In our consumption-crazed era, consumers are king in determining the success or failure of businesses, and governments worldwide use this to introduce consumption taxes. In Malaysia, we have Sales & Services Tax (SST) and Goods & Services Tax (GST) laws, although the latter was set to 0% in 2018 and effectively abolished.
However, we have explored in a previous blog the benefits of GST as a whole and it is no secret that GST has many benefits over SST. Experts are already predicting the return of GST to be imminent, therefore we as consumer should ready ourselves with the necessary information to prevent getting cheated by businesses who exploit naivety.
In this article, we will share which items are exempted from GST, which are taxable at zero rated, and which items are taxable at standard rate. We will also share how you can protect your interest as a consumer when faced with dishonest businesses.
Do be aware that the information here are subject to changes, therefore always consult Royal Customs Department Malaysia (RMC)’s website (www.customs.gov.my) for the latest list when GST is reimplemented.
Exempt supply
To consumers, exempt supplies are not allowed to have a GST component. This means that the merchant shouldn't be charge a GST figure on their receipt.
However, this does not mean the item is free of GST. As businesses are similarly subject to GST, and GST suffered by the business (input tax) in relation to the exempt item is not reclaimable, turning GST into a cost for the business.
If the business aims to preserve their profit figure, they will increase their prices equal to the GST amount; if the business maintains their profit margin percentages, they may even add a profit component on top of transferring the GST amount. This ultimately still means that consumers suffer, worst still is that consumers will not know how much they are paying for the business’s GST.
Of course, as it is a part of the GST system, not much can be done about it, so just know that these items may encounter that situation, as they are exempt items:
One more notable aspect of this are unregistered businesses under the GST system. They are not allowed to charge GST similar to businesses supplying the above-mentioned exempt items. Once again, the consumers suffer as they cannot see the GST component charged by these businesses. However, these businesses can be identified by the absence of their GST registration number being displayed prominently (which is a statutory requirement under GST law), despite them not solely selling exempt goods/services.
Taxable supply
We will start with zero-rated items. These are charged 0% GST, effectively making them not subject to GST. However, unlike exempt items, businesses are allowed to reclaim their input tax, and the receipt must include “GST 0%” to signify that GST was charged at 0%.
These items cover essentials, as the government wish not burden consumers that are carrying out usual expenses with GST. These items are:
As these items are still part of the GST system, they benefit from the increased transparency of GST charged (which is 0%). Consumers can be relieved as no hidden GST component will be charged if the business is registered (evidenced by a GST registration number displayed prominently).
Standard Rated Supply
Finally, for standard-rated items, it includes everything else not mentioned as exempt/zero-rated. This covers most manufactured goods including processed foods (other than the approved types listed above). All of them are tax at a singular rate (some other countries have multiple rates for different items). It was 6% in 2018, but exactly how much it will become in the future is not certain.
Notably, there is one aspect of GST that is murky. Service charge, the additional 5% or 10% charge on top of catering bills that is supposed to be distributed to staff, is also subject to GST. This can be avoided, but the obligation lies with the business owner to prove that the monies is entirely distributed to the staff. Therefore, service charge to the consumer could be included before or after charging GST (Under SST service charge is never taxed).
Consumer rights
Now then, after knowing what is and isn’t taxed, you may wonder is there any recourse for a consumer if they were exploited using the GST system, such as being charged GST on zero-rated items, or not having GST amount paid shown on the receipt from a registered business.
For protection, if such a situation arises, you can report to RMC through their social media, hotline, email, or branch offices. Contacts can all be found on their website.
If the case is sufficiently severe, you could also file a complaint to Ministry of Domestic Trade and Consumer Affairs via their number (1-800-886-800), through system e-Aduan (e-aduan.kpdnhep.gov.my) or their whatsapp (6019-279-4317 as of 03/11/2022).
Summary
While the lack of transparency on exempt items is not ideal, it is not entirely unreasonable either. The common understanding is that the price represents the fair value of the item, therefore a visible tax figure in the receipt would reflect badly on the business and the government if charged on things like education, burials, and healthcare.
Transitioning them into zero-rated items is also not a surefire solution, as this would make large sectors pay no GST at all. The government already covers most necessities under the zero-rated items, so one can rest assure that “getting by” is not a problem even if GST was reimplemented.
Overall, consumers should know where their rights lay within the GST system and must protect themselves from businesses attempting to overstep their boundaries. We should be responsible to educate not just ourselves, but also the people around us on the matter. Only then can we enjoy the best of both worlds.
Other notes (do not include in blog)
Other than essentials, the government also lists port activities (sea/air) as zero rated in relation to business activity. They include:
* Spares for ships and aircrafts
* Handling services at ports
* Navigation services
* Salvage services
* Repair, maintenance & installation services
* Surveying/Classification services
* Brokerage & agency services
* Import & export services (transport etc.)
* Import & export of services
* Insurance relating to passenger transport
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