Malaysia GST Implementation on April 1, 2015

The Malaysian government is preparing to implement the Goods and Services Tax (GST) on April 1, 2015. GST is a value added consumption tax payable by all parties in the production chain, but refunded to all except the final consumer. Malaysia’s 6 percent GST, the lowest in Southeast Asia, will replace its 10 percent Sales Tax and 6 percent Services Tax.

The Royal Malaysian Customs Department, tasked with administering the GST, announced registration of around 300,000 companies by the end of January, with around 50,000 yet to register. Companies who fail to meet the new February 28, 2015 registration deadline could face fines of RM2,000 to RM15,000.

The Customs Department divides types of taxable supplies into four groups:

1. Standard rated: Taxable goods and services subject to GST at a standard rate
2. Zero-rated: Goods and services subject to zero percent GST rate, in which consumers pay no GST and businesses claim a GST refund on inputs
3. Exempt Supplies: Goods and service supplies not subject to consumer GST but for which businesses will not receive a refund of GST paid on inputs
4. Supplies not within the scope of GST: Non-business transactions, sales of goods outside of Malaysia and services provided by the government sector

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In October 2014, the department released a 900-item zero-rated GST exemption list. Another comprehensive list of taxable and nontaxable sundry goods was released in January 2015. Zero-rated goods and services include exported goods and services, RON 95 petrol, diesel and cooking gas, the first 300 units of electricity for a domestic household for a minimum period of 28 days, agricultural products, livestock, live and frozen seafood, and 2,900 essential medicines. GST exempt supplies include residential property, public transportation, certain financial services, agricultural land, as well as health education and childcare. Almost all goods mentioned in the sundry goods list are taxable, with fruits and vegetables being the only tax exempt category.

The Malaysian zero rated and exempted goods lists are the longest in the region, which may increase compliance expenses on top of expenses from required computerized accounting practices. Due to the presumed compliance burden on small traders, there have been calls from within Parliament to increase the turnover threshold from RM500,000 to RM1 million.

RELATED: Malaysia to Implement Lowest ASEAN Goods and Services Tax (GST)

Small businesses have been receiving support; Malaysia’s 2015 budget set aside grants of RM100 million for businesses and their employees to attend GST courses. The budget also provides for tax deductions for expenses incurred for GST-related training. In his October 2014 budget speech, the Prime Minister also declared financial assistance of RM150 million to small and medium enterprises (SMEs) to purchase accounting software. More briefing programs are expected to be held from April 2015 to help businesses adapt to the changes.

Prime Minister Najib Razak asserted on January 21 that GST will help counter falls in state revenue. As a result of sliding oil prices, Malaysia is expected to see a revenue shortfall of RM 13.8 billion in 2015. Growth estimates have been revised from 5-6 to 4.5-5.5 percent, and the Ringgit has reached its lowest level to the dollar since 2009. Consumer protection during the GST implementation period is ensured through the Price Control Anti-Profiteering Act of 2011, passed to prevent unreasonable increases in goods and service prices from January 2, 2015 to June 30, 2016.

GST has been a long time coming, having been first introduced in the budget speech in 2005. The initial implementation period will impact businesses and individuals, with some basic commodity prices expected to rise. For advice on how your business will be effected by GST, including how to make the most of tax exemptions, get in touch with Dezan Shira’s Asian Alliance partner in Malaysia at: malaysia@dezshira.com

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