What is GST

GST (Goods & Services Tax), 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 stages 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 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 it's 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.

Understanding GST Concept & Fundamental

How GST is charged at each level of supply chain - standard rated supply

GST Mechanism - Standard Rated

Retailer (You) is not GST registered

GST 6%

	Sales price	RM100,000	Sales price	RM150,000	Sales price	RM175,000
Assume manufacturer's GST for purchases is RM2,000	Add GST 6%	RM6,000	Add GST 6%	RM9,000	Add GST 6%	Not applicable
	Total	RM106,000	Total	RM159,000	Total	RM175,000
	Input tax credit	RM2,000	Input tax credit	RM6,000	Input tax credit	can't claim
	GST remit	RM4,000	GST remit	RM3,000	Cost increased	RM9,000
	(6,000-2000)		(9,000-6000)		Cost increased	N/A

• You can't claim back for the RM9,000 of GST you paid to your wholesaler.
• You can't charge GST on consumer.

Scope and Charge

GST is to be levied and charged at the proposed rate of 6% on the value of the supply. GST can be levied and charged only if the business is registered under GST.

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 6% on the value of the supply. GST can be levied and charged only of the business is registered under GST. A business is not liable to be registered of 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 6%. 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 of furtherance of the business..
  Read more in Cukai Barang dan Perkhidmatan (Pembekalan Berkadar Sifar)
• 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.
  Read more in Cukai Barang dan Perkhidmatan (Pembekalan Dikecualikan)
• 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.

Why GST ?

Why GST instead of other higher tax ?

GST is a better and fairer tax system compared to SST (Sales & Service Tax) as GST will :

• Lower business cost
  Under the current system, some business pay multiple taxes and higher levels of tax-on-tax (cascading tax). With GST, businesses can benefit from recovering input tax on raw materials and incurred expenses, thus reducing costs.

2. Increase global competitiveness
   Prices of Malaysia exports will become more competitive on the global stage as no GST is imposed on exported goods and services, while GST incurred on inputs can be recovered along the supplies chain. This will strengthen our export industry, helping the country progress even further.
3. Enhance compliance
   The current SST has many inherent weaknesses making administration difficult. GST system has in-built mechanism to make the tax administration self-policy and therefore will enhance compliance.
4. Reduces red tape
   Under the present SST, businesses must apply for approval to get tax-free materials and also for special exemption for capital goods. Under GST, this system is abolished as businesses can offset automatically the GST on inputs in their returns.
5. Equity
   With GST, taxes are leveled fairly among all the businesses involved, whether they are in the manufacturing, wholesaling, retailing or service sectors.
6. Fair pricing to consumers
   GST eliminates double taxation under SST. Consumers will pay fairer prices for most goods and services compared to SST.
7. Greater transparency
   Unlike the present sales tax, consumers would benefit under GST as they will know exactly whether the goods they consume are subject to tax and the amount they pay for.

Not Subject to GST

We do not pay GST on goods / services which are:

• Zero-rated supplies
• Exempt supplies

Zero Rated Supplies
These are taxable supplies that are subject to a zero rate. Businesses are eligible to claim input tax credit in producing these supplies, but cannot charge output tax to the consumer.

Exempt Supplies
These are non-taxable supplies that are not subject to GST. Businesses are not eligible to claim input tax credit in producing these supplies, and cannot charge output tax to the consumer.

Benefit to Consumers

Suppliers,manufacturers,wholesalers and retailers are able to recover GST incurred on inputs. This reduces the cost of doing business, thus enabling fairer prices for consumers.

Certain basic goods and services are not subject to GST for socio-economic objectives. These include basic foods, residential accommodation, education, health services, public transportation, and domestic consumption of water supply and electricity up to a certain limit.