GST and the business owner

WITH April 1 set as the implementation date for goods and services tax (GST), business owners will be using this period to look at what has to be done and how transitional issues are going to affect business.

It will be mandatory for businesses with an annual taxable turnover exceeding RM500,000 to register with the Royal Malaysian Customs Department.

However, Patrick Chin, tax and GST executive director for professional services company UHY Malaysia, who was speaking at the “GST and You” workshop for business owners held at Menara Star in Petaling Jaya recently, pointed out why it was better for SMEs to simply opt for voluntary registration.

"It advisable for Malaysian companies making taxable supply outside the country. For one, it avoids giving the impression of a small operation. Secondly, it entitles the company to recover input tax on startup costs and normal business expenditure,” he said.
 

The accounting basis for GST will rely on either the date on the tax invoice, which will be the default used by most businesses, or based solely on cash payment basis upon approval from the Customs department.

Examples of entities eligible are restaurant operators, hair salons and grocery shops. It is not intended for professional services.

One crucial document in the GST regime is the tax invoice, a document similar to the current commercial invoice, to substantiate claims for input tax. It has to be issued within 21 days in Malaysian ringgit after supply has taken place. If done after the 21 days, output tax will be accounted for from the date of delivery. The penalty rate is 5% if submission is late by 30 days.

"A full tax invoice must contain the words ‘tax invoice’ so the customer is aware of the GST element. The GST number must also be included as a form of identification to verify if the supplier is genuinely registered.

"This is to prevent unregistered companies from charging tax. With the identification number, consumers can perform verification checks,” said Chin.

These requirements, Chin added, would have an impact on current operations.

If a company has stocked up on pre-printed invoices, unless a way can be found the include the required info, they will no longer be relevant. Debit or credit notes, used by subsidiary companies in the past to contra supplies, will no longer be applicable except in situations of incorrect invoicing, discounts or cancellations.

"There will also be a need for better cashflow planning to ensure timely payments within the stipulated 21 days,” he said.

But in the midst of the rush to register for GST, UHY partner Loh Chye Teck reminds owners they should not forget about cancellations when the business ceases operations to avoid being saddled with back taxes.

In looking at how GST will affect transactions in the overlapping periods when the implementation takes effect, Loh offered examples.

Tax exemptions are given for transactions where supply is made before April 1 but payment is made or the invoice issued after the date.

However, if any supply or service is carried out after the date though payment has been made earlier, it will be deemed GST inclusive.

In the case of partial deliveries, the portion delivered on or after the date, will be deemed taxable.

Loh also looks at circumstances such as construction agreements made before April 1, warranties, and token operated machines.

“The value of work and materials permanently incorporated or affixed on the construction site will not be affected by GST. Tax is only payable on construction services provided on or after the implementation date,” he said.

For coin operated machines, the first removal of collection within one week from 1 April will enjoy free of GST.

Warranties beginning before and ending after the date will not be subject to GST. This also applies to extended warranties purchased before the date and utilized after.

“GST has a ‘cost down’ effect for businesses. In the past, sales and service tax were in the range of 5 to 10%. With the GST, it is fixed at 6%,” said Loh.

Describing the move as a self policing measure against unscrupulous business practices, he also predicts it will spur Malaysian business owners to be more efficient and innovative with their products and operating methods.

All GST workshops for business owners at Menara Star in Petaling Jaya are fully booked. However, places for free half-day workshops are still available on: Jan 24 at Sunshine Square, Penang; Feb 28 (The Star Pitt Street, Penang); March 14 (Sunway College, Johor Baru); and March 21 (Malacca). The venue for the Malacca workshop will be announced later.