WHAT IS GST

GST which is also known as VAT or the value added tax in many countries is
a multi-stage consumption tax on goods and services.
GST is levied on the supply of goods and services at each stage of the
supply chain from the supplier up to the retail stage of the distribution.
Even though GST is imposed at each level of the supply chain, the tax
element does not become part of the cost of the product because GST paid
on the business inputs is claimable. Hence, it does not matter how many
stages where a particular good and service goes through the supply chain
because the input tax incurred at the previous stage is always deducted by
the businesses at the next step in the supply chain.
GST is a broad based consumption tax covering all sectors of the economy
i.e all goods and services made in Malaysia including imports except
specific goods and services which are categorized under zero rated supply
and exempt supply orders as determined by the Minister of Finance and
published in the Gazette.

A taxable supply is a supply which is standard rated or zero rated. Exempt

and out of scope supplies are not taxable supplies. GST is to be levied and
charged on the value of the supply.
GST can only be levied and charged if the business is registered under GST.
A business is not liable to be registered if its annual turnover of taxable
supplies does not reach the prescribed threshold. Therefore, such
businesses cannot charge and collect GST on the supply of goods and
services made to their customers. Nevertheless, businesses can apply to be
registered voluntarily.
Almost all countries collect income tax, which is a percentage of what you
earn as an individual. Another way the government gets revenue is by
collecting tax from business operations, like sales tax and duties on items
that are bought or sold.
We need to pay tax so that the government can operate. GST is one
method of collecting taxes which works better than others.
BACKGROUND

The basic fundamental of GST is its self-policing features which allow the
businesses to claim their Input tax credit by way of automatic deduction in
their accounting system. This eases the administrative procedures on the
part of businesses and the Government. Thus, the Governments delivery
system will be further enhanced.
We need to pay taxes so that the government can finance socio-economic
development; which includes providing infrastructure, education, welfare,
healthcare, national security etc.
"Over the past few decades, the worldwide trend has been for the
introduction of a multi-stage GST system. Today, almost 90% of the world's
populations live in countries with GST, including China, Indonesia, Thailand,
Singapore and India.
UNDERSTANDING GST
GST shall be levied and charged on the taxable supply of goods and
services made in the course or furtherance of business in Malaysia by a
taxable person. GST is also charged on the importation of goods and
services.

GST is not new

The concept behind GST was invented by a French tax official in the 1950s.
In some countries it is known as VAT, or Value-Added Tax. Today, more than
160 nations, including the European Union and Asian countries such as Sri
Lanka, Singapore and China practice this form of taxation. Roughly 90
percent of the world's population live in countries with VAT or GST.
Here are some of the tax rates of countries around the world who have
implemented GST or VAT.
Malaysian Tax History
In Malaysia, our tax system involves several different indirect taxes:

Import duty
o

On goods brought into the country

Export duty

On goods produced for sale outside the country

Government Sales Tax

o

On a wide range of goods at the point of import or at the

manufacturer's level, with four tax rates at 5%, 10%, 20%
and 25%

Specific rates for petroleum products

Licensing
Manufacturers of taxable goods whose annual sales turnover
exceed RM100,000 is required to be licensed under sales tax act.
Those with annual sales turnover does not exceed RM100,000 are
required to apply for a certificate of exemption from licensing.
Scope of Tax

Service Tax
o

On
services
provided
by
restaurants,
hotels,
telecommunications services, professional services by
architects, engineers, lawyers etc.

Excise Duty
o

On luxury and 'sin' products such as automobiles, liquor,

beer and tobacco products

Sales tax is levied on locally manufactured goods at the time the

goods are sold or otherwise disposed of by the manufacturer. It is
called a single stage tax because sales tax is to be charged once
only, either at the input or at the output stage.
o

List of goods subject to sales tax at 10%

List of goods subject to sales tax at 5%

The proposed GST will replace the Government Sales Tax and the Service
Tax.

Current Consumption Tax

a) SALES TAX
Sales Tax was introduced on the 29th February 1972 as a single stage
consumption tax, levied, charged and paid on goods manufactured in
Malaysia and imported.
Currently, the rates of sales tax are as follows:-

Reduced rate of 5% for non-essential foodstuff and building

materials

A general rate of 10%

b) SERVICE TAX
Service tax was introduced on the 1st March 1975 as a single stage
consumption tax, levied, charged and paid on specific services provided by
a taxable person in Malaysia.
Currently, the rates of service tax are as follows:-

Flat rate of 5%;

Specific rates for credit card - RM50.00 (effective from 1st January
2010)
Licensing
Any person who carries on business of providing taxable services
in any prescribed establishment is required to be licensed under
the service tax act. Licensing is based on the following threshold:-

Scope of Tax
Service tax is charged and levied on selected taxable services as
prescribed in the Second Schedule of the Service Tax Regulations
1975.
List of prescribed services subject to service tax at 5%
How service tax works

Threshold Level

Taxable Services
a.

Hotel

of

having

more

than

25

rooms

(Group

A)

b. Restaurant, Bar, Snack-Bar, Coffee Houses located in hotel having more than 25
rooms

(Group

B1)

c. Night-Clubs, Dance Hall, Cabarets, Health Centre, Massage Parlours, Public Houses
and
d.

Beer
Provision

e.
No Threshold

f.

Provision

g.
h.
i.
j.
k.
l.
m.

Houses

of

insurance

Provision

of

of

services

Provision

of

Provision
Provision
Provision
Provision
Provision
Provision

clearing

D)

business

goods
by

services
services

organisation

by

surveying

services

services

management

the

by

services

customs

Public
the

the

services

services

from

by

architecture

Consultancy
of

of

services

engineering

of
of

the

legal

of

to

telecommunication

accounting
of

of

for

(Group

services

Accountant

Legal

Professional
by

the

by

Firms
Engineers
Architect

the

surveyor

Consultant

Companies

Management

Companies

the
by

control

n. Provision of credit card or charge card services

Services
a.
Annual Sale Turnover of RM 150,000 and above

b.
c.

provided

Provision

by
of

parking

Provision
Provision

of

Professional

vehicles

Group

spaces

of

motor

under

for

courier
service

and

as

motor
delivery

repair

centres

by

follows:vehicles
services

the

Workshop

d. Provision of security guard or body-guards services by the Private Agency

e. Provision of employment services by the Employment Agency
a. Restaurants, Bar, Snack-Bars, Coffee Houses located in the Hotel having 25 rooms
and
Annual Sale Turnover of RM300,000 and above

b.
c.

less
Services

provided

Services

by

provided

(Group
Private
by

Clubs

including

Private

B2)
golf

Hospitals

clubs

(Group

(Group

E)
F)

d. Services provided by operators of hire-an-drive or hire-car companies (Group G)

e. Services provided by advertising agency (Group G)
Annual Sale Turnover of RM3,000,000 and above (effective from
st

1 July 2008)

Restaurants, Bar, Snack-Bars, Coffee Houses located outside the Hotel including food
courts (Group C)