Will your Malaysian subsidiaries or operations be ready?
In October 2013, the Malaysian Government announced its intention to replace the existing service tax and sales tax with a goods and services tax (GST), effective from 1 April 2015.
The Goods and Services Tax Act 2014 has now been passed by Parliament, receiving Royal Assent on 9 June 2014. Much of the detail is in the Goods and Services Tax Regulations 2014, parts of which commenced operation on 1 July 2014. There are some details in important areas that are still to be released.
Australian businesses with Malaysian subsidiaries or operations should be reviewing the impact that the start of the GST on 1 April 2015 will have. The impact will be felt across all business functions, and affect people, systems and processes. Based on experience in Australia and other countries, it is to be expected that planning and preparing for the start of the GST may take up to 12 months or more, so it is imperative that any project to do so is commenced as soon as possible.
In this regard, it should be noted that the Malaysian GST has a number of areas where the treatment is somewhat different from what may be found in Australia or New Zealand, with the result that the transition will not necessarily be a straight-forward or simple one.
For more details about the Malaysian GST, or to discuss planning and preparation considerations, please contact Jon Graham or one of our other Indirect Tax specialists.
Main features of the GST
The main features of the Malaysian GST include the following:
- A standard rate of 6%
- Application to supplies of goods and services at all levels: production, manufacture, wholesale and retail
- Application to goods and services supplied in Malaysia or imported from outside Malaysia. While goods imported from outside Malaysia will generally be subject to GST when cleared through Customs, there are certain concessions available in the event that the entity importing the goods ultimately export at least 90% of their supplies. Services imported from outside of Malaysia will be subject to a reverse charging regime
- Zero-rating (i.e. similar to GST-free treatment) of certain supplies, including:
- Basic foods stuffs
- Water supplied to domestic consumers
- Electricity supplied to domestic consumers (first 200 units per month)
- Exported goods and services
- Exempt (i.e. similar to input taxed) treatment of certain supplies, including:
- Residential property (sale and rental), and land used for agricultural purposes
- Specified financial services (the fine detail of these is still to be released)
- Basic Transport of passengers (i.e. certain bus, train, ferry, taxi, boat services) and highway/bridge tolls (executive taxis, limousine services and the like will be standard rated)
- Private education services
- Private health services
- Certain supplies are outside the scope of the GST, including those made by federal and state government departments (other than some prescribed services), and those made by local authorities and statutory bodies in relation to regulatory enforcement functions. These supplies include government-provided health services and school education, and the issuance of licences and passports
- Transfer of a business (similar to supply of a going concern) will also be treated as being out-of scope
- The GST registration threshold is RM500,000 per annum of GST taxable revenue (from standard-rated and zero-rated supplies). Businesses with a lower turnover are able to register on a voluntary basis, subject to conditions.
The Malaysian Government has announced associated assistance and other measures for individuals and businesses, to promote a smooth transition to the GST.