What is GST?
GST is a consumption tax based on the value-added concept. GST is imposed on goods and services at every production and distribution stage in the supply chain including importation of goods and services.
Is GST a new consumption tax?
GST will replace the present consumption tax comprising the sales tax and the service tax (SST). The difference between GST and the present consumption tax is in terms of its scope of charge which is more comprehensive, inclusive of the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on business inputs. On the other hand, service tax is imposed on specific services at the time when the services are provided to the consumer.
How different is GST from Income Tax?
GST is considered a fairer and more equitable system of Tax for individuals compared to Income Tax. As it is a consumption-based Tax, the amount one pays will depend on the individual’s consumption, the higher you consume, the more taxes you pay. At the same time, it minimizes Tax evasion and ensures a broader revenue stream for the country.
Why does the government want to implement GST?
The GST implementation is part of the government's tax reform programme to enhance the capability, effectiveness and transparency of tax administration and management.
How does GST work?
GST is charged and collected on all taxable goods and services produced in the country including imports. Only businesses registered under GST can charge and collect GST. GST collected on output must be remitted to the government.
Goods and Services Tax (GST) is also known as value added tax, this is a tax on the final consumption of goods and services. GST is a multi-stage tax, which means the Government collects the tax at various stages along the delivery process. Although paid by the intermediaries (such as manufacturers, wholesalers and retailers) throughout the production and distribution chain, the tax is ultimately passed on to the consumer.
Therefore, the tax is not a cost to the intermediaries and is not reflected in their financial statements as an expenditure.
A business registered in the GST system is required to charge GST on its output of taxable goods or services supplied to customers. The business is allowed to claim as credit any GST incurred on its purchases of business inputs. The customers, if they are also making taxable supply of goods and services, in turn, are allowed to claim a credit on GST paid on their inputs. Thus, double taxation is avoided and only the value added at each stage is taxed.
Input tax is the GST that a business has incurred on the purchases of goods and services as part of its operations.
Output tax is the GST that a business charges on the taxable goods and services that it supplies in the course of business.
Standard-rated supplies means taxable supply of goods and services that are subject to a standard rate, which is 6% in Malaysia’s case. A taxable business can claim input tax credit on its business inputs in making taxable supplies.
Zero-rated supplies are taxable supplies that are subject to a zero rate. Although no GST is imposed on these supplies, a taxable business can claim input tax credit on its business inputs in making taxable supplies. Examples: Agricultural product, life stock, poultry, international services, supply of treated water, supplies to designated areas etc.
Exempt supplies are not subject to GST. Suppliers of exempt supplies cannot claim the GST incurred on business inputs. Examples: Financial services, childcare services, private healthcare services, private education services, funeral services, supplies made by societies etc.