Updated: Nov 11, 2022
Consumption defines the economy nowadays, it’s the common metric for company success, personal wealth status, and government statistics. Therefore, it’s only natural that our Malaysian government has a way of keeping track of this consumption using what’s called “consumption tax”.
Let’s first touch on who is collecting the money for the Royal Malaysia Customs Department (RCM), the government body in charge of collecting and administrating consumption taxes. While final consumers bear the GST, they have no GST obligations outside of paying the merchants the GST-inclusive price on their receipts.
The key component in the system is the merchants. They are the ones collecting and remitting the GST to RMC. GST collected from their customers is offset with GST paid to their suppliers, and the remainder is either paid to RMC or collected from RMC if the paid amount exceeds the collected amount.
Those that participate in the system are dubbed “Taxable persons”, and they have to collect GST on all of their “Taxable supply”. A taxable supply is the supply of goods for which the input GST component can be offset against the output tax.
The opposite is an exempt supply, items that cannot have their input tax component claimed. These items include:
* Precious metals like gold, silver & platinum,
* Financial services like lending and foreign exchange,
*Land for residential & plantation purposes.
No output tax on such items is charged to their customers either, therefore merchants can only pass on the cost to their customers or bear it themselves.
To determine if a merchant is obligated to register, their taxable supply turnover (meaning revenue) must exceed RM500k in either:
* the current month, and the 11 previous months (retrospective review); or
the current month, and the 11 future months (prospective review).
Merchants that make taxable supply but don’t exceed the threshold have a choice of voluntary registration. Merchants that only make exempt supply cannot register unless they foresee themselves making taxable supply in the future.
Being a taxable person allows merchants to claim back the input tax, but more paperwork must be done.
Deregistration can be done if the merchant’s retrospective review is less than the RM500k threshold, or they cease making taxable supply (including ceasing trade). Deregistration may be beneficial to a going concern entity if it could not meet the paperwork obligations.
Now that we’ve explored how one registers for it under normal circumstances, let’s look at the unique situation that is the transitional period given in the 1st implementation of GST in 2015.
When 1st implemented, there was an effective date (1 April 2015) that anchored the other policies around. Contracts before the effective date but had terms of service cross over the effective date must charge GST apportioned to the period of service after the effective date over the full duration of the contract.
As for goods, it came down to the time of supply, which is usually the time when the goods are made unavailable to anyone else or when they are delivered (dubbed a basic tax point). If, however, payment is received before the basic tax point, then the time of supply is the earliest of either payment/invoice.
If goods were supplied around the effective date, then merchants only had to see the time of supply to determine if GST should have been charged.
On top of that, merchants liable to be registered need only to make sure that registration is completed before the effective date. Late registration would attract
The groundwork for GST was already prepared in 2015 but needs some adjustment as the economy has changed tremendously over the past years. If and when it is reintroduced into Malaysia’s economy, we could expect a much smoother transition period that hopefully won’t panic the people.
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