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Understanding GST

GST shall be levied and charged on the taxable supply of goods and services made in the course or furtherance of business in Malaysia by a taxable person. GST is also charged on the importation of goods and services. A taxable supply is a supply which is standard rated or zero rated. Exempt and out of scope supplies are not taxable supplies. GST is to be levied and charged on the value of the supply. GST can only be levied and charged if the business is registered under GST. 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. Nevertheless, businesses can apply to be registered voluntarily. Almost all countries collect income tax, which is a percentage of what you earn as an individual. Another way the government gets revenue is by collecting tax from business operations, like sales tax and duties on items that are bought or sold. We need to pay tax so that the government can operate. GST is one method of collecting taxes which works better than others.

Background

GST is not new

The concept behind GST was invented by a French tax official in the 1950s. In some countries it is known as VAT, or Value-Added Tax. Today, more than 160 nations, including the European Union and Asian countries such as Sri Lanka, Singapore and China practice this form of taxation. Roughly 90 percent of the world's population live in countries with VAT or GST.

Here are some of the tax rates of countries around the world who have implemented GST or VAT.


Malaysian Tax History

In Malaysia, our tax system involves several different indirect taxes:

  • Import duty

    • On goods brought into the country
  • Export duty

    • On goods produced for sale outside the country
  • Government Sales Tax

    • On a wide range of goods at the point of import or at the manufacturer's level, with four tax rates at 5%, 10%, 20% and 25%
  • Service Tax

    • On services provided by restaurants, hotels, telecommunications services, professional services by architects, engineers, lawyers etc.
  • Excise Duty

    • On luxury and 'sin' products such as automobiles, liquor, beer and tobacco products

The proposed GST will replace the Government Sales Tax and the Service Tax.


Current Consumption Tax

a) SALES TAX

Sales Tax was introduced on the 29th February 1972 as a single stage consumption tax, levied, charged and paid on goods manufactured in Malaysia and imported. 
Currently, the rates of sales tax are as follows:- 
  • Reduced rate of 5% for non-essential foodstuff and building materials
  • A general rate of 10%
  • Specific rates for petroleum products

    Licensing

    Manufacturers of taxable goods whose annual sales turnover exceed RM100,000 is required to be licensed under sales tax act. Those with annual sales turnover does not exceed RM100,000 are required to apply for a certificate of exemption from licensing. 

    Scope of Tax

    Sales tax is levied on locally manufactured goods at the time the goods are sold or otherwise disposed of by the manufacturer. It is called a single stage tax because sales tax is to be charged once only, either at the input or at the output stage. 
    • List of goods subject to sales tax at 10%
    • List of goods subject to sales tax at 5%

b) SERVICE TAX

Service tax was introduced on the 1st March 1975 as a single stage consumption tax, levied, charged and paid on specific services provided by a taxable person in Malaysia. 
Currently, the rates of service tax are as follows:- 
  • Flat rate of 5%;
  • Specific rates for credit card - RM50.00 (effective from 1st January 2010)

    Licensing

    Any person who carries on business of providing taxable services in any prescribed establishment is required to be licensed under the service tax act. Licensing is based on the following threshold:- 
    Threshold Level Taxable Services
    No Threshold a. Hotel of having more than 25 rooms (Group A)
    b. Restaurant, Bar, Snack-Bar, Coffee Houses located in hotel having more than 25 rooms (Group B1)
    c. Night-Clubs, Dance Hall, Cabarets, Health Centre, Massage Parlours, Public Houses and Beer Houses (Group D)
    d. Provision of insurance services to business organisation
    e. Provision of telecommunication services
    f. Provision of services for the clearing of goods from customs control
    g. Provision of accounting services by the Public Accountant
    h. Provision of legal services by the Legal Firms
    i. Provision of engineering services by the Professional Engineers
    j. Provision of architecture services by the Architect
    k. Provision of surveying services by the surveyor
    l. Provision of Consultancy services by the Consultant Companies
    m. Provision of management services by Management Companies
    n. Provision of credit card or charge card services
    Annual Sale Turnover of RM 150,000 and above Services provided by Professional under Group G as follows:-
    a. Provision of parking spaces for motor vehicles
    b. Provision of courier delivery services
    c. Provision of motor vehicles service and repair centres by the Workshop
    d. Provision of security guard or body-guards servi​ces by the Private Agency
    e. Provision of employment services by the Employment Agency
    Annual Sale Turnover of RM300,000 and above a. Restaurants, Bar, Snack-Bars, Coffee Houses located in the Hotel having 25 rooms and less (Group B2)
    b. Services provided by Private Clubs including golf clubs (Group E)
    c. Services provided by Private Hospitals (Group F)
    d. Services provided by operators of hire-an-drive or hire-car companies (Group G)
    e. Services provided by advertising agency (Group G)
    Annual Sale Turnover of RM3,000,000 and above (effective from 1stJuly 2008) Restaurants, Bar, Snack-Bars, Coffee Houses located outside the Hotel including food courts (Group C)
     

    Scope of Tax

    Service tax is charged and levied on selected taxable services as prescribed in the Second Schedule of the Service Tax Regulations 1975. 
    List of prescribed services subject to service tax at 5% 

    How service tax works

Countries Implementing GST or VAT

1. List of Countries Implementing VAT/GST

  • Currently, there are 160 countries in the world that have implement VAT/GST. Number of country based on region are as follows:-

    No. Region No. of Country
    1 ASEAN 7
    2 Asia 19
    3 Europe 53
    4 Oceania 7
    5 Africa 44
    6 South America 11
    7 Caribbean, Central & North America 19

  • Out of 160 countries, eight countries are not United Nation (UN) Member States:-

    1. Azores
    2. Taiwan
    3. Faroe Islands
    4. Isle of Man
    5. Jersey
    6. Kosovo
    7. Madeira; and
    8. Niue
  • Number of UN Member States are 193 and out of the 193, only 41 Member States do not implement VAT/GST, as follows:

    No. Region No. of Country
    1 Asean
    -Malaysia
    -Brunei
    -Myanmar
    3
    2 Asia
    -Afghanistan -Bahrain -Bhutan -Iraq -Kuwait -Maldives
    -North Korea
    -Oman
    -Qatar
    -Saudi Arabia
    -Syria
    -Timor Leste
    -United Arab Emirates
    -Yemen
    14
    3 Europe -Andora
    -San Marino
    2
    4 Oceania -Kiribati
    -Marshall Islands
    -Micronesia
    -Nauru
    -Palau
    -Solomon Islands
    -Tuvalu
    7
    5 Africa -Angola
    -Comoros
    -Djibouti
    -Eritrea
    -Liberia
    -Libya
    -Sao Tome and Principe
    -Somalia
    -South Sudan
    -Swaziland
    10
    6 Caribbean, South, Central & North America -Bahamas
    -Cuba
    -Saint Lucia
    -Suriname
    -United States of America
    5

  • Latest countries to implement VAT/GST (for the last 5 years) are:

    Gambia - 2013 Saint Kitts and Nevis - 2010
    Congo - 2012 Laos - 2009
    Seychelles - 2012 Niue - 2009
    Grenada - 2010 Sierra Leone - 2009
    ​​​​
  • Country working towards a VAT/GST system:-

    → Afghanistan, Bahamas, Bhutan, Kiribati, Marshall Islands, Micronesia, Palau, Sao Tome and Principe, Syria
    → Gulf Cooperation Council (Bahrain, Kuwait, Qatar, Saudi Arabia, Oman and the United Arab Emirates)
    → China & India – to have a uniformed GST system
  • The detailed list of country are attached.

    ASEAN (7 Countries)
    No. Country GDP Per Capita 
    (World Bank, 2011, USD)
    Year of Implementation Initial Rate (%) Current Rate (%)
    1 Indonesia 3,495 1984 10 10
    2 Thailand 4,972 1992 7 7
    3 Singapore 46,241 1993 3 7
    4 Philippines 2,370 1998 10 12
    5 Cambodia 897 1999 10 10
    6 Vietnam 1,407 1999 10 10
    7 Laos 1,320 2009 10 10

    ASIA (19 Countries)
    No. Country GDP Per Capita 
    (World Bank, 2011, USD)
    Year of Implementation Current Rate (%)
    1 Bangladesh 743 1991 15.0
    2 China 5,445 1994 17.0
    3 India 1,509 2005 12.5
    4 Iran NA 2008 5.0
    5 Japan 45,903 1989 5.0
    6 Jordan 4,666 2001 16.0
    7 Kazakhstan 11,357 1991 12.0
    8 Kyrgyzstan 1,124 1999 20.0
    9 Lebanon 9,413 2002 10.0
    10 Mongolia 3,129 1998 10.0
    11 Nepal 619 1997 13.0
    12 Pakistan 1,189 1990 16.0
    13 Papua New Guinea 1,845 2004 10.0
    14 South Korea 22,424 1977 10.0
    15 Sri Lanka 2,835 2002 12.0
    16 Taiwan NA 1986 5.0
    17 Tajikistan 935 2007 20.0
    17 Tajikistan 935 2007 20.0
    17 Tajikistan 935 2007 20.0
    18 Turkmenistan 5,497 1993 15.0
    19 Uzbekistan 1,546 1992 20.0