tax

GST in
Malaysia
KPMG in Malaysia

GST An Introduction

The Goods and Services Tax (GST) Bill was tabled in Parliament for its first reading in December
2009 in response to the fiscal deficit that Malaysia is experiencing. In addition to providing the
Government with a source of revenue beyond that of income tax, GST is said to offer a more
comprehensive, efficient, transparent and effective tax system.
There is much speculation that GST will be formally
introduced in Malaysia in the near future. GST is an indirect
tax which, when introduced, will replace the much narrower
Sales Tax and Service Tax (SST).

As GST is levied on supplies (typically sales) of goods and

services the number of people paying tax is far higher
than under SST or Income Tax. There is therefore, a more
equitable sharing of the tax burden.

GST is particularly useful as a revenue raising tool given its

wide base. Indeed, GST in one form or another, can be found
in approximately 160 countries. GST is imposed on supplies
of goods and services. By designating certain supplies as
zero rated or exempt, the impact of GST can be softened in
line with Government policies.

With anything new, it is important that GST is properly

understood.

What is GST?
In his 2005 Budget speech the Prime Minister Tun Abdullah bin Haji Ahmad Badawi stated:
The government proposes to replace both these taxes (Sales Tax and Service Tax) with a single consumption tax, based on
the value-added concept. The new tax, known as the Goods and Services Tax (GST), will be more comprehensive, efficient,
transparent and effective, thereby enhancing tax compliance
GST is a consumption tax based on the value-added concept. It is a form of indirect taxation and is imposed on taxable goods
and services at each stage in the supply chain. This means that ultimately consumers will bear the tax. A key concept in GST is
that of a supply. SST in comparison are both single stage taxes.
Present Taxation Scheme
Name
Type of tax
Tax rate

Sales and Services Tax

Goods and Services Tax

Single stage taxes

Multi-stage tax (for suppliers) / Consumption

tax (for final consumers)

Sales tax generally 5% to 10%

To be confirmed

Service tax 6%
Sales tax is charged on locally manufactured
and imported goods

When is it charged

Proposed GST

Service tax is charged on selected services

Charged only once (single stage)

Applies to goods and services (unless

exempted) as well as to imported goods
and services
Incurred by the supplier (Input tax)
Charged to customers (Output tax)

Why GST?
With the introduction of GST, Government revenues will be
less reliant on direct tax and instead there will be greater
funding from the wider indirect tax base. This reduction in
Government revenues from direct taxes and greater yields
from indirect taxes, is a global phenomenon. Being a broad
based tax, GST can be charged on practically all supplies of
goods and services, although this is tempered with some
supplies being designated zero-rated or exempt where GST
will not be charged.
Although the introduction of any new tax may be viewed with
some degree of trepidation, a number of arguments can be
advanced to support the introduction of GST including:
Unlike income tax, GST does not depend on profit but
rather is based on consumption. As a consequence, the
Government would benefit from a more certain revenue
stream.

Under the current indirect tax system, SST are embedded

production costs which may be reflected in higher prices.
GST in comparison, through its input tax credit system, can
reduce the cost of production for businesses. In parallel,
the zero rating of supplies to persons outside Malaysia
would increase the competitiveness of Malaysian exports.
In countries where it is has been implemented, GST is
said to have increased tax compliance. This is primarily
because of the need for businesses to be able to provide
GST Invoices which requires that they be registered with,
and known to, the tax authorities; hence there is greater
transparency.
GST can also be said to provide an efficient tax collection
mechanism as the payment obligation is dealt with directly
by the supplier.

The income of many individuals falls below the threshold

for income tax. As a result, the footprint for income tax is
relatively small and the tax burden is arguably inequitable.
As GST is based on spending there is the potential for
many more individuals and businesses to contribute to the
Governments tax coffers.

GST Misconceptions

KPMG Recommends

There are arguments that the GST is regressive as the lower

income group may pay more tax in proportion to their income.
This argument can, however, be countered as essential
items e.g. basic food stuffs, will be zero rated or exempted.
Consequently a greater proportion of the lower income
groups spending would be on zero-rated or tax-exempted
goods as compared to the higher income group.

In the lead up to the introduction of GST, it is important to

understand GST as a concept and to keep updated with the
latest proposals and developments. In this respect, KPMG
offers workshops for both employers and employees in a
variety of industries. On request workshops can be tailored to
meet your requirements. Workshops are conducted by staff
with experience in relevant industries.

Consumers will not need to pay GST for critical services such
as healthcare, public transportation, education and residential
property to name a few.

GST will undoubtedly impact businesses in terms of

cashflow, manpower and reporting requirements. KPMG
is able to assist businesses in conducting GST Impact
Assessments, in order that they can be better prepared
to meet the challenges of GST. Impact studies outline the
expected changes to key revenue and expenses that will
occur once GST is introduced. The different transactions
that taxpayers might enter into and the GST impact on these
would be considered. The opportunities to plan for GST as
well as its interaction with cross border transactions would
form part of a KPMG Impact Assessment.

As a safeguard, the Government is likely to monitor prices

closely. Action can be taken under the Price Control and Antiprofiteering Act against those who try to profiteer from the
GST by not passing on their cost savings to their customers.

kpmg.com/my
Contact Us
Khoo Chin Guan
Executive Director - Head of Tax
Phone: +60 (3) 7721 7010
Email: chinguankhoo@kpmg.com.my

Nicholas Crist
Executive Director
Phone: +60 (3) 7721 7022
Email: nicholascrist@kpmg.com.my

Bob Kee Lin Jen

Executive Director
Phone: +60 (3) 7721 7029
Email: bkee@kpmg.com.my

Ng Sue Lynn
Director
Phone: +60 (3) 7721 7271
Email: suelynnng@kpmg.com.my

Dany Oon
Associate Director
Phone: +60(3) 7721 7218
Email: danyonn@kpmg.com.my

Cheah Wai Ling

Manager
Phone: +60 (3) 7721 7212
Email: wlcheah@kpmg.com.my

Yap Choon Ling

Manager
Phone: +60 (3) 7721 7445
Email: choonlingyap@kpmg.com.my

Er Ka Yan
Manager
Phone: +60(3) 7721 7274
Email: kayaner@kpmg.com.my

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or
entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate
as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without
appropriate professional advise an thorough examination of the particular situation.
2013 KPMG Tax Services Sdn Bhd , a company incorporated under the Malaysian Companies Act 1965 and a member firm of the
KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity.
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