GST In Malaysia Explained

GST, government service tax, goods and service tax, standard rated gst, zero rated gst, exempt rated gst,

In Malaysia’s Budget 2014 speech, the implementation of Goods and Service Tax (GST) was perhaps the hottest topic. To be introduced in April 2015, it will replace Malaysia’s Sales tax (10%) and Service tax (6%). Under GST, most of the goods and services (except basic necessities) will be charged a tax rate of 6% at every stage of the supply chain. The question now on everyone’s mind – How will life be after GST?

To identify the most likely effects, we must first understand the different implementations of GST and their mechanisms.

Types of GST

There will be three different categories of goods & services under the GST scheme in Malaysia. They are:

I. Standard-Rated GST

Goods and services in this category will be charged a tax rate of 6% at every stage of the supply chain. The tax is billed and collected by businesses and paid to the government. Every party except the final consumer can claim back credits on the GST they already paid (known as input tax). Examples of the goods in this category are cloth, car and fruits. The following diagram shows how Standard-Rated GST works:

Standard-rated GST

II.Zero-Rated GST

Goods and services in this category will be charged a GST rate of 0%. This means that GST is not charged to the final consumer. But businesses CAN claim back credits on their input tax. Examples of goods in this category are basic food item (meats, fish and cooking oil) and first 200 unit of electricity per month. The following diagram shows how zero-rated GST works, assuming the final product is zero-rated but the raw materials are standard rated:

Zero-Rated GST

III.Exempt-Rated GST

Goods and services that fall in this category will be non-taxable and are not subject to GST at the output stage. This means that GST is not charged to the final consumer. But it also means that businesses, particularly the final party in the supply chain (before the final consumer) CANNOT claim back credits on their input tax even if they might have incurred it earlier on. Examples of goods in this category are residential property and health care services. The following diagram will give a clearer picture on how Exempt-Rated GST works:

Exempt-Rated GST

Conclusion

GST is a progressive tax regime that will supplant the Sales Tax and Service Tax in Malaysia in the near future. Understanding its mechanisms will help us to better gauge its potential impact on our lives and prepare for it. Finally, if you would like to know GST’s potential impact on house property prices and home loans, look no further than Loanstreet’s explanation of how GST will impact property prices.

This article was written in collaboration with YYC Advisors. YYC is a group of chartered accountants, tax specialists and GST/business consultants. They provide GST training for businesses gearing up for GST with the enviable reputation of breaking down complex information into simple and easily understandable pieces for a better understanding of the issue at hand. For more information, please refer to YYC Advisors.

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