- Joined
- Aug 29, 2008
- Messages
- 26,385
- Points
- 113
m&d government is truely heartless to the poor citizens. How can they exempt staple goods and necessities from GST? They must learn from Pap and tax everything and everyone so that they have more money to help the poor!
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Malaysian GST
The Malaysian Government has recently announced that it intends to implement a goods and services tax (GST) by mid 2011.
A GST for Malaysia was first announced by the Malaysian Government in 2004, but it was put on hold shortly thereafter. It is now firmly back on the agenda, with the government introducing the Goods and Services Tax (GST) Bill 2009 for its first reading in Malaysia’s parliament in 16 December 2009.
The Bill is to be debated in the March 2010 parliamentary sitting. The proposed GST is expected to replace the existing sales and services tax (SST) system which the government believes is more costly for businesses and consumers. The GST is also designed to broaden the country’s indirect tax base and raise an additional RM 1.4 billion per annum. At the same time, it is expected that GST will provide businesses with savings of RM 4 billion and exporters RM 1.4 billion.
The GST will operate similarly to that in other countries with a GST or value added tax (VAT) system. There will be two rates with the main or standard rate expected to be 4 per cent and a zero-rate applicable to most goods and services exported from Malaysia. This compares to GST rates in the closest neighbouring countries of 7 per cent in Singapore and Thailand and 10 per cent in Indonesia and Australia.
Where GST will apply
The GST will apply to the supply of most goods and services consumed in Malaysia. There will be four categories of supplies for GST purposes:
Exceptions
Exempt supplies will be an exception to this rule since providers of these supplies will not be able to claim input tax credits relating to such supplies. These supplies are expected to include a range of services provided by financial institutions, educational and health-care organisations and providers of public transport, as well as residential real estate. No GST will be charged on these supplies but there is no entitlement to an input tax credit for GST incurred either. The rationale for the exemption approach seems to be either to minimise the impact of the GST on low income earners or in some cases (e.g. financial services) because there is no explicit charge for the relevant services to which the GST could apply.
Small and medium-sized enterprises (revenue below RM 500,000) are also expected to be exempt from the GST. This is presumably aimed at reducing compliance costs for SMEs but a potential downside to this approach is that they will not be able to claim input tax credits. A better approach could be to give such businesses the option to register for GST if they so wish, and we note that the current Bill may give the Malaysian Revenue Authority an appropriate discretion for this purpose.
On the other hand, certain basic food products or necessities (such as rice, vegetables, sugar, flour cooking oil, fish, beef and chicken) are expected to be zero-rated in order to minimise the impact of the GST on lower income earners.
Other considerations
In some other cases, the GST should provide a beneficial outcome for the consumer. In the case of a new vehicle purchased in Malaysia, for example, the sales tax on such a vehicle is currently 10 per cent, whereas the proposed GST on such a vehicle would be less than 5 per cent. This should result in a direct cost savings to the consumer. Similar GST cost analyses have been conducted by the government for a variety of goods and services across a range of industry sectors as part of its overall study of the social impact of the GST.
Some caution though needs to be exercised at this stage as to the precise treatment of some of the above supplies since this is not spelt out in the relevant Bill but is expected to be covered by regulations once the relevant GST legislation is appropriately enacted and becomes law.
It is also worth noting here that the proposed Malaysian GST system is likely to be a pioneer in how the GST will impact Islamic financial services. We understand that some other relevant jurisdictions (e.g. UAE, Pakistan) are also planning the introduction of GST / VAT systems. Australia has also recently considered the taxation of Islamic financial services in the context of developing a suitable framework for enhancing Australia’s role as a regional financial services hub. A Malaysian GST law which adequately and fairly addresses the impact of GST on such services could thus become a useful reference tool for a number of other countries with an interest in this area.
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Malaysian GST
The Malaysian Government has recently announced that it intends to implement a goods and services tax (GST) by mid 2011.
A GST for Malaysia was first announced by the Malaysian Government in 2004, but it was put on hold shortly thereafter. It is now firmly back on the agenda, with the government introducing the Goods and Services Tax (GST) Bill 2009 for its first reading in Malaysia’s parliament in 16 December 2009.
The Bill is to be debated in the March 2010 parliamentary sitting. The proposed GST is expected to replace the existing sales and services tax (SST) system which the government believes is more costly for businesses and consumers. The GST is also designed to broaden the country’s indirect tax base and raise an additional RM 1.4 billion per annum. At the same time, it is expected that GST will provide businesses with savings of RM 4 billion and exporters RM 1.4 billion.
The GST will operate similarly to that in other countries with a GST or value added tax (VAT) system. There will be two rates with the main or standard rate expected to be 4 per cent and a zero-rate applicable to most goods and services exported from Malaysia. This compares to GST rates in the closest neighbouring countries of 7 per cent in Singapore and Thailand and 10 per cent in Indonesia and Australia.
Where GST will apply
The GST will apply to the supply of most goods and services consumed in Malaysia. There will be four categories of supplies for GST purposes:
- standard-rated (taxable) – subject to GST at the relevant standard rate
- zero-rated – not subject to GST but supplier entitled to claim input tax credits
- exempt – not subject to GST directly but input taxed
- out of scope – not subject to GST
Exceptions
Exempt supplies will be an exception to this rule since providers of these supplies will not be able to claim input tax credits relating to such supplies. These supplies are expected to include a range of services provided by financial institutions, educational and health-care organisations and providers of public transport, as well as residential real estate. No GST will be charged on these supplies but there is no entitlement to an input tax credit for GST incurred either. The rationale for the exemption approach seems to be either to minimise the impact of the GST on low income earners or in some cases (e.g. financial services) because there is no explicit charge for the relevant services to which the GST could apply.
Small and medium-sized enterprises (revenue below RM 500,000) are also expected to be exempt from the GST. This is presumably aimed at reducing compliance costs for SMEs but a potential downside to this approach is that they will not be able to claim input tax credits. A better approach could be to give such businesses the option to register for GST if they so wish, and we note that the current Bill may give the Malaysian Revenue Authority an appropriate discretion for this purpose.
On the other hand, certain basic food products or necessities (such as rice, vegetables, sugar, flour cooking oil, fish, beef and chicken) are expected to be zero-rated in order to minimise the impact of the GST on lower income earners.
Other considerations
In some other cases, the GST should provide a beneficial outcome for the consumer. In the case of a new vehicle purchased in Malaysia, for example, the sales tax on such a vehicle is currently 10 per cent, whereas the proposed GST on such a vehicle would be less than 5 per cent. This should result in a direct cost savings to the consumer. Similar GST cost analyses have been conducted by the government for a variety of goods and services across a range of industry sectors as part of its overall study of the social impact of the GST.
Some caution though needs to be exercised at this stage as to the precise treatment of some of the above supplies since this is not spelt out in the relevant Bill but is expected to be covered by regulations once the relevant GST legislation is appropriately enacted and becomes law.
It is also worth noting here that the proposed Malaysian GST system is likely to be a pioneer in how the GST will impact Islamic financial services. We understand that some other relevant jurisdictions (e.g. UAE, Pakistan) are also planning the introduction of GST / VAT systems. Australia has also recently considered the taxation of Islamic financial services in the context of developing a suitable framework for enhancing Australia’s role as a regional financial services hub. A Malaysian GST law which adequately and fairly addresses the impact of GST on such services could thus become a useful reference tool for a number of other countries with an interest in this area.
