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Malaysian GST: Bill introduced

31 March 2014

Malaysia announces GST commencementOn 25 October 2013, the Malaysian Government announced its intention to introduce a goods and services tax (GST) effective from 1 April 2015.

On 31 March 2014, the Goods and Services Tax Bill 2014 was introduced into the Malaysian Parliament. The Bill was passed by the lower house on 7 April 2014 and moved to the upper house for introduction and debate.

The main features of the proposed GST, as announced in the 2014 Budget, include the following:

  • The standard rate of GST would be 6% 
  • The GST would replace the existing service tax and sales tax. It would be charged on goods and services at all levels: production, manufacture, wholesale and retail 
  • GST would be payable on goods and services supplied in Malaysia or imported from outside Malaysia 
  • Certain supplies would be zero-rated (i.e. GST-free). Those announced include: 
    • Basic foods stuffs 
    • Water supplied to domestic consumers 
    • Electricity supplied to domestic consumers (first 200 units per month) 
    • Exported goods and services 
  • Certain supplies would be exempt from GST (i.e. input taxed). Those announced include: 
    • Residential property (sale and rental), and land used for agricultural purposes 
    • Specified financial services 
    • Transport of passengers (i.e. certain bus, train, ferry, taxi, boat services) and highway/bridge tolls 
    • Private education services 
    • Private health services 
  • Certain supplies would be outside the scope of the GST, including those made by federal and state government departments (other than some prescribed services), and those made by local authorities and statutory bodies in relation to regulatory enforcement functions. These supplies include government-provided health services and school education, and the issuance of licences and passports 
  • The GST registration threshold would be RM500,000 per annum of GST taxable revenue (from standard-rated and zero-rated supplies). Businesses with a lower turnover would be able to register on a voluntary basis, subject to conditions.

The Government has announced associated assistance and other measures to promote a smooth transition to the GST. For individuals, this includes a one-off cash assistance payment to households, and income tax relief. For businesses, the proposed measures announced include:

  • Reduction of the corporate income tax rate by 1% from 25% to 24%, and the rate for qualifying small and medium companies to be reduced by 1% from 20% to 19%, effective from 2016 
  • Reduction of the co-operative income tax rate by between 1 and 2%, from the 2015 year of assessment 
  • Secretarial fees and tax-filing fees to be deductible from the 2015 year of assessment 
  • Costs of purchasing information, communication and technology (ICT) equipment and software to qualify for Accelerated Capital Allowance until the 2016 year of assessment 
  • Expenses incurred for training in accounting and ICT relating to GST to qualify for double deduction for the 2014 and 2015 years of assessment 
  • RM100 million to be allocated to provide training grants for businesses that send their employees for GST training in 2013 and 2014. In addition, a further RM150 million to be allocated to help SMEs purchase accounting software in 2014 and 2015.

Implications

Australian businesses with Malaysian subsidiaries or operations should begin reviewing the impact that the introduction of the GST would have. The impact would be felt across all business functions, and affect people, systems and processes. Based on experience in Australia and other countries, it is to be expected that planning and preparing for the start of the GST may take up to 12 months or more.

For more details about the proposed Malaysian GST, or to discuss planning and preparation considerations, please contact Jon Graham (+61 2 9322 7421) or one of our other Indirect Tax specialists.

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