Countries Implementing GST or VAT

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

Scope of Tax

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

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 services 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 1^stJuly 2008)	Restaurants, Bar, Snack-Bars, Coffee Houses located outside the Hotel including food courts (Group C)

Scope of Tax

How service tax works