Malaysia to Introduce Goods and Services Tax in 2015

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Nov. 19 – The Malaysian government has announced that it will implement a new Goods and Services Tax (GST) beginning April 1, 2015. The initial rate is expected to be 6 percent which will be the lowest amongst ASEAN countries and much lower than the VAT rates in the European Union.

The tax was announced within Malaysia’s 2014 Budget. The GST is one of the key strategic reform initiatives of the ‘Economic Transformation Program’ that was announced by the Malaysian government in 2010.

The new GST will replace the current sales tax (10 percent) and service tax (6 percent).

GST is generally defined as a consumption tax based on the value-added concept. GST is imposed on goods and services at every stage of the supply chain including importation of goods and services.

Although the date of the GST implementation has been announced, the public still has not been made fully aware of all of the GST draft legislation and relevant regulations. Businesses are thus eager to get more clarification on what the new GST will actually cover before it goes into effect. As such, it is important to seek professional help from those with local expertise to ensure that your company is in compliance with the new laws.

The GST is expected to affect areas such as product pricing, cash flow, record keeping, invoicing, contracts, vendor/supply management and stock management.

Additionally, the GST is expected to be individually tailored for specific industries and business sectors.

Only businesses with an annual sales turnover of RM500,000 and above are liable to be registered under GST. However, businesses earning below this threshold have the opportunity to voluntarily register for GST. An online registration option should be available and there will be no charge for registration. Registration will be allowed six months before GST goes into effect.

Malaysia’s GST will be zero-rated for such things as exports and international services. Additionally, certain areas will be exempt, such as education and health services.

Taxable turnover, excluding the amount of GST, will be determined by the total value of taxable supplies.

In general, analysts reacted positively to the much anticipated change as they view the GST as a necessary tool for bringing the country’s fiscal deficit under control.

“As the economic condition of the people in the country improves, a tax based on consumption rather than income will surely bring in much more revenue for the government,” said Regina Lau, a tax director attached with KPMG in Kuching.

Competition for FDI between countries in Asia has led to a regional across-the-board reduction in direct taxes, such as corporate income tax. As a result, indirect taxes such as GST have become much more popular – and common – tools for governments to raise much needed revenue.

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