavaian businesses must do theirpart to ensurv the-v are adequatelyprepared for the introductionof the UST and the impact it willhave on their business operations,en tnmcrc and ski.pplicrs. The timeand resources required for a CSTimplementation programme need tobe adequately planned for. especiallyin the fight of other competingbusiness transformation projectsthat might he ongoing- The type ofCST itnplCllLUI]Lation programmerequired depends on the complexityof the hlksinews itself, its local andforeign operations and group structure.Certainv every business needs tolook at income and expenses todetermine the (;4'I' impact; alongwith a review of Current IT systemsto assess compatibility With G'['regttirenients, as well as ensuringdocumentation wiIi be compliant v.'iththe {;ST legislation.

When the Government dues announcea GST start-date, all Malaysianbusinesses will need to actively engagein a GST implementation programme,or re-start the UST implementationprogramme they had in place in.t0O4/2005, 02

Peter Devlin is Sen<or Manager-ST wit r Errrt SYoung Tax Consultants San- Bhd. Toe iniarrna'ioncnnlained is .his article :s in!eM1des ft.' genpsalgu!dance Dory. It is got i{tendead to be a substitutefor detailed research or the exercise of professionalIudgmo!nt. 0? any specific matter, reference shouldbe mada to the aopraprietc adstxor.

Ref: 59811631

Malaysian Business01-Nov-2009Page: 42General NewsBy: Peter DevlinRegion: MalaysiaCirculation: 25000Type: Malaysia - English MagazinesSize: 1407.37 sq.cmsFrequency: Fortnightly

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