Goods and Services Tax - Seamless Integration with Existing Processes 23 Nov 2005 Cheah Chee Keong – Solution Manager, SAP South Asia [email protected]

Goods and Services Tax - Seamless Integration with

Existing Processes23 Nov 2005

Cheah Chee Keong – Solution Manager, SAP South [email protected]

SAP AG 2002, Title of Presentation, Speaker Name 2

Introduction

Our Prime Minister 2005 Budget Speech extract :

“… The Government proposes to replace both these taxes (Sales Tax and Service Tax) with a single consumption tax, based on the value-added concept. The new tax, known as the Goods and Services Tax (GST), will be more comprehensive, efficient, transparent and effective, thereby enhancing tax compliance ....”

The 2005 Budget

- 10 September 2004


GST is charged on the taxable supply of goods and services made by a taxable person in the course or furtherance of business in Malaysia

It is a multi stage tax on domestic consumption, similar to Value Added Tax, levied on taxable supply of goods and services in Malaysia

Imposed on majority of goods and services with minimum exemptions and zero rating

Based on net value at each stage of business transaction up to retail stage

Covers all sectors of the economy Relies on invoiced-based tax It is a tax on consumption and not on investment

An Overview of GST


The GST is based on destination principle

Levied at all levels of production and distribution of goods and services supplied and consumed in Malaysia

Made by the taxable person

In the course of furtherance of any business made by the taxable person; and

On the importation of goods or services in Malaysia

Scope of GST


How GST Works

The taxable person pays GST or input tax on his business purchases.

He then adds value to those goods and services. When the goods are sold or services are provided, GST or output tax is collected based on the selling price.

At the end of his taxable period, he submits his return declaring the output tax and claiming a credit on the input tax he paid. (Output tax - Input tax)

If tax on input exceeds the tax on output (normally zero rated goods), the difference is refunded


How GST Works

Collection of Multi-Stage Tax assuming at 5%

Total GST paid = RM 5.00Consumer

Payment to Retailer= RM105.00

Payment to GovernmentGST collected = RM 0.50Less GST paid = RM --GST payable = RM 0.50

Clay MerchantSales Price = RM10.00GST = RM 0.50Total = RM10.50

Value Addedness5% X (10 -0)= RM 0.50

GST collected = RM 5.00Less GST paid = RM 3.50 GST payable = RM 1.50

RetailerSales Price = RM100.00GST = RM 5.00Total = RM105.00

5% X (100-70)= RM 1.50


Crockery ManufacturerSales Price = RM50.00GST = RM 2.50Total = RM52.50

5% X (50 – 10)= RM 2.00


WholesalerSales Price = RM70.00GST = RM 3.50Total = RM73.50

5% X (70 - 50)= RM 1.00


Important Notice

This GST Model is an initial proposal from the Tax Review Panel

Any view expressed in the discussion paper is the view of the Panel and does not represent the official view of the Government

The Government reserves the right to change and/or modify any part of this proposal


Where will GST impact?

Do you know what are the business processes areas that GST will impact?

Do you know if your System is GST Compliant?

Do you know what it takes to implement GST in your system?

How seamless is the integration with the existing processes?


Vendor invoicing and customer billing system in your system

The purchase of goods and services will give rise to GST input tax.

The sale of goods and services will give rise to GST output tax.

Payments and refunds of GST with the Kastam Diraja Malaysia

The supplier of the taxable goods or services is either eligible to refund or liable for payment of GST tax

Reports and forms for routine filing and reporting

Subject to the requirements of the Kastam Diraja, your system will need to provide the relevant reports and forms to support payments and refunds, audits and regular submissions.

Changes in configuration arising from future changes in legislation

Future budget changes may likely to affect is likely to affect vendors, customers, goods (material) and GST rates.

Business Process Areas where GST will Impact


Seeking refunds from Kastam DiRaja

Tax reports must be able to match eligible input tax credits against taxable output tax

Bad Debts

GST paid for goods and services sold, but bills cannot be collected.

Tax reports and invoices must support tax paid for customer

Business conducted in FTZs, ICDs, outside country, etc.

Business Process Areas where GST will Impact


Where in your system will GST impact?

It will impact all major system areas:

Inventory

Purchase orders, Debit Notes

Sales Orders, Credit Notes

Accounts Receivable, Accounts Payable

General Ledger

Configure the relevant tax procedures, tax codes and tax rates

Configured the relevant account determination for GST postings

GST impact on existing forms

GST impact on existing reports


Transitional Issues Actions required NOW

All existing contracts extending beyond 1 January 2007 should be reviewed

The GST implications on all existing contracts should be checked

The GST implications of new contracts entered into from now until 1 January 2007 should be considered

Consider what further actions may be needed as a result of the above, for example, contact a solicitor


Impact of not having a GST compliant system

All GST tax input and outputs forms and reports will have to be manually generated

Risk of miscalculation, prone to errors

Strenuous and laborious task if the volume is high

Confidence of your customers and suppliers

More scrutiny from the relevant authorities e.g. IRD, auditors


…. Businesses that had the least problems with the GST were those that used a computer package .…

…. Businesses that fared the worst relied on the show box method or a system of their own design ….

…. The most common error relating to input tax credits arose from not having a system in place to correctly record the GST charged by suppliers …..

Excerpts from the article ‘Adjustment to GST keeps accountants on their toes’

Max NewnhamJuly 15, 2002 The Age, Australia

Some thots ….

Thank you


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Documents

Goods and Services Tax - Seamless Integration with Existing Processes 23 Nov 2005 Cheah Chee Keong – Solution Manager, SAP South Asia [email protected]