SK Punang

Our Prime Minister, Dato’ Sri Mohd Najib Tun Abdul Razak in his 2010 Budget speech had announced that the Government is at the final stage of completing the study on whether to implement the Goods and Services Tax (“GST”). The Prime Minister has subsequently announced on 24 November 2009, that a Bill relating to the proposed introduction of GST will be tabled at the end of the current Parliament sitting.

GST, a multi-stage consumption tax, is based on consumption rather than earnings and can be charged on virtually all supplies of goods and services. The proposed implementation of GST will replace the current Malaysian service tax and sales tax.

Broadly, GST works by offsetting GST paid on purchases (input tax) against GST due on sales or supplies made (output tax). This is referred to as the credit offset mechanism. The multi tier stages of tax helps to ensure that GST paid by businesses for purchases does not end up being a permanent cost. However, the consumer ultimately bears the burden of the tax.

Where GST is implemented, the taxpayer must be registered with the Royal Malaysian Customs once the taxpayer achieves a certain prescribed annual sales turnover. The registered taxpayer would also be required to submit periodic GST returns.  If the output tax is greater than the input tax, the taxpayer will have to pay the excess.  Conversely, if the input tax is greater than the output tax, the taxpayer could seek a refund from the Royal Malaysian Customs.

In addition to the compliance requirements above, taxpayers would be required to undertake additional administrative work which includes, amongst others, keeping track and recording all input taxes paid, undertaking reconciliations and filing of GST returns.

Conceptually, GST is imposed on the value added to goods or services by each separate processor in the production and distribution chain. This can be seen in the simple illustration below.

At this point in time, the issues in relation to GST that businesses should consider include: