Basic GST model in Malaysia

• GST which is also known as VAT or the value added tax in many countries is a multi-stage consumption tax on goods and services
• GST is levied on the supply of goods and services at each stage of the supply chain from the supplier up to the retail stage of the distribution. Even though GST is imposed at each level of the supply chain, the tax element does not become part of the cost of the product because GST paid on the business inputs is claimable. Hence, it does not matter how many stages where a particular good and service goes through the supply chain because the input tax incurred at the previous stage is always deducted by the businesses at the next step in the supply chain.
• GST is a broad based consumption tax covering all sectors of the economy i.e all goods and services made in Malaysia including imports except specific goods and services which are categorized under zero rated supply and exempt supply orders as determined by the Minister of Finance and published in the Gazette.
• The basic fundamental of GST is its self-policing features which allow the businesses to claim their Input tax credit by way of automatic deduction in their accounting system. This eases the administrative procedures on the part of businesses and the Government. Thus, the Government’s delivery system will be further enhanced.  

Scope and charge 

• GST shall be levied and charged on the taxable supply of goods and services made in the course or furtherance of business in Malaysia by a taxable person. GST is also charged on the importation of goods and services.
• A taxable supply is a supply which is standard rated or zero rated. Exempt and out of scope supplies are not taxable supplies.
• GST is to be levied and charged at the proposed rate of 4% on the value of the supply.
• GST can only to be levied and charged if the business is registered under GST. A business is not liable to be registered if its annual turnover of taxable supplies does not reach the prescribed threshold. Therefore, such businesses cannot charge and collect GST on the supply of goods and services made to their customers. Nevertheless, businesses can apply to be registered voluntarily.   

Types of supply  

• Standard-rated supplies

      Standard-rated supplies are taxable supplies of goods and services which are subject to a proposed rate of 4%. A taxable person who is registered under GST has to collect GST on the supply and is eligible to claim input tax credit on his business inputs in making taxable supplies. 

• Zero-rated supplies

Zero-rated supplies are taxable supplies of goods and services which are subject to GST at zero percent rate. In this respect, businesses do not collect any GST on their supplies but are entitled to claim credit on inputs used in the course or furtherance of the business. To view the full list of zero rated supplies, (click here) 

• Exempt supplies

Exempt supplies are supplies of goods or services which are not subject to GST. In this context, businesses do not collect any GST on their supplies and are not entitled to claim credit on his business inputs. To view the full list of exempt supplies, (click here)  

• Supplies not within the scope of GST

Supplies which do not fall within the charging provision of the GST Act include non-business transactions, sale of goods from a place outside Malaysia to another place outside Malaysia as well as services provided by the Government sector.

Businesses making taxable supplies have to be registered under GST if their annual sales turnover has exceeded the prescribed threshold. Only a registered person can charge and collect GST on the taxable supplies of goods and services made by him. GST is charged on the value or selling price of the products. The amount of GST incurred on input (input tax) can be deducted from the amount of GST charged (output tax) by the registered person.

If the amount of output tax is more than the input tax in the relevant taxable period, the difference shall be remitted to the Government. However, if the input tax is more than the output tax, the difference will be refunded by the Government. Illustration 1 to 9 further explains how GST works.

Illustration 1: How GST is charged at each level of supply chain standard rated supply

Illustration 2: How GST is charged and collected at the wholesale level for standard rated supply  

Illustration 3: Computation of GST at all levels of the supply chain for standard rated supply

Note:    The selling price of the raw material by the supplier to the manufacturer is RM52.00 inclusive of RM2.00 GST. The supplier remits the RM2.00 GST to the Government.

The manufacturer produces and sells the value added product to the wholesaler at the cost of RM 100.00 plus GST of RM4.00. The manufacturer is entitled to claim RM2.00 of the input tax incurred on the purchase of raw material by offsetting it with the output tax amounting to RM4.00. In this case he is only required to remit to the Government RM2.00. The process of offsetting input tax against output tax will go on until the retailer sells the newly improved value added product to the final consumer. The government collects RM6.24 at the final stage of transaction i.e. when the supply is consumed by the consumer. The final price that the consumer has to pay is RM162.24 (sales price + GST).

Illustration 4: How GST works on a zero rated supply

Illustration 5: How GST works on a zero rated supply at the wholesale level  

Illustration 6: Computation of GST on zero rated supply

Note:    In the example above, the supply by the wholesaler is a zero-rated supply. No GST is collected by the wholesaler on his sales to the consumer but he is entitled to claim all the GST inputs on overheads, machinery and packaging. However, for the above illustration, other inputs are ignored. The final price that the consumer has to pay is RM125.00 (no GST).

Illustration 7: How GST works on an exempt supply

 Illustration 8: How GST works on an exempt supply by a service provider 

Illustration 9: Computation of GST on exempt supply

Note:    The sale by the supplier to the manufacturer and manufacturer to the service provider is a standard-rated supply whilst the sale by the service provider to the consumer is an exempt supply. The manufacturer charges RM4.00 GST on the sale to the service provider. The service provider however is not eligible to claim the input tax of RM4.00 for the GST paid to the manufacturer. As such, the unclaimed GST is embedded in the price to the consumer which is RM129.00.

GST requires businesses who have exceeded the prescribed threshold to register and to keep records of input and output tax. Businesses report their liability in a specific period called taxable period.  

Explore the following sections to understand your responsibilities and obligations as a registrant under GST. 

• Registering your Business
• Issuing Tax Invoices
• Accounting for GST
• Filing Tax Returns
• Input tax credit mechanism
• Claiming GST Refunds
• Paying GST
• Offences
• Review and appeals 

1) Registering your Business

The first step to being GST-ready is to register for a GST identification number. You need to check whether you are required to register or whether you want to register voluntarily. 

Persons having businesses with annual sales turnover exceeding RM500,000 are liable to be registered under GST. Persons include an individual, sole proprietor, partnership, company, trust, estate, society, union, club, association or any other organization including a government department or a local authority which is involved in the business of making taxable supplies in Malaysia.

The annual sales turnover can be determined based on either:

• The total value of taxable supplies of the current month and the previous 11 months, or
• The total value of taxable supplies of the current month and the next 11 months.

You also need to decide on the type of registration best for your business:

• Voluntary Registration
• Group Registration.
• Divisional/Branch Registration 

Deregistration
You must apply for deregistration of your business within 30 days from the date of the following circumstances when:

• your business has ceased; or
• no longer fulfill the requirements of registration. 

Voluntary registration

Any person making a taxable supply and having an annual sales turnover RM500,000 and below is not required to be registered. However, you may voluntarily apply for registration. Voluntary registration is allowable but must remain in the system for at least 2 years. 

Once registered, you are required to charge and collect GST on the taxable supplies and at the same time are entitled to claim input tax credit and eligible to enjoy all facilities provided under the law. 

Group registration

Group registration is a facility that allows several companies to group and centralize their administration for the GST accounting purpose. Each company must be registered individually before they can be grouped as a single registered person and each company must be making wholly taxable supply. 

Requirements for group registration

• Companies are eligible for group registration if one company controls another company. One company is taken to control another company if the first mentioned company holds directly, indirectly through subsidiaries or together directly or indirectly through subsidiaries more than 50% of the issued share capital of the second mentioned company.   
• One of the members has to be nominated by the group as the representative member of the group.
• Any taxable supply made by or to a member of the group shall be treated as a supply by or to the representative member.
• Supplies between group members would be disregarded as a supply.
• Each member of the group is required to keep proper records as they are jointly and severally liable. 

Divisional/Branch Registration

A taxable person who is carrying on its business in several divisions or branches upon request and subject to stipulated terms and conditions can be registered in the names of those divisions/branches. This is a facility for any taxable person with a number of self accounting units to register each unit separately for GST.

Each division/branch will be given a separate GST identification number and make its own returns. However, the taxable person remains accountable for all GST liability of all divisions/branches. 

2) Issuing Tax Invoices

When you charge GST, you need to issue a tax invoice showing the amount of GST and the price of the supplies separately. The tax invoice has to be issued within 21 days after the time of the supply. 

Particulars to be shown in the tax invoice:

• the words 'tax invoice' in a prominent place;
• the invoice serial number;
• the date of issuance of the invoice;
• the name (or trade name), address and GST identification number of the supplier;
• the name and address of the recipient of the supply;
• a description of the goods and/or services supplied;
• the quantity or volume of the goods and/or services supplied, for example, litres of petrol, kilos of meat or hours of labour;
• any discount offered;
• the total amount payable excluding tax, the rate of tax and the total tax chargeable shown as a separate amount;
• the total amount payable including the total tax chargeable.  

The Director General of Customs may upon request allow the tax invoice to be varied from the above whether in term of particulars in the tax invoice or issuance of other type of tax invoice e.g. simplified tax invoice. 

Simplified tax invoice

An invoice that does not contain all the particulars as required in the standard tax invoice and subject to the approval of the Director General. Simplified tax invoice can be used by the GST registrant to claim ITC provided  the value of the invoice (inclusive GST) does not exceed RM500. 

DG may allow the simplified tax invoice to be issued containing:

• the name (or trade name), address and GST identification number of the supplier;
• the date of issuance of the invoice;
• the invoice serial number;
• a description of the goods and/or services supplied;
• the total amount payable including the total tax chargeable; and
• for each rate of tax chargeable, the gross amount payable including tax and the tax rate applicable.  

3) Accounting for GST

Basically, all taxable persons will be required to account for GST based on accrual (invoice) basis of accounting i.e. all output tax and input tax are to be accounted and claimed based on the time when the invoice was issued or received. 

However, certain categories of taxable persons may be allowed to use the payment (cash) basis of accounting. This facility may be given to businesses who carry out their activities solely on a cash payment basis. 

All business and accounting records relating to GST transactions are to be kept in Bahasa Melayu or English for a period of seven (7) years. 

4) Filing GST Returns

GST returns must be submitted to the GST office not later than the last day of the following month after the end of the taxable period.

Taxable period is a regular interval period where a taxable person is liable to account and pay to the government his GST liability. The standard taxable period is on quarterly basis. However, a registrant may apply to be placed in other taxable period (monthly or 6 monthly) subject to specific conditions as follows: 

5) Input tax credit mechanism

Businesses have to charge and collect GST on all taxable goods and services supplied to the consumers. Only businesses registered under GST can charge and collect GST. Businesses are allowed to claim whatever amount of GST paid on the business inputs by offsetting against the output tax. 

• The excess amount of output tax shall be remitted to the government within the stipulated period.
• In the case where the amount of input tax cannot be fully recovered, businesses can make a claim for refund from the government.

Note:  

• Maximum time period to claim the input tax is 6 years from the date of supply.
• Input tax credit cannot be claimed on blocked input such as GST paid on passenger motor car, club subscription fee, medical and personal accident insurance premium, medical expenses, family benefits, entertainment expenses except for employees and etc.
• Apportionment rules have to be applied when the taxable person makes a mixed supply. 

6) Claiming GST Refund

Any refund of tax may be offset against other unpaid GST, customs and excise duties. Refund will be made to the claimant within 14 working days if the claim is submitted online or 28 working days if the claim is submitted manually.

7) Paying GST

If your output tax exceeds the input tax, the difference shall be remitted to the Government together with the GST returns not later than the last day of the following month after the end of taxable period. 

Online payments through:

• banks (to be appointed).
• internet facilities. 

Manual payment:
Payment via cheque/bank draft/money order must be made payable to 'Ketua Pengarah Kastam' and mail to: 

Ketua Pengarah Kastam
Jabatan Kastam Diraja Malaysia
Kompleks Kastam Kelana Jaya
No.22 Jalan SS6/3
Kelana Jaya 47301
Petaling Jaya, Selangor

or 

Pay at any nearest GST office counter from 8.00 am - 5.00 pm. 

8) Offences

Penalties may be imposed if the following offences are committed:

• any deficiency on the net tax payable.
• no GST return is made.
• a GST return is submitted without payment or a lesser payment;
• any refund paid to which there is no proper entitlement.
• failure to register. 

9) Review and appeals 

Any person who is aggrieved by the decision of the officer of GST may apply for a review and revision to the DG within 30 days from the date of notification. Alternatively, such person shall make an appeal to the Tribunal within 30 days from the date of the decision. 

The appeal case can be represented by the taxpayer himself or by any person whom he may appoint. The hearing shall be conducted in a private proceeding unless both parties agree to an open court.