.png?1395999085)
GST In Malaysia Explained
In Malaysia’s 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 Malaysia’s Sales tax (10%) and Service tax (6%). Under GST, most of the goods and services (except basic necessities) will be charged a tax rate of 6% at every stage of the supply chain. The question now on everyone’s mind – How will life be after GST?
To identify the most likely effects, we must first understand the different implementations of GST and their mechanisms.
Types of GST
There will be three different categories of goods & services under the GST scheme in Malaysia. They are:
I. Standard-Rated GST
Goods and services in this category will be charged a tax rate of 6% at every stage of the supply chain. The tax is billed and collected by businesses 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:
II.Zero-Rated GST
Goods and services in this category will be charged a GST rate of 0%. This means that GST is not charged to the final consumer. But businesses CAN claim back credits on their input tax. Examples of goods in this category are basic food item (meats, 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:
III.Exempt-Rated GST
Goods and services that fall in this category 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 businesses, 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 Exempt-Rated GST works:
