On 24 November 2009, Malaysia Prime Minister, Dato’ Sri Mohd Najib Tun Abdul Razak had announced that a bill relating to the proposed introduction of GST – Goods and Services Tax will be tabled at the end of the current Parliament Sitting. For your info, Goods and Services Tax will be implemented starting 3rd quarter of year 2011. Therefore, all Malaysian have to prepare yourself to pay 4% extra for everything you buy or service.
What is GST?
GST, a multi-stage consumption tax, is based on consumption rather than earnings and can be charged on virtually all supplies of goods and services. The proposed implementation of GST will replace the current Malaysian service tax and sales tax.
Broadly, GST works by offsetting GST paid on purchases (input tax) against GST due on sales or supplies made (output tax). This is referred to as the credit offset mechanism. The multi tier stages of tax helps to ensure that GST paid by businesses for purchases does not end up being a permanent cost. However, the consumer ultimately bears the burden of the tax.
How GST affects businesses?
Where GST is implemented, the taxpayer must be registered with the Royal Malaysian Customs once the taxpayer achieves a certain prescribed annual sales turnover. The registered taxpayer would also be required to submit periodic GST returns. If the output tax is greater than the input tax, the taxpayer will have to pay the excess. Conversely, if the input tax is greater than the output tax, the taxpayer could seek a refund from the Royal Malaysian Customs.
In addition to the compliance requirements above, taxpayers would be required to undertake additional administrative work which includes, amongst others, keeping track and recording all input taxes paid, undertaking reconciliations and filing of GST returns.
How does GST work?
Conceptually, GST is imposed on the value added to goods or services by each separate processor in the production and distribution chain. This can be seen in the simple illustration below.
What do YOU need to do?
At this point in time, the issues in relation to GST that businesses should consider include:
• The additional record keeping requirements that GST will impose and your IT systems ability to handle this.
• The likely GST treatment for your products / services and the impact on pricing strategies.
• The impact of GST on long term contracts.
• The GST cost of outsourcing versus internal supply.
• Timing of purchases pre and post the implementation of GST.
• Impact of GST on benefits-in-kind to staff and provision of samples and gifts.
• The need to educate your staff and customers on GST issues and compliance.
What do you think about GST – Goods and Services Tax? Should it be implemented in our country? Are Malaysian ready to pay for the extra tax? What say you?