We’ll do our best to be rakyat friendly in this GST introduction piece and avoid industry jargons. Diagram and images will be deliberately used across our explanation.
April 1st 2015 will go down in Malaysian history as the most significant April Fool’s day ever. It’s the day when GST was first introduced to the nation replacing the existing SST. And this year, GST turned 2.
Countless SMEs and startups in Malaysia may still have very limited or almost zero grasp about GST. You’re not alone. It’s typical for any new system to be messy, caca-merba and hard to understand initially. Judging by the magnitude of the scope, GST is still one of the major concerns especially for small yet thriving businesses like yours.
You’re experiencing mixed feelings because in one hand, you’re delighted as hell that your business is generating tremendous sales but at the same time intimidated that you are about to reach the GST threshold and obviously you aren’t ready.
Let’s start by touching on the most basic principal of all. GST falls under the Indirect Tax scheme implemented by Gomen and it’s under the jurisdiction of Royal Malaysian Customs Department or Kastam as we affectionately know them by.
So if GST is an indirect tax, what’s a Direct Tax then? For info sake, Direct Taxes are those common tax schemes such as Corporate Tax, Income Tax, Real Property Gain Tax and Stamp Duty.
Like the Malay proverb that goes; tak kenal maka tak cinta, let’s deconstruct the GST acronym to begin with.
How can this new tax help the country? Here are four good reasons why we as a thriving economy needs GST and for the record, we are being realistic and in no way playing the role of Gomen sympathisers.
More transparent tax revenue. Paperwork will become much lesser and there will be reductions in accounting complexities for businesses.
Increased tax revenue. Due to its transparent nature, GST can bring forth greater compliances, increasing the number of taxpayers and thus better revenue stream to Gomen.
Competitive pricing. GST automatically eliminates all other forms of indirect tax. The most obvious benefit is that finally all goods and services are taxed on a common basis.
Boost to export. When cost of production becomes stable, local manufactured goods will be more price competitive when exported. This works well for our home grown products.
Prior to GST introduction, Malaysia have two separate Consumption Tax system called Sales Tax and Service Tax or widely known as SST. Sales Tax are those charges incurred on manufactured and imported goods while Service Tax are the charges incurred on specific services for example hotels, restaurants or professional services provided by accountants or architects.
Why SST is replaced by GST?
SST has a snowball effect to the consumer rather than being balanced out at every level of production and distribution. GST is much efficient and business friendly. It also helps to avoid multiple taxation, leakages and bureaucracy issues through its transparent implementation. Its flat rate of 6% across all distribution channels is seen as a breakthrough compared to SST which has varieties of multiplier from 5%, 10% or at a specific rate. For more information on this matter, click here.
What are the GST mechanisms?
A more common way of asking is, how GST works? Normally one would explain that GST is a type of value-added tax that appears at every supply chain. In our words, this tax is implemented at each point where buying and selling activities exist. It involves all segments starting from product manufacturing or service creation (manufacturers) to the middlemen (wholesalers) to the common shops (retailers) and ends at (you guessed it) the consumer. Here’s is a simple diagram to give you a clearer picture.
What’s the concept of GST?
Or we would rather ask, how to better understand the GST details? OK, there are two very easy things to remember. One – Input Tax (IT). Two – Output Tax (OT). IT is when your business is charged with GST by your supplier and OT is when you are charging GST to your customer or client.
What are Input Taxes? (Cukai Masuk). It may be your direct cost such as raw materials, inventories or asset purchases e.g machineries and the likes. It can also be in the form of your overheads like rents, utility bills and other business expenses.
What are Output Taxes? (Cukai Keluar). This is easy. It’s when you sell your merchandise or services to your customers or clients and you add the 6% GST multiplier.
The ultimate GST concepts, equation and figures to remember.
Please note! The equations here are meaningless until you are a GST registered company and eligible to charge GST. Your company needs to keep track and record all input and output tax in case of surprise visits from Kastam. That said, you’re being audited and keeping an organised record is crucial as it is required.
As the late Uncle Ben (from Sony’s Spiderman universe) would say ‘With great power, comes great responsibility’.
Your business is not allowed to charged any GST if it hasn’t reached the RM500K of annual revenue mark. Your entity will still bear those Input Tax imposed by your GST registered supplier. We strongly urged you to voluntarily register even though you’re still below the threshold. You are then allowed to charge GST to your customers and eligible to reimburse the Input Tax when you report and submit your company’s GST.
What is the standard taxable period?
|Standard taxable period||3 months||Applicable to all taxable turnover not exceeding RM5 million|
|Non-standard taxable period||Monthly||Applicable to taxable persons with annual taxable turnover exceeding RM5 million, upon request and subject to approval|
|6 months||Special cases|
What is the scope of GST?
For easier digestion let’s asked instead, to what extent does GST covers? The answer is very straightforward. GST will be charged on supply of goods and services with a commercial intention to grow a business or organisation in this country. GST will also be charged on imported goods and services.
When you hear explanation around GST, the word ‘Supply’ keeps popping up and thrown into the mix. So, what is this ‘Supply’ then?
Let’s put it this way, income tax is applicable when there is a presence of revenue or income. Hence, GST is applicable when there is a presence of supply.
Notably, Supply is present when these two key scenario happens.
- One, the transfer of ownership of merchandise (supply of goods) for a commercial process that has been done or will be done (supply of service).
- Two, items in One involves a consideration. Consideration can be in terms of cash or in kind or both.
‘Supply’ includes selling, bartering, exchanging, licensing, renting, leasing or giving out rights. You probably said, ‘You lost me at Supply’.
We understand. It seems there are too much to be said about GST. We like to give this too-informative article a break to avoid TMI syndrome and risk losing your interest and attention.
We will continue with a second episode soon and will explain in further detail with regards to Supply. Thanks for reading.