Introduction of goods and

services tax in Malaysia

The implementation of the Goods and Services Tax (GST) at the rate of 6% has
been announced by the Honorable Minister of Finance in the 2014 Budget and will
come into operation on 1 April 2015.

What is it?

GST is a broad-based consumption tax applied at each stage of the supply chain. A GST
registered business, in the main, can offset the GST incurred in making its supplies against
GST charged on the supplies it makes. This credit mechanism means that GST is levied on
the value added at each stage of production, and it can be cost neutral to a

business with the burden falling on the final consumer who cannot recover the GST. GST
becomes due when a sale is made and not necessarily when payment is received. This is a
move away from the present single-stage sales tax and service tax system.

What does it apply to?

GST is charged on any taxable supply of goods and services made in the
furtherance of any business by a GST-registered person in Malaysia. It is also
charged on the importation of goods and services into Malaysia. As a broad based
tax, the default position is for GST to be applied at the standard rate unless there is
a provision that states that it can be treated differently. This means there is no list of
what is treated as standard rated; instead, there are some limited reliefs and
exemptions for certain specific goods and services:

Zero rated: This is a taxable supply, meaning GST incurred on the supply can be recovered
and the onward supply GST is levied at 0%. If you make wholly zero-rated supplies, then it
is likely that you will be in a refund position with Customs. Examples include certain
agricultural products, foodstuff, water to domestic consumers, electricity supply (with limits)
to domestic users, export of goods and international services.

Exempt: This supply means no GST is charged on the supply, but this does not
mean that you are GST-free. It also means that there is no entitlement to recover
GST incurred in making those exempt supplies. If you make wholly exempt
supplies, then you will not be able to register for GST, and GST would become a
cost to the business. Examples include residential property, private healthcare and
private education and certain financial services.
Who will be affected?
Out of scope: These supplies are
outside the GST system. Examples are Everyone in Malaysia who consumes
limited but include transfer of going goods or services will be affected upon
concerns and supplies made by the implementation of GST. In particular,
Government, such as issuance of businesses that are registered for GST
passports and licenses, except some will need to account for GST on their
supplies of services prescribed by the business activities on a regular basis
Minister of Finance. and pay the GST due to the Customs
Department. The threshold to become
GST registered is RM500,000 in a 12-
month rolling period or where there is an
expectation that this threshold will be
breached.
What is the impact on other taxes?
The Government is abolishing the current
sales tax of 5% and 10% and service tax
of 6%. These taxes will come to an end
when GST starts. In addition, it was
stated in the 2014. Budget that some
assistance will be given to individuals
and businesses to assist them with the
introduction of GST.
Assistance from the Government
Individuals
The following measures will be effective
from 2015:
One-off cash assistance of RM300 to
households that receive Bantuan Rakyat
1Malaysia (BR1M).
Individual income tax rates to be
reduced by 1% to 3%.
Individual income tax structure to be
reviewed to ensure a more progressive
tax structure, including increasing the
chargeable income subject to the
maximum rate from in excess of
RM100,000 to in excess of RM400,000.
Businesses
The following measures will be effective
from 2015:
Corporate income tax will be reduced by
1% from 25% to 24%. Income tax rate
for small and medium enterprises
(SMEs) will be reduced by 1% from 20%
to 19%. Both reductions will take effect
in the year of assessment 2016.
Cooperative income tax rate will be
reduced by 1% to 2% from the year of
assessment 2015.
Secretarial and tax filing fees (subject to
limits) are allowed as tax deductions
from the year of assessment 2015.
Accelerated capital allowances on the
cost of information and communications
technology (ICT) equipment and
software are extended to the year of
assessment 2016.
Expenses incurred for training in
accounting and ICT relating to GST are
to be given a further tax deduction for
the years of assessment 2014 and
2015.
Grants for GST training of employees in
2013 and
2014 and financial assistance to SMEs
for the purchase of accounting software
in 2014 and 2015 will be provided.
How to implement GST in 17 months
The following business decisions need
to be considered:
Budget for cost of implementing GST, e.g.
consultant fees, configuration of
accounting systems, training expenses,
hiring of additional finance support
Manage cash flow as GST is paid on
accrual basis
Analyze the capabilities of existing
accounting system
Review accounts payable process to
ensure tracking and posting of expenses
are done in a timely manner
Review employees benefits and the
process of approving claims
Determine the necessary changes
required for existing documentation
Analyze and understand transitional
issues on supply of goods and services
spanning the GST implementation
period
Evaluate the impact on pricing of sales
and suppliers spanning the GST
implementation period
Train employees to appreciate the
impact of GST
Identify the legal implications of existing
long-term contracts spanning the GST
implementation period

For additional information with respect to this Alert, please contact the following:

Ernst & Young Tax Consultants Sdn Bhd, Kuala Lumpur

Dr. Lydia Shalani Thiagarajah +60 3 7495 8250+60 3 7495 8250 lydia-
shalani.thiagarajah@my.ey.com

2 Global Tax Alert

EY | Assurance | Tax | Transactions | Advisory

About EY

EY is a global leader in assurance, tax, transaction and advisory services.

The insights and quality services we deliver help build trust and confidence
in the capital markets and in economies the world over. We develop
outstanding leaders who team to deliver on our promises to all of our
stakeholders. In so doing, we play a critical role in building a better working
world for our people, for our clients and for our communities.

EY refers to the global organization, and may refer to one or more, of

the member firms of Ernst & Young Global Limited, each of which is a
separate legal entity. Ernst & Young Global Limited, a UK company
limited by guarantee, does not provide services to clients. For more
information about our organization, please visit ey.com.

2013 EYGM Limited.

All Rights Reserved.

EYG No. CM3925

This material has been prepared for general informational purposes only and is not intended to
be relied upon as accounting, tax, or other professional advice. Please refer to your advisors
for specific advice.

ey.com