GOODS AND SERVICE TAX (GST)

A goods and services tax in Malaysia (GST), a value added tax, was scheduled to be
implemented by the government during the third quarter of 2011, but has not yet been
implemented. The government is still studying the possible impact of the tax and has not
yet decided when it might come into effect. Its purpose is to replace the sales and services
tax which has been used in the country for several decades. The government is seeking
additional revenue to offset its budget deficit and reduce its dependence on revenue from
Petronas, Malaysias states- owned oil company. The 6% tax will replace a sales and
service tax of between 5-10%.
The Goods and Service Tax Bill 2009 was tabled for its first reading at the Dewan Rakyat
(the lower house of the Malaysian parliment) on 16 December 2009. It was delayed amid
mounting criticism. The government responded by asserting that the tax on oil income
will not be sustainable in the future. National Consumer Complaints Centre head
Muhammad Shaani Abdullah has said, the government should create more awareness
on what the GST is. The public cannot be blamed for their lack of understanding, and
thus, their fears. Shaani says that the GST will improve accounting, reduce tax fraud,
and facilitate enforcement of the upcoming Anti-Profiteering Act. Muslim Consumer
Association of Malaysia leader Datuk Dr. Maamor Osman said the GST could help and
dishonest business practices, but expressed concern about how the tax would be applied
to medical product and services. A group leading the campaign against the GST, Protes
(which object to the GST because of concerns about its effect on low-income
Malaysians), canceled a planned protest but has stated that they will continue to agitate
against the legislation.

During the government reading of the 2014 budget, Malaysian Prime Minister Najib
Razak announced a GST tax of 6% starting on 1 April 2015. This will replace the sales
and services tax. Implementing GST tax will be a part of the Governments tax reform
program to enhance the capability, effectiveness and transparency of tax administration
and management.
During the unveiling of the national budget, it was announced that the following goods
and services would be exempted from GST :
- RON95 petrol, diesel and LPG
- Electricity up to 300 Kwh
- All local and imported fruit
- Types of bread, tea, coffee, and noodles
- Medication for treatment of 30 diseases
- Reading materials and newspaper

In Malaysias Budget 2014 speech, the implementation of Goods and Service Tax (GST)
was perhaps the hottest topic. To be introduced in April 2015, it will replace Malaysias
sales tax (10%) and service tax (6%). Under GST, most of the goods and service (except
basic necessities) will be charged a tax rate of 6% at every stage of the supply chain.

types of GST
There will be three different categories of goods and services under the GST scheme in
Malaysia. They are:
1. Standard-Rated GST
Goods and service in this categories will be charged a tax rate of 6% at every stage of
supply chain. The tax is billed and collected by business and paid to the government.
Every party except the final consumer can claim back credits on the GST they already
paid (known as input tax). Examples of the goods in this category are cloth, car and fruits.
The following diagram shows how Standard-Rated GST works:

Standard-Rated GST

2. Zero-Rated GST
Goods and services in this category will be charged a GST rate of 0%. GST is not
charged to the final consumer. But business Can claim back credits on their input tax.
Examples of goods in this category are basic food item (meat, fish, and cooking oil) and
first 200 unit of electricity per month. The following diagram shows how zero-rated GST
works, assuming the final product is zero-rated but the raw materials are standard rated:

Zero-Rated GST

3. Exempt-Rated GST
Goods and service that fall in this categories will be non-taxable and are not subject to
GST at the output stage. This means that GST is not charged to the final consumer. But it
also means that business, particularly the final party in the supply chain (before the final
consumer) Cannot claim back credits on their input tax even if they might have
incurred it earlier on. Examples of goods in this category are residential property and
health care services. The following diagram will give a clearer picture on how exemptrated GST works:

Exempt-Rated GST

Conclusion
GST is a progressive tax regime that will supplant the sales Tax and service Tax in
Malaysia in the near future. Understanding its mechanisms will help us to better gauge its
potential impact on our lives and prepare for it. Finally, if you would like to know GSTs
potential impact on house property prices and home loans, look no further Loanstreets
explanation of how GST will impact property prices.