eKTP 75

GST Transition period from 6% to 0%

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The Goods and Services Tax (Rate of Tax) (Amendment) Order 2018 (“Order”) was gazetted on 16 May 2018 and takes effect from 1 June 2018.  Under the Order, all taxable supplies of goods and services which are made in Malaysia and all importation of goods into Malaysia, would be zero-rated.  

On 16 May 2018, the Malaysian Ministry of Finance also issued a press release stating that supplies of goods and services made in Malaysia, as well as, goods and services imported into Malaysia, which are currently standard-rated (i.e. subject to 6% GST) would be zero-rated with effect from 1 June 2018 until further notice. This would not affect “exempt supplies”, which would remain as exempt supplies for the purposes of the Goods and Services Tax Act 2014 (“GST Act”). 

 

Before 1/6/2018 - Section 11 of GSTA

 

  1. This section shall apply in determining the time of supply of goods or services except as otherwise provided in this Act.

  2. Subject to subsections (4), (5), (6) and (7), the time of supply of goods shall be:-
    (a) At the time of removal of the goods if the goods are to be removed;

    (b) At the time when the goods are made available to the person to whom the goods are supplied if the goods are not to be removed;

    (c) Where goods, being sent or taken on approval or sale or return or similar terms, are removed before it is known whether a taxable supply will take place, at the time when it becomes certain that the taxable supply has taken place or twelve months after the removal, whichever is the earlier.

  3. Subject to subsections (4), (5), (6) and (8), the time of supply of services shall be at the time when the services are performed.

Post 1/6/2018 - Section 66 of GSTA

                                                                        

Notwithstanding of section 11 (ie disregard this section 11 entirely), this section shall apply where there is a change in the rate of tax fixed under Section 10.

For transitional purposes, businesses must take into account section 66 and 67 of the GST Act as well as the time of when the change will take effect, i.e., 1 June 2018.

In summary, Section 66 provides that GST will be charged at 6% on the higher of the following amounts:

  • Full or part payment received before the effective date; OR

  • The new 0% rate will be charged on the difference, if any, between the amounts determined above and the total value of the supply. In addition, for contracts which have been entered into but have not yet been executed by 31 May 2018, Section 67 of the GST Act allows the supplier to deduct from the agreed GST inclusive price, the amount of GST due to the reduction in rate on 1 June 2018.

The value of supply will be determined based on the extent to which the goods are removed or made available, or the services performed.

Accordingly, any services rendered (whether in whole or in part) before 1 June 2018 are still subject to 6% GST.  Similarly, any goods supplied before 1 June 2018 are still subject to 6% GST. 

“A Supply Spanning a Change in Rate” is defined in section 66(5) of the GST Act (set out below) and this refers to any supply where: 

(a) Full payment is received before 1 June 2018 and the goods are wholly removed or made available or the services are wholly performed after 1 June 2018;

(b) Full payment is received after 1 June 2018 and the goods are wholly removed or made available or the services are wholly performed before 1 June 2018;

(c) Full payment is received before 1 June 2018 and the goods are partly removed or made available or the services are partly performed before and after 1 June 2018;

(d) Full payment is received after 1 June 2018 and the goods are partly removed or made available or the services are partly performed before and after 1 June 2018;

(e) The goods are wholly removed or made available or the services are wholly performed before 1 June 2018 and part payment is received before and after 1 June 2018;

(f) The goods are wholly removed or made available or the services are wholly performed after 1 June 2018 and part payment is received before and after 1 June 2018;

(g) Part payment is received before 1 June 2018 and part payment is received after 1 June 2018;

(h) Part payment is received before 1 June 2018 and the goods are partly removed or made available or the services are partly performed after 1 June 2018;

(i) The goods are partly removed or made available or the services are partly performed before 1 June 2018 and part payment is received after 1 June 2018; or

(j) The goods are partly removed or made available or the services are partly performed before 1 June 2018 and the goods are partly removed or made available or the services are partly performed after 1 June 2018.

 

Points for immediate actions in post 1/6/2018

 

In view of the short time frame to the change of rate, it is critical that businesses immediately focus on the following areas:

  • Review status of on-going supplies and the applicable billing and payment arrangements to ensure that GST is accounted for at the correct rate.

  • Ensuring that your GST 03 Return still captures standard rated supplies (at 0%), exempt supplies, disregarded and other supplies correctly.

  • As exempt supplies are still in place, mixed suppliers would still need to continue to do partial exemption calculations for any input tax captured after 1 June 2018.

  • Pricing strategies and considerations for post-1 June 2018, including price displays, to reflect the Governments stated intentions for removal of GST.

The new 0% rate will be charged on the difference, if any, between the amounts determined above and the total value of the supply. In addition, for contracts which have been entered into but have not yet been executed by 31 May 2018, Section 67 of the GST Act allows the supplier to deduct from the agreed GST inclusive price, the amount of GST due to the reduction in rate on 1 June 2018.