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What is GST and how does it work?

Goods and Services Tax or Cukai Barang dan Perkhidmatan will be implemented come April 2015. What is it?

Why GST?

GST is said to be a more equitable form of taxation on the basis of "if you can afford it, you should be paying tax on it". Putting it simply, if you can afford to buy a car worth RM300,000.00, it must mean that you have income that enables you to purchase one, therefore, you should be paying proportionate tax. If on the other hand, you buy a car for RM30,000.00, it means your income is very much lower and therefore you pay less tax. One reason for consumption tax is that it has a wider base of tax payers. It also means that those who evade or avoid income tax, will at some point be paying tax when they spend.

Are all products and services subject to GST?

No, not all products and services are subject to GST. Broadly there are 3 categories:

  • Standard rated.
    These are products or services that will attract GST. If any goods or services are not listed in either the GST (Zero Rate Supply) Order 2014 or the GST (Exempt Supply) Order 2014 is subject to a standard rate of 6%.

  • Zero rated.
    Goods or services that would be considered standard rated but do not attract GST, such as products or services supplied overseas. Zero rated transactions will still have to be reported in GST returns.

    Some examples of zero rated products or services include:

    • Exports - goods, services
    • Agriculture products - padi, fresh vegetables
    • Foodstuff - rice, sugar, table salt, plain flour, cooking oil
    • Livestock supplies - live animals, meat of cattle, buffaloes, goat, sheep and swine (fresh or frozen)
    • Poultry - live and unprocessed meat of chicken and duck
    • Egg (fresh or salted) and fish
    • Electricity supply to domestic users - first 200 units
    • Supply of treated water to domestic users

  • Exempt.
    These are products or services that have been explicitly stated as not included in GST. Some examples include Government services, Public transport, certain essential food items, electricity for domestic use, etc.
    • Sale and lease of residential property
    • Financial services (including life insurance and family takaful)
    • Toll highway
    • Private health and education
    • Domestic transportation of passengers for mass public transport by rail (KTM, LRT, ERL, Monorail, ships, boats, ferries, express buses, school buses, feeder buses and taxies)
    • Land for agricultural purposes and land for general use (Government building and burial plots)

How does GST work?

Businesses who sell products or provide services are required to levy a percentage of tax on the value of the product or service. Essentially a business is required to produce a "Tax Invoice" that clearly states the price of the product or service, and the tax amount applicable to that, and the total tax. The "Tax Invoice" should also display the business's GST registration number.

Do all businesses charge/collect GST?

No. Only businesses registered under GST are allowed to charge or collect GST. At the moment, businesses with a turnover of RM500,000.00 per annum or more are required to register for GST.

Businesses with less than the above turnover can register voluntarily. Some reasons a business would register voluntarily, inlcude if your expenses are more than your income, or you engage mainly in exports. Registering for GST in this case would allow the business to claim for GST paid on purchases.

In addition, businesses within designated areas like Labuan and Langkawi who conduct business only within or between the designated areas are not required to register.

 



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