The Ministry of Finance (“MOF”) has announced that with effect from 1 June 2018, the GST rate will be reduced from 6% to 0%. With less than two weeks away from the effective date, GST registrants must prepare themselves to embrace the change and ensure that they remain compliant with the GST legislation. It is imperative to note that the GST Act 2014 remains in force as it has not been repealed.
In view of the reduction in the GST rate from 1 June 2018, there are several the key issues / considerations that GST registrants must recognise.
These are summarised below:
Output tax
For all taxable supplies of goods or services made up to 31 May 2018, GST is chargeable at 6%.
For all taxable supplies of goods or services made on or after 1 June 2018, the GST is 0%.
Input tax credit
Without any output tax to be accounted for going forward, most businesses are likely to be in a neutral or refund position (i.e. where there is a claim for any input tax credit not previously made).
Other pertinent issues to consider are:
– Would there be changes to the timeline to claim the input tax credit?
– What should businesses do with the delay in GST refund by the Royal Malaysian Customs Department?
Exempt supply
The GST (Exempt Supply) Order 2014 remains in force.
Exempt or mixed suppliers are required to comply with the relevant provisions in the law
With the GST rate reduced to 0%, the mixed supplier would not incur any input tax that is not claimable for supplies acquired on or after 1 June 2018
Registration of GST
Registration of GST is still required if the taxable person is liable to be registered pursuant to Section 20 of the GST Act 2014 (i.e. taxable supplies exceeding RM500,000)
This enables new businesses to claim the input tax credit in relation to the supplies acquired before 1 June 2018
Voluntary registration may no longer be allowed
Supplies spanning change in rate
Goods or services supplied wholly or partly before 1 June 2018 would be subject to GST at 6% although invoices may be issued during or after June 2018
Apportionment is required in the case where the supply straddles before and after 1 June 2018
Any long terms contracts should be reviewed particularly if the contract price is inclusive of GST at 6%
Pricing
New pricing must exclude the 6% GST, thus the net GST prices of goods or services should be reduced accordingly
GST-03 filing and documentation
Businesses must continue to file the GST-03 return as usual
Tax invoice, credit note and debit note must comply with the GST requirements
Record keeping for GST audit purposes remains relevant and the record must be kept for 7 years
Re-introduction of Sales and Service Tax (“SST”)
We understand that the MOF expects to table the bill on SST at the parliamentary session in July 2018. The implementation is expected to take effect from 1 August 2018
The expectation of the Government to collect RM30 billion from the proposed SST will be substantially more than what was generated in the past
This is primarily likely to be done via a broadening of the tax base and thus more goods or services would be covered
Businesses must prepare for the transition from GST to SST and determine the impact to the business and accounting system, etc.
It should be noted that the MOF on 16 May 2018 has revoked the following gazette orders:
Zero-rated supplies
GST relief
Supplies in respect of Designated Areas
Supplies in respect of Free Zones; and
Supplies by the Government subject to GST
Thank you for downloading
For similar content to our Global Guide, subscribe to our mailing list and keep up to date.
Taxand's Take
Setting the standard rate for all supplies at 0% is certainly an effective way of immediately removing the impact of GST on consumers in keeping with the new Government’s commitments to the people. However, it is necessary for the Government to ensure that GST will remain in operation during the “run-down” period. It would be good if the Government would, as soon as possible, announce the cessation of this “run-down” period in order for businesses to prepare for the new tax regime
