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Malaysian GST
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GST – Are you ready?
November 2013
www.pwc.com
PwC
Today vs. tomorrow’s tax regime
TODAY’S REGIME TOMORROW’S GSTTAX REGIMESales Tax Service Tax
•Single stage tax atmanufacturer’s
•No input tax credit
•Ad valorem (5% -10%) & specific rates(dependent onproducts)
•Single stage tax onprescribed services
•No input tax credit
•6%
•No tax on importedservices
•Multi- stage & broad based consumptiontax
•Recoverable input tax credit
•6% (unless exempt or zero rated)
•Tax on imported services
* except to businesses that provides exempt supply
Tax neutral*Cost to thebusiness
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PwC
Mechanics of GST
• Input tax credit (ITC) system
- Output tax
Outgoing invoices = Sales
- Input tax
Incoming invoice = Purchase
- ITC system - set off input tax as credit against output tax = net tax
• Negative Refund (14 days for online return or 28 days for manualreturn)
• Positive Pay to Government (submission of the return)
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PwC
GST – how does it work?Illustration: supply in Malaysia (Standard rated)
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ManufacturerPrice: RM 10
GST: RM 0.60
Tax remitted to Customs
Output tax = RM 0.60
Total amount remitted toCustoms = RM 3.60
End Consumer
Price: RM 50
GST: RM 3.00
Price: RM 60
GST: RM 3.60
Output tax = RM 3.00
ITC = RM 0.60
RM 2.40
Output tax = RM 3.60
ITC = RM 3.00
RM 0.60
GST @ 6%
PropertyDeveloper
Supplier
PwC
GST – how does it work?Illustration: supply in Malaysia (Exempt)
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Price: RM10
GST: RM0.60
Tax remitted to Customs
Output tax = RM 0.60
Total amount remitted toCustoms = RM 3.00
End Consumer
Price: RM50
GST: RM3.00
Price: RM60 or 63?
GST: RM0.00
Output tax = RM 3.00
ITC = RM 0.60
RM 2.40
Output tax = RM 0.00
ITC = RM 0.00
RM 0.00
GST @ 6%
Property
Developer
Manufacturer
Supplier
PwC
GST basic concepts
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TYPES of supply
1• Are my outputs taxable?– Standard rate or zero rate– Exempt– Out-of-scope• Is my input tax recoverable?
VALUE of supply4 • At what value should I charge GST?
PLACE of supply
2 • Is my supply made in Malaysia?
• Territorial scope of GST
TIME of supply3 • When do I account for GST?
• 21 day rule
PwC
* Input tax claimable if certain conditions are met
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TaxableSupply
Non-taxableSupply
Input tax is recoverable
Zero-rated supply
GST rate @ 0%
Standard-rated supply
GST rate @ standard rate%
Exempt supply
No GST
Out-of-scope*
Not a supply
Input tax is notrecoverable
TYPES of supply
1• Are my outputs taxable?– Standard rate or zero rate– Exempt– Out-of-scope• Is my input tax recoverable?
PwC
Types of Supply
Standard rated – 6%
All good and services except if zero-rated or exempted
Zero-rated
- Provide relief to lower income group: basic foodstuff, first 200 units ofelectricity, treated water
- Increase competitiveness abroad: Exports of goods and services,international services
Exempt
- Reduce tax burden: domestic public transportation, toll highway,residential property (including those above commercial premise under acommercial title), private health & education, land for agricultural use,burial ground, life insurance
- Difficult to tax: financial services
Not taxed – Government services, wages, allowances
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PwC
Deemed Supplies – First Schedule GST Bill
• Where no consideration is received, but liable to GST:
• Transfer or disposal of goods forming part of the assets of thebusiness – deemed supply
- Unless a gift of goods where:
◦ the cost is not more than RM500; or
◦ sample given to customer (or potential customer) and sample is industrial or commercial sample
• Goods held by business which are put to private/non-business use –deemed supply
• Supply of services to connected persons for no consideration (exceptemployees)
• Must still account for the output tax, if input tax not claimed, butentitled to do so
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General rule
Goods:
originates from place in Malaysia to a place in oroutside Malaysia
Services:
business establishment, fixed establishment andusual place of residence
PLACE of supply
2 Is my supply made in Malaysia?
Territorial scope of GST
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• Earlier of the following dates:
(*) 21 day rule – if invoice is issued within 21 days from (1)and no payment received, date of invoice is taken as timeof supply
When goods areremoved ormade available, orwhen the servicesare performed
Receipt ofpayment
Issuance oftax invoice*or or
1 2 3
TIME of supply3 When do I account for GST?
21 day rule
PwC
Time of Supply – 21 Day Rule
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Goods removedBASIC TAXPOINT
29 January 8 February 21 March
Invoice issued(within 21 days)ACTUAL TAXPOINT
If invoice issuedmore than 21 days;
If tax invoice is issued after 21 days from the Basic Tax Point, then the time ofsupply falls back to the original date (29 January)
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General rule
Consideration = Value of supply + GST
(when consideration is not in monetary terms or not whollyconsisting of money, the Open Market Value (“OMV” – armslength value) is to be used)
Imported goods
Value = CIF (Customs, Insurance & Freight) value + customsduty + excise duty
Imported services
Value = consideration paid to overseas supplier
VALUE of supply4 At what value should I chargeGST?
PwC
GST – Input Tax Credit (“ITC”)
Prerequisites for ITC claim:
• You must be a GST registered person
• You must hold a valid tax invoice
• Invoices must be in the name of claimant
• Goods or services are acquired for the making of taxable supplies
o Apportionment rules to be applied in cases of indirect costs
• Input tax must not be subject to any restriction such as blocked inputtax items
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PwC
Blocked Input Tax
No ITC is available for the following:
• Supply or importation of passenger motor car
• Club subscription fee
• Medical and personal accident insurance premium
• Medical expenses
• Family benefits
• Entertainment expenses except those for employees and clients
Note: No GST is imposed on any subsequent supplies of theabove items
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PwC
Incidental financial supplies
• For companies making wholly taxable supplies, the followingEXEMPT supplies will be regarded as TAXABLE supplies:
– Deposit of money
– Exchange of currency
– Issuance of equity security or debt security
– Provision of loan, advance or credit to employees orconnected person
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PwC
De minimis limit
Exempt input tax can be recovered in full if total value of theexempt supplies
• does not exceed an average of RM5,000 per month, and
• not exceeding 5% of total value of total supplies (taxable andexempt supplies) in that period
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PwC
GST Impact on Inter-Division & Inter-CompanyCross Charges
Inter-division charges – No GST. Not supplies for GST purposes
Inter-company charges - Subject to GST [unless companies are eligibleand elect to be grouped]
• GST grouping:
– Supplies between group members are disregarded
– Positive impact on cash flow, cost and administrative efficiency(no tax invoices)
• Issues to consider:
Companies making exempt or mixed supply cannot group
Equity controlling interest under Companies Act 1965
Assessing cost / benefit of filing on a group vs. individual basis
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PwC
Bad Debt Relief
Conditions to claim bad debt relief:
• Tax has already been paid;
• Not receiving payments or part payment, 6 months from dateof supply; and
• All sufficient efforts have been made to recover the debt
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PwC
GST – Input tax credit apportionment
• Goods and services are used for making both taxable and non-taxablesupplies OR business or non-business
• “Attribution and apportionment”- Input tax attributable to taxable supplies are wholly recoverable
- Input tax attributable to non-taxable supplies are not recoverable
- Input tax not attributable to either taxable or non-taxablesupplies, or, either business or non-business use, anapportionment rule shall apply:
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ITC claim on residual
Total value oftaxable supplies
Total value of allsupplies
(taxable & exempt)
GST incurred onresidual inputs
= X
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Fringe Benefits
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Fringe Benefit GST Treatment
Provision of free goods GST chargeable– Subject to gift rule ofRM500
Provision of free services(e.g. maintenance services paid byemployer)
GST not chargeable
Payment of individual’s expenses GST not chargeable. No ITC claimable
Provision of bare accommodation GST not chargeable
PwC
Transitional Issues – Contracts
Contracts
• Contracts spanning pre & post GST implementation - GST chargeableon supplies made post GST implementation date
• Inclusion of tax clauses in contracts to ensure the company is able tocharge and collect GST
• Proposed relief for transitional period: non-reviewable contracts
zero rated to the extent that is made before the earlier of thefollowing:-(i) 5 years after the passing of GST Act by the Parliament(ii) review opportunity arisesprovided that –(a) the supplier and recipient are registered persons (B2B); and(b) the supply is a taxable supply
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PwC
Illustration – Contracts Spanning GST EffectiveDate
1/4/15
GST effective date
25/10/13
1/1/14
Bill Passed 31/3/20
Subject to GSTNo GST
Contract A
Contract B
No GST Zero rated
Non-reviewable contracts
No GST Subject to GST
Note: No GST will apply on the policy if service tax has been charged and paid for in full.
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PwC
GST Impact on Common Transactions
Customers Employees
• Gift and sample• Discount and rebate• Supply to overseas customer with
delivery to local address• Issue of credit note/debit note• Returned goods from customer• Recovering expenses (re-billing)• Deposit and downpayment• Voucher• Compensations to/from customer
• Employee benefit (free gifts, medicalinsurance, club subscription...)
• Expenses incurred by employee onbehalf of company (entertainmentexpenses, telecommunicationexpenses...)
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PwC
GST Impact on Common Transactions (cont’d)
Related party & third party Others
• Recovering expenses (re-billing)• Transferring business as a going
concern• Receiving donation and
sponsorship
Sale and purchase of assets• Sale/disposal of business asset
Bank deposits and financing• Interest relating to bank
deposit/loan/trade debt• Hire purchase• Foreign currency transactions• Paper trade
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PwC
GST Profile of Types of Property
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Supply GST treatment
Residential property Sale/lease of residentialproperty Exempt
Rental of residentialproperty
Non-residentialproperty
Sale/lease of non-residential property Standard rated
Rental of non-residential property
Land Sale/lease of residentialand agricultural land
Exempt
Sale/lease of non-residential andagricultural land
Standard rated
PwC
GST Issues - Property
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Transfer of Amenities,Infrastructure
Mixed Development ProjectExpenses
Capital goods scheme
‘Tie-in’ Gifts
Classification of Land TitleSales & Marketingof Property
Joint venture
Property
Valuing Work InProgress forDevelopment Project
GST accounting bylandowner
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Impact of GST on transactions within functional units
How will GST impact IOI
Finance• Disposal of capital equipment
• Blocked input tax
• Valid tax invoice requirement
• Miscellaneous income
• Interest income from loans to subsidiaries
Human capital
Legal • Existing & new contracts
IT• Systems changes
• IT purchases
• Disposal of equipment
Procurement• Preferred vendor programme
• Negotiation with suppliers on pricing
• Education & communication to suppliers
• Fringe benefits
• Gifts to employees
• Employee’s allowance & claims
• Education & communication toemployees
• Contract workers
• Budgeting for CAPEX
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Technology
How will GST impact IOI
AccountingSystems
ProcurementSystems
Changes to system parameters- GST rates- GST related checks • Chart of Accounts
• Reports
Interfaces
Interfaces
Sales / BillingSystems
Interfaces from the affectedsource systems to the
Accounting Systems will needto be changed to facilitateproper record keeping and
reporting
Sales/ Billing / ProcurementSystems that are affected will
depend on what kinds ofproducts / services are
subject to GST
Impact to the GL will come inthe form of changes to the
Chart of Accounts and reportsgenerated
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CENTRAL
OUTPUTINPUT
Processes
How will GST impact IOI
• Supplier registration
• Blocked items
• Apportionment
• Audit of transitional items
• Tax invoice date
• Expense claims
• GST registration
• Cash flow monitoring
• Input /output tax claims
• Bad debts provisioning
• Contract review
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People
How will GST impact IOI
Change management andcommunications
Plan and execute communicationsinternal and external to theorganisation to manage the
changes brought upon by GST
Training
Manuals and programmes toenable the organisation to
successfully execute GST relatedprocesses and use impacted
systems
GST Help Desk
Central function and repository toprovide information and assistance
to the users
Internal Subject Matter Experts
Knowledgeable persons tochampion and find resolution to
GST impact / issues
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Penalty for non-compliance
How will GST impact IOI
• Penalty for incorrect return
- up to RM600,000 per year(RM50,000 per offence X 12 returns)
• Penalty for general offences (i.e. transactional)
- up to RM30,000 per offence
- transaction base (RM30,000 x no. of transactions)
• Penalty for late payment
- max of 25% on any tax outstanding
PwC
PwC Team
Wan Heng ChoonSenior Executive DirectorE-mail: [email protected]: 03-2173 1488
Yap Lai HanExecutive DirectorE-mail: [email protected]: 03-2173 1491
Steve ChiaSenior Executive [email protected]: 03-2173 1572
Raja KumaranExecutive DirectorE-mail: [email protected]: 03-2173 1701
Nicolaos GiannopoulusExecutive DirectorE-mail: [email protected]: 03- 2173 0833
Hanita AhmadExecutive DirectorE-mail: [email protected]: 03- 2173 0202
