The GST: A Quick Look
Here is a concise but comprehensive look at what the upcoming GST is all about.
While everyone is scrambling to either educate themselves or invest their money before the GST kicks in, not many are familiar with exactly what it entails. While there are bound to be many misconceptions and events of trial and error, a better understanding of exactly what will change might be the first step in dealing with its upcoming implementation.
What Is The GST?
The GST is a consumption-based tax that applies to all goods and services that are supplied in Malaysia as well as imported into Malaysia. The GST will replace the current Sales and Service Tax (SST), which ranges from 6-10%.
A Brief Overview
• The current indirect tax regime includes sales tax and service tax.
• Sales tax is governed by the Sales Tax Act 1972. It is a single-tier tax imposed on taxable goods manufactured in Malaysia for domestic consumption and taxable goods imported into Malaysia. The sales tax rates are either at a specific rate of 5% or 10%.
• Service tax is governed by the Service Tax Act 1975 and is a single- tier tax applicable on “taxable services” prescribed under the Service Tax Regulations 1975. The service tax rate is 6% while specific rates are charged on credit cards.
• The current sales tax and service tax will be abolished and be replaced by a consumption tax based on the value-added concept known as GST.
There are currently 160 countries across that have implemented either the GST or a Value-added Tax (VAT) – ASEAN (7 countries), Asia (19), Europe (53), Oceania (7), Africa (44), South America (11), and the Caribbean and Central North America (19).
Know Your Claims
• GST is a tax charged on the supply (including sales) of goods and services made in Malaysia and on the importation of goods and services into Malaysia.
• GST charged on all business inputs such as capital assets and raw materials is known as input tax.
• GST charged on all supplies made (sales) is known as output tax.
• For eligible businesses, the input tax incurred is fully recoverable from the Government through the input tax credit mechanism.
• GST charged on the value of the supply.
• A business is not liable to be registered if its annual turnover of taxable supplies does not reach the prescribed threshold. Therefore, such businesses cannot charge and collect GST on the supply of goods and services made to their customers.
Is The GST Good For The Property Sector?
GST will be charged on all types of supply of goods and services in Malaysia (except for goods prescribed as zero-rated and exempt-rated). In this case, so long as you are doing business in Malaysia and your business turnover is more than RM500,000 a year, it is mandatory for you or your business entity to have registered with the Royal Malaysian Customs Department (RMCD) and start charging GST of 6% on the supply of goods and services to your customers.
However, the GST taxation mechanism allows you to claim most of the input tax which you have incurred on your business purchases against the output GST which you have charged your customers.
It should be noted that a purchaser of residential property will not be subject to GST since the supply of residential property will fall under the category of exempt-rated supply. It would therefore appear that GST is good for residential property buyers since the purchase price will not have the 6% GST unlike that for commercial properties.
However, residential property developers are not allowed to claim any input tax incurred on their business purchases for the purpose of developing residential properties. As such, the cost of construction for residential property incurred by residential property developers will increase accordingly. Due to this, it is envisaged that the prices of residential properties come April 1, 2015 may change, depending on whether the developer maintains its selling price, notwithstanding its added costs, or whether the developer adjusts its selling price to reflect the extra costs due to the unrecovered input GST.
As for commercial and industrial properties, it is understandable that the supply of commercial properties will rise due to the GST of 6%. Given the above GST outcomes for supply of residential, industrial and commercial properties, we can almost be sure that the chances of property prices coming down in the near future should be close to zero. Hence, it may be worthwhile to invest sooner rather than later, if opportunities permit.
*All data, facts, information and figures are courtesy of Raine & Horne International and are in no way an endorsement from iProperty.com. Readers are encouraged to seek independent advice regarding personal property investment.