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Tax Invoice & Record Keeping

TAX INVOICE
CREDIT NOTE & DEBIT NOTE
RECORD KEEPING
ACCOUNTING BASIS
TAXABLE PERIOD.
ACCOUNTING FOR GST & ADJUSTMENTS
PARTIAL EXEMPTION & ANNUAL ADJUSTMENT
DE MINIMIS RULES

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Tax Invoice

REFERENCE
GST Act :
Section 33 Issuance of tax invoice
Section 34 Production of tax invoice by computer

Every registered person, unless otherwise allowed by the DG is required to


issue a tax invoice when he makes taxable supply of goods & services.

In some cases, the DG may allow the person to issue a simplified tax invoice
or a self billed invoice.

In rare cases, the DG may allow a registered person not to issue a tax invoice
if he is satisfied that it will not be appropriate for the person to issue a tax
invoice.

Goods sold by auction or otherwise than by auction, such person selling the
goods may issue documents to be treated as a tax invoice.

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Tax Invoice
DGs decision 06/15
Tax invoice for disregarded supply and out of scope supply
For disregarded or relief supply must use tax invoice
Tax value state NIL
Must state on the tax invoice at the tax element part Disregraded
or relief
Out of scope supply must not use tax invoice, normal invoice will do.
Amendment of Section33, Subsection 10 (wef 1.1.2017)

No invoice showing an amount which purports to be tax shall be issued by any


registered person:
a) On any supply of goods & services which is not a taxable supply;
b) On any zero-rated supply.

Any person who is not a registered person, except the persons mentioned in
subsections 65(4) and 5, shall not issue:
c) An invoice showing an amount which purports to be tax or an amount
inclusive of tax; or
d) An Invoice which purports to be a tax invoice with or without tax.
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Tax Invoice

What is a Tax Invoice ?

A tax invoice is a document containing certain information about the supply


that is made and is similar to a commercial invoice except for some
additional information such as details of registered person and supply, GST
rate and the amount of GST payable.

Importance of a Tax Invoice

May trigger the time of supply for a transaction

Primary evidence to support a customers input tax claim.

Determine when you may claim the input tax

Determine which supplies made by him should be included in a particular


taxable period.

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Tax Invoice
Issuance of Tax Invoice (Sec.33 GST Act)
Tax invoice shall be issued:
By every registered person
Who makes any taxable supply
In the course of furtherance of any business
In Malaysia
Must be issued within 21 days after supply has taken place or within
any longer period as the DG may allow.
Contains prescribed particulars ( as per GST regulations)

Thus, for the purposes of GST, a tax invoice:


o Must be issued within 21 days from the basic time of supply (BTS)
o Must be issued by a registered person and the original copy to be retain by
customer.
o May be issued electronically or in print form
o Must be in Ringgit Malaysia (RM)
o Must be certified true copy if the tax invoice is lost or misplaced
o Marked with the word void (cancel) if the information is wrong
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Tax Invoice
Non Issuance of Tax Invoice (Sec.33 GST Act)
Tax invoice shall not be charged (i.e. showing tax amount) in the invoice which
is issued on:
Non Taxable Supply ( exempt supply, out of scope supply)
Zero rated supply
Supply by non registered person

Tax invoice is not required to be issued by a registered person on:

Zero rated supply


Supply without consideration on which tax is charged.

Tax invoice shall not issued on:

Any supply of second hand goods (margin scheme / Sec.59).

Any supply of imported services.

S.33 (2) - Any person who contravenes this section commits an offence.

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Tax Invoice
Tax Fraction
Tax fraction is the GST amount of the consideration
The calculation of the tax fraction is as follows:
Tax Fraction = Tax Rate
X Amount of the consideration
100 + tax rate

Example :

Assuming your consideration is RM 100

GST = GST Rate


X consideration
100% + GST Rate

= 6%
X RM 100
100% + 6%

= 6
X RM 100 = RM 5.66
106
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Tax Invoice
Tax Inclusive
In retail business, it may be more practical to treat the sum of money
received from your customer ( consideration) as inclusive of GST.

The tax invoice should still show the GST as a separate amount and you
can state the GST inclusive prices and indicate with the words price
inclusive of GST

Example:

Assume that you sell goods at RM 1,590

GST @ 6% = Price x Tax Fraction

= RM 1,590 x 6/106

= RM 90.00

Charge customer RM 1,590 and remit RM 90 to Customs

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Tax Invoice
Tax Exclusive
Tax exclusive refers to the amount of GST paid as shown in the tax
invoice with separate GST amount
Example:
Assume that you sell goods at RM 1,500
GST @ 6% = Price x Rate of tax
= RM 1,500 x 6%
= RM 90.00
Charge customer RM 1,500 + RM 90.00 (GST) = RM 1,590 and remit RM
90.00 to Custom.
Types of Tax Invoice

The issuance of tax invoices can be classified as follows:

1. Tax Invoice 2. Deemed Tax Invoice


Full tax invoice Self billed invoice
Simplified tax invoice Invoice of statement of sales by auctioneer

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Tax Invoice
Full Tax Invoice

A full Tax invoice should have the following particulars:


1. The words tax invoice in a prominent place;
2. The tax invoice serial number
3. Date of issue of the tax invoice
4. Name of supplier, address & identification number of the supplier
5. Customers name(or trading name) and address
6. A description sufficient to identify the goods & services supplied
7. For each description, distinguish the type of supply for zero rate,
standard rate & exempt, quantity of the goods or the extent of services
supplied and amount payable, excluding tax.
8. Any discount offered;
9. The total amount payable excluding tax, rate of tax and the total tax
chargeable to be shown separately
10. The total amount payable inclusive of the total tax chargeable; and
11. Any amount referred to in (9) and (10) must be expressed in Ringgit
Page 10
Suppliers Name
Beta Bytes Software House Address & GST Tax Invoice
No,21 Jalan Besar, 45500 Identification TAX INVOICE No: 000121
serial number
Ceras , Kuala Lumpur NO. Date of Tax Invoice
(GST ID No: 1000035/2012) The words Tax
Invoice clearly
Customers indicated Date : 25 / 11/ 2013
To : Syarikat Murni Sdn Bhd
Name Address
No.23, Jalan Murni 1, 71800
Pajam, Negeri Sembilan D/O No : 600578
TAX INVOICE

Serial Description Quantity Unit Price Total


No. (RM) (RM)
0001 Lap Top HP serial No: 27878 1 3,000.00 3,000.00
0002 Hard disk & cables 1 650.00 650.00
0003 Laser printer serial No: 34657 1 1,500.00 1,500.00
Quantity of goods 5,150.00
or extent of the
Description of services supplied. Discount @ 15% (772.50)
goods or services
supplied.
4,378.50
Rate of GST Add: GST @ 6% 262.71
Charged.
Total Sales 4,641.21

Total amount of Total Charge made


GST charged. including GST.
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Tax Invoice
Simplified Tax Invoice
The DG may allow some registered persons to issue simplified tax
invoice in their business
This type of invoice is used by retailers who normally generate large
volume of invoices daily to end consumers e.g. supermarkets, eateries,
petrol kiosks and other point of sales outlets.
Can be issued regardless of any value of sales
Can take the form of an invoice , receipt, voucher or any other similar
document, as long as it has all the particulars approved by the Director
General.
A taxable person is required to apply in writing to the Director General if
certain prescribed particulars are to be omitted in the tax invoice issued
by him
E.g. a registered person applies to the DG to allow him to exclude in his
tax invoice the following:
Name and address of the recipient
Price & tax for each items to be shown separately

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Tax Invoice

Particulars of a Simplified Tax Invoice

1. Name , address & identification number of the supplier

2. Date of issuance of the invoice.

3. The tax invoice serial number

4. A description sufficient to identify the goods & services supplied

5. For each description , distinguish the type of supply for zero rate,
standard rate and exempt, the quantity of the goods or the extend of the
services supplied and the amount payable, including tax;

6. The total amount payable inclusive of total tax chargeable

7. The rate of tax and the amount of tax chargeable; and

8. Any discount offered.

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Tax Invoice
The concession to issue simplified tax invoices is relevant for businesses
that deals with walk-in customers who are often end customers, e.g.
hypermarkets, minimarkets, cinemas, petrol kiosks, parking operators and
restaurants
The law requires the approval above to be preceded by a written application
by the registered person.
However, the DG, via his decision 1/2015, has granted blanket approval to all
GST registered person who make supplies to end consumers (i.e. not
businesses) to exclude the following particulars from the tax invoice:
List by the DG Remarks
1. The word Tax Thus, tax invoice may be titled as a Simplified tax
Invoice invoice of receipt or simple a tax invoice
2. The total amount These details must be included in the tax invoice
payable exclusive of upon request by the recipient
tax
3. The total amount Here, only the requirement to indicate total amount
payable exclusive of exclusive of tax is waived. There is no written
tax evidence available in public domain to waive the
requirement to state on the simplified tax invoice the
tax exclusive price of each supply. Many POS systems
overlook such requirement and instead state the
price inclusive of tax for each supply.
Page 14
Example of Simplified Tax Invoice

INVOICE No: 003377


Beta Carpark Services Sdn Bhd
Basement 1 -7, Mega Mall Shopping Complex
Jalan Besar, 267000, Kuala Lumpur Date : 25 / 11/ 2013
(GST ID No: 1000035/2012) Tax Invoice
Suppliers Name
Address & GST serial number
Identification
NO.
Description Total (RM) Date of Tax
Invoice
Parking Fee 7 hours 7.42

Description of Total amount


Rounding Adjustment payable 0.02
goods or services
including GST
supplied.

Total *7.40

* Price payable include GST RM 0.42 @ 6 %


The words Price Payable
includes GST amount and
rate of tax clearly indicated..
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Tax Invoice

Simplified Tax Invoice and Input Tax Claim

Simplified tax invoice can be used to claim any amount of input tax
credit provided it contains the name & address of the recipient.

Simplified tax invoice which does not have the name and address of the
recipient, the maximum of input tax to be claimed must not exceed RM
30.00 (6% GST).

If the amount of GST payable is more than RM 30.00, the recipient can
only claim input tax of RM 30.00

Recipient must request to include his name & address in the simplified
tax invoice to enable him to claim the full amount of input tax if GST
payable is more than RM 30.00.

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Tax Invoice
Tax Invoice for Mixed Supplies
A supplier may make exempt, zero-rated and or standard rated supplies
simultaneously to the same customer.
Issues one invoice to document such transaction.
The tax invoice issued must clearly distinguish the taxability of the
supplies ( exempt, zero-rated or standard rated) made.
Indicate separately the applicable value and the GST rate charged (if
any ) on each supply.
Example:

Standard rate supply ( 6% GST) RM 1,000.00

Exempt supply (nil GST) RM 500.00

Zero rate supply (0% GST) RM 300.00

Page 17
GST (6%) RM 60
Example of Tax Invoice for Mixed Supply
Megah Wholesalers Sdn
Bhd TAX INVOICE TAX INVOICE No: 000121
No,25 Jalan Besar, 45500 Suppliers Name
The words Tax
Ceras , Kuala Lumpur Address & GST Tax Invoice
Invoice clearly
Identification serial number
(GST ID No: 1000035/2012) indicated
NO.
Date : 25 / 11/ 2013
To : Ali Minimart Sdn Bhd
Customers Quantity of goods or Date of Tax Invoice
No.23, Jalan Murni 1, 71800 Name Address extend of service
Pajam, Negeri Sembilan supplied D/O No : 600578

Serial Description Quantity Unit Price Total


No. (RM) (RM)
0001 * ZICO Travelling Bags * Standard 50 350.00 17,500.00
rated Supply.
0002 * MB 2000 Shoes 25 85.00 2,125.00
0003 # Cooking Oil # Zero rated 30 bottles 11.50 345.00
Supply.
Amount charged
excluding GST.
19,970.00
Note : * GST rate of 6%
# GST rate at 0% Add: GST @ 6% 1,177.50
GST Rate.
Total Sales 21,147.50
Required to Total Amount of
Total Charged
show this. GST charged.
including GST.
Page 18
Example of Tax Invoice for Mixed Supply
Universal Developers Bhd
Lot 23, Jalan Rumah, 23000 TAX INVOICE TAX INVOICE No: 000121
Shah Alam, Selangor Suppliers Name
The words Tax
(GST ID No: 1000035/2012) Address & GST Tax Invoice
Invoice clearly
Identification serial number
indicated
NO.
Date : 25 / 11/ 2013
To : Jual Beli Rumah Sdn Bhd
Customers Date of Tax Invoice
No.23, Jalan Murni 1, 71800 Name Address
Pajam, Negeri Sembilan D/O No : 600578

Serial No. Description Quantity Unit Price Total


(RM) (RM)
0001 Shop Houses (6% GST) 10 500,000.00 5,000,000.00
0002 D/S Terrance House (Exempt) 20 350,000.00 7,000,000.00

Quantity of goods & extend Total charged


of services supplied. excluding GST.
Description of goods 12,000,000.00
and service supplied

GST Rate.
Add: GST @ 6% 300,000.00
Total
Total Sales
Amount of 12,300,000.00
GST charged.
Total Charged including GST.
Page 19
Simplified Tax Invoice Mixed Supply
Suppliers name, address & Tax Invoice
GST identification number serial number

Jaya Confectionaries Sdn Bhd INVOICE No: 003377


No.18, Jalan Puchong Baru, 35200 Puchong, Selangor
(GST ID No: 1007735/2015) Date : 25 / 11/ 2013

Date of Tax
Crme Cracker Biscuits (Pack) Invoice
010611 1 3.90 3.90 S
Indicator for
Pringles Snacks 200g (Pcs) standard rated
004239 1 6.90 6.90 S supply
Sugar
002234 Description of 2 1.45 2.90 Z
goods & service Indicator for
supplied zero rated
supply
Item count 3
Total Amount
Total Sales inclusive GST @ 6% 13.70 payable
including GST
Rounding Adjustment 0
Cash 14.00
Balance 0.30
Total amount
GST Analysis Goods Tax of GST
S = 6% 10.18 0.62 charged

Z = 0% 2.90 0.00

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Tax Invoice
Cash Register Rolls / Point of Sales Receipt Rolls
If goods are bought from a wholesaler / retailer who is GST registered
person, the receipt given can be considered as a simplified tax invoice.
This receipt can be used to claim input tax if you are registered person
as long as it contains the particulars approved by the Director General:
Suppliers name and address & GST identification number
Date and serialized receipt number
Description sufficient to identify the goods supplied
Quantity and price for each line
Amount payable inclusive of tax; and
Total amount of GST charged
Other documents as a Tax Invoice
DG may allow a registered person to use a document to be treated as a tax
invoice. Registered person must apply in writing to the DG.
DG is satisfied that it will not be appropriate for the registered person to
issue a tax invoice.
Bank statement can be treated as an invoice as it is not practical for banks to
issue a tax invoice due to large volume of transaction.
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Tax Invoice
Self Billed Invoice
Self-billed invoice allows recipients to issue a tax invoice to himself in
respect of supply of goods or services to him by the supplier.
Application for self-billing to be made by recipient to the DG for such
invoice to be treated as a tax invoice if:
1. The value at the time of supply is not known by the supplier
2. The recipient and the supplier are both registered persons;
3. The recipient and the supplier agree in writing to a self billed
invoice.
4. The supplier and the recipient agree that the supplier shall not
issue a tax invoice
Examples

1. Tobacco manufacturers issue tax invoice to growers who supply


tobacco leaves. Since recipient / buyer knows the open market value of
the tobacco leaves, they are best able to provide the necessary
information on the value of the product and will therefore issue a self-
billed invoice or recipient created tax invoice.
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Tax Invoice
Self billed invoice issued by recipient should have the following
particulars :
Suppliers & recipients names, addresses & GST identification
number;
The word self billed invoice in a prominent place
The invoice serial number
Date of issuance of the invoice;
The reference number of RMCs approval
A description sufficient to identify the goods or services supplied
For each description, distinguish the type of supply for zero
rated and exempt, the quantity of the goods or the extend of the
services supplied and the amount payable, excluding tax;
Any discount offered
Total amount payable excluding tax, the rate of tax and the total
tax chargeable to be shown separately
Total amount payable inclusive of the total tax chargeable; and
Any amount referred to must be expressed in Ringgit.
Page 23
Example of Self-Billed Invoice
The words Self
Golden Smoke Manufacturing Sdn Bhd Billed Invoice
SELF BILLED INVOICE clearly
RMCD approved No.-------- indicated

Supplier RMC approval


number TAX INVOICE No: 000121
Tobacco Leave Sdn Bhd Suppliers name,
address & GST D/O No : D 22345
No.24, Jalan Pantai, 5110
identification number
Kota Baru, Kelantan Date : 25 March 2015
(GST ID No: 1000035/2012)
Invoice serial
Recipient Recipients /Customers number % date.
Golden Smoke Manufacturing Sdn Bhd, name clearly indicated
Lot 23, PJ Industrial Zone, 41200,
Petaling Jaya, Selangor
Total charged
excluding GST
Serial Description Tax rate Quantity Unit Price Total
No. (%) (RM) (RM)
0001 Daun Tembakau Gred C 6.00 200 8.00 1,600.00
0002 Daun Tembakau Gred B 6.00 200 10.00 2,000.00
0003 Daun Tenbakau Gred A 6.00 50 25.00 1,250.00
Amount excluding tax 4,850.00
Description of GST quantity of goods
Rate Add Total GST amount 291.00
goods & services & extend of
Supplied service supplied Total Sales 5,141.00

Total charge
including GST
Total amount of
GST charged
* The GST shown is your output tax due to the government
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Tax Invoice

DG may allow the recipient to issue a self-billed invoice subject to the


following conditions:-
the recipient is allowed to issue self-billed invoices in respect of the
supplier's supplies for a period which shall not be later than
i. the expiry of a period of twelve months, or
ii. the expiry of the period of the contracts between the recipient and
supplier for the supply of goods and service to which the self-billing
agreement relates;
a copy of any self-billed invoice is to be provided to the supplier and a
copy is to be retained by the recipient:

in the case where the self-billed invoice is issued before the time of supply
of goods, the self-billed invoice shall be issued with payment; and

the supplier and recipient shall notify each other if either one of them
ceases to be registered for GST, transfers his business as a going
concern or becomes registered under a new identification number.

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Tax Invoice

Documents Issued by Auctioneer Deemed Tax Invoice


Supplies made by auctioneer acting in his own name are
regarded as supplies made by the principal/owner of the goods

lf principal is a (taxable person) the auctioneer whether or not he


is a taxable person shall be liable to account for output tax on any
goods auctioned on the principal's behalf
Statement of Sale/Invoice to be issued to buyer of auctioned
goods:
lf the principal/owner is a taxable person
the auctioneer is or is not a GST registered person
auctioneer is allowed to issue a statement of sale or invoice in his
own name

to be regarded as tax invoice based on the tax inclusive principle

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Tax Invoice

Deemed Tax Invoice


The statement of sale or invoice issued by an auctioneer should
contain the following details:
Auctioneer's name, address and business registration
number;
the name and address of the buyer;
the date of issue;
Invoice serial number;
the description and quantity of goods sold
the total amount payable inclusive of GST
the rate of tax
total tax chargeable; and
the word "Price payable inclusive of GST

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Tax Invoice
Tax invoices issued by Agents (seller) on behalf of a principal
The principal is the seller and not the agent.
If principal is a registered person, the agent may issue a tax invoice
including credit /debit notes with the principals details.
Principal remains liable for accounting of tax.
If the agent is a registered person, he must issue a tax invoice to claim
the commission from the principal for his services as a selling agent.
Agent is liable for accounting of tax on agency commission

Tax invoices received by Agents (buyer) on behalf of a principal


The principal is the buyer and not the agent.
If the supplier is a registered person, he may issue a tax invoice to the
agent or principal and show the principals details.
The supplier is liable for accounting of tax.
If the agent is a registered person, he must issue a tax invoice to claim
the commission from the principal for his services as a buying agent.
Agent is liable for accounting of tax on agency commission

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Tax Invoice
Tax invoices issued by Agents (seller/buyer) in his own name
In case of an agent who buys or sells goods & services in his own name, he
is the buyer or seller.
If the agent is a registered person, he must issue a tax invoice in his own
name and be liable to account for GST.
Agents must keep a complete record of the name, address & GST number of
their principals in any transactions.
Invoice in a Foreign Currency
If the amount of the supply stated in a tax invoice is in foreign currency, the
following particulars in the tax invoice have to be converted in RM for GST
purposes:
Amount payable before GST
Total GST chargeable; and
Total amount payable including GST
Foreign currency converted into RM by using the open market rate of
exchange prevailing in Malaysia at the time when the supply takes place.
Proforma Invoice Is NOT regarded as a tax invoice.
Can only claim input tax on your GST return if you have proper tax invoice.
Supplier must provide you with a proper tax invoice for claiming GST.

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Tax Invoice
Duplicate copy of Tax invoices.
Issue one (1) original tax invoice for each transaction. If customer request
for duplicate copy due to damage of lost invoice, may issue a copy marked
copy only to enable recipient to claim input tax
Importation of goods & services
GST for imported goods are declared and paid at the time of importation
whereas GST on imported services (S.13) is accounted by way of reverse
charge mechanism.

Reverse Charge Mechanism


A supplier who does not belong in Malaysia and supplies services to a
customer (undertaking business) in Malaysia does not have to charge GST.
However, the customer who receives the services is required to account for
GST by reserve charge mechanism.

Recipient has to pay tax for the imported services he receives and at the
same time claim input tax in his GST returns. Reverse charge mechanism is
an accounting procedure where recipient (as the customer) of the supply,
acts as both the supplier and the recipient of the services.

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Tax Invoice

Tax invoices and imported services

The recipient of imported services does not hold a tax invoice for the
imported services. If the importer of the services is a registrant, the imported
service is deemed to be supplied to the recipient and he has to account for
the GST in the GST returns covering the taxable periods in which the
imported service was paid.

Tax Invoice & imported goods

The recipient of imported goods does not hold a tax invoice for the imported
goods. GST is paid at the time of importation based on the invoice from the
overseas supplier using customer declaration forms ( Customer forms 1 & 9).
These declaration forms will be sufficient for the purpose of input tax claim
by the importer or buyer.

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Tax Invoice

Production of Tax invoices by computer (Sec.34 GST Act)

A registered person shall be treated as having issued a tax invoice to


another person even though there is no delivery of any equivalent document
in paper form to the person if the requisite particulars are recorded in the
computer and are:

a. Transmitted or made available to the person by electronic means


( including emails, facsimiles etc); or

b. Produced on any materials other than paper and is delivered to the


person.

If the tax invoices, receipts, credit notes are issued electronically, these
documents should be readily accessible and convertible into writing.

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Tax Invoice
The requirements for issuance of electronic documents are:

a. The intended recipients must confirm in writing that they are prepared to
accept electronic documents under the conditions set out.
b. Both the supplier and recipient of the supply must retain the documents in
readable and encrypted form for a period of 7 years from the date of supply.
c. Must also have access to the necessary codes or other means available to
enable Customs auditors to compare the documents in readable form from
those in encrypted form
d. For tax invoices, receipts, credit or debit notes that are issued manually and
is subsequently converted into an electronic form, these documents should
be retained in its original form prior to the conversion.
e. Taxable person must establish controls to ensure the electronic tax invoices
cannot be manipulated before and during transmission.
f. Taxable person should not issue tax invoice in paper form to customers
whom you have already issued electronic tax invoice. ( In the event that you need to
issue the tax invoice in paper form, you must take the necessary measures to prevent double
claiming of input tax by your customers e.g. invalidate either the paper form or electronic form of the
tax invoice issued)

g. The taxable person should print and keep a hard copy of the electronic tax
invoice issued if he does not intend to store the tax invoices in electronic
media.
Page 33
Tax Invoice
Production of tax invoices by computer-Amendments to S,34 (wef 1/1/2017)

a. Any registered person as prescribed by the Minister shall provide


information on all supply made and payments received by him by the DG
using a device and in the manner as prescribed by the Minister.
b. The DG may for the purpose of this section approve any person:
To install, configure and integrate the prescribed device
To provide the services for the support and maintenance of the
prescribed device as scheduled or upon being notified of the failure of
the prescribed device to function or operate in normal condition; or
To carry out an inspection in the case of any sign of interference,
destruction, damage, manipulation of data stored or obstruction of the
lawful use of the prescribed device.
c. The person approved under subsection (2) shall, when entering the premises
of the registered person prescribed under subsection (1) to perform his
duties under this section, produce, on demand by the registered person,
proof of approval.

Page 34
Tax Invoice
Production of tax invoices by computer-Amendments to S,34 (wef 1/1/2017)
Amended by inserting new section 34A and 34B
The registered person prescribed under subsection (1) shall:
At any time allow any officer of goods & services tax or any person approved
by the DG to install the device and to configure, integrate or inspect the
device installed at his business premises;
Make all effort to ensure:
1. That the device, after being supplied and installed, is not moved,
manipulated, tampered or interfered with; and
2. That the use of the device is not obstructed by any person or any other
device; and
3. Notify immediately the DG of any failure of functionality and operation of the
prescribed device in normal condition

Any person who fails to comply with, hinder or prevent the


operations of this section in any respect commits any offence.
Section 34D Deals with the duty not to give, publish or disclose information of
the prescribed device. No person shall disclose any information on the device
unless required by this Act, to the courts or in the performance of his duty.- Any
person who contravenes this section commits an offence.
Page 35
Tax Invoice
Flat Rate Scheme:

FRS is a scheme that allows any person who is not liable to be registered
and is carrying on a business involving the prescribed activities such as crop
production, livestock and fishery to recover the embedded GST on their
purchases.
Under FRS:
Approved person shall issue an invoice and charge a prescribed flat rate
addition in the consideration for any supply of taxable goods to GST
registered persons (buyers)
Approved person is not allowed to claim ITC
Buyers (registered persons) can claim ITC based on flat rate addition
incurred
Approved person need not submit returns nor remit flat rate addition
collected to Customs
Approved person must submit annual sales statement to the Director
General

Page 36
Tax Invoice
Invoice for FRS:
An approved person shall only issue an invoice with a flat rate addition for
any supply of taxable goods to GST registered person with respect to the
prescribed activities of his business. Invoice issued under the scheme should
have the following particulars:

a) the name, address and reference number of the approved person;


b) the date of issuance;
c) invoice serial number;
d) the name, address and GST number of the registered person to whom the
goods are supplied;
e) the description of the goods supplied;
f) the total amount payable excluding flat rate addition, the rate of flat rate
addition and the total amount of flat rate addition to be shown separately;
and
g) the total amount payable inclusive of flat rate addition.

Page 37
Tax Invoice

GST Group Registration


Invoice for GST Group:

Individual member making supplies to recipients outside the group must


issue tax invoices with their own GST identification numbers.

Tax invoice to be issued in the name of individual members for acquisitions


from suppliers outside the group.

Supplies or transactions between members of the GST group are


disregarded. They may issue normal invoices.

Note:

DG decision 06/15

- Must issue a tax invoice


- Must state on the tax invoice at the tax element part Disregarded

Page 38
ACCOUNTING FOR GST

&

ADJUSTMENTS

Page 39
IMPACT OF GST

Is GST a cost to a business?

General perception by businesses is that the introduction of GST will


increase the price of goods & services by 6%.
How true this is depends on the following:

If the company is GST registered , GST is not a cost to the


company. The reason is because whatever input tax that is incurred
by the company can be claimed back by offsetting the output tax.

If the company is not GST registered , GST is a cost to the company


because the company cannot claim back the input tax that it has
incurred.

With the repeal of the Sales Tax Act 1972 and the Service Tax Act 1975,
goods that have sales tax of 10%, 20% and 40% (or any % higher than
GST of 6%) should see some cost savings in their goods.

Page 40
IMPACT OF GST

Is GST a cost to a business?

The real impact of the GST is cash flow, which varies according to
industries. For example:

a) A manufacturer with 90% credit sales.

Assume most of the companys customers are given a 90-day credit


term, the cash flow impact will be huge because when the company bills
the customer (via tax invoice), the company has to pay the output tax
before it can collect any money

b) A retailer (e.g. supermarket) that has 100% cash or credit card sales.

Companys in such an industry will have huge cash flow advantage.


This is because such companies would have claimed all the input tax
credit by the time their suppliers bill them and they would have collected
all the money upfront prior to submission of GST.

Page 41
OVERVIEW OF ACCOUNTING ENTRIES

How different are the GST entries in the GST regime?


With GST being a transaction based tax system, sales and purchases
which are double entries in the current regime have evolved into triple
entries. Example of the entries are as follows:

Revenue
Revenue for the sale of standard rated items
Dr Accounts Receivable
Cr Output Tax
Cr Revenue

Revenue for the sale of zero rated items


Dr Accounts Receivable
Cr Revenue

Revenue for the sale of exempt items


Dr Accounts Receivable
Cr Revenue
Page 42
OVERVIEW OF ACCOUNTING ENTRIES

How different are the GST entries in the GST regime?


Expenses
Expenses with GST
Dr Expenses
Dr Input Tax Credit
Cr Bank /Creditor
Expenses with without GST
Dr Expenses
Cr Bank /Creditor
Asset
Assets (with GST)
Dr Non-Current Assets
Dr Input Tax Credit
Cr Bank /Creditor
Assets (without GST)
Dr Non-Current Assets
Cr Bank /Creditor
Assets (Disposal)
Dr Bank / Receivable
Cr Output Tax
Cr Disposal account (sales module recommended) Page 43
OVERVIEW OF ACCOUNTING ENTRIES

Accounting Entries not Affected by GST

There are business transactions that are not directly affected by GST,
e.g. :

Remuneration /Salary

EPF/SOCSO and PCB payments

Depreciation

Staff Allowances

Impairment of Assets

Accrual of expenses.

Page 44
ACCOUNTING FOR GST
Accounting Entry - Invoice
Sales
When a sale is made, the company is required to issue a tax invoice
incorporating the amount of the GST based on the total sales value of the
invoice. { refer to the section on full tax invoice, simplified tax invoice etc. }.

Example
Company issues a tax Invoice for RM 10,000 for the supply of goods plus GST
of RM 600.
The Account should reflect the following:
DR Debtors RM 10,600
CR Sales RM 10,000 AR
CR GST (Output Tax) RM 600

Purchases

For the same transaction above the purchaser will record the above transaction
as follows:
Dr Purchases RM 10,000
Dr GST ( Input Tax) RM 600
AP
Cr Creditors RM 10,600

Page 45
OVERVIEW OF ACCOUNTING ENTRIES

Example

The following transactions relate to XYZ Sdn Bhd, a GST registered


company, at its first taxable period (1st April to 30th April 2015). All prices are
inclusive of GST

10 April: Sales of goods RM 106,000

12 April: Purchase of raw materials RM 42,200

15 April: Acquisition of production equipment RM 212,000

25 April: Disposal of office equipment for RM 1,060 (originally acquired


for RM 4,000 and to date accumulated depreciation of RM 2,500).

30 April: Management fee (income) RM 21,200

1. Show the accounting entries and the implication of GST.


2. What is the amount of GST payable / refundable?

Page 46
OVERVIEW OF ACCOUNTING ENTRIES

Example

Answer:

10 April 2015

Dr Trade Receivables 106,000


Cr Sales 10,000
Cr Output tax 600

12 April 2015
Dr Purchase 40,000
Dr Input Tax Credit 2,400
Cr Trade payables 42,400

15 April 2015

Dr Property Plant & Equipment 200,000


Dr Input Tax Credit 12,000
Cr Other payables 212,000

Page 47
OVERVIEW OF ACCOUNTING ENTRIES

Example

Answer:

25 April 2015

Dr Other Receivables 1,060*


Cr Disposal of PPE 1,000*
Cr Output tax 60*

*The company shall issue tax invoice upon trading in this old asset.

Dr Accumulated Depreciation 2,500


Dr Disposal of PPE 1,500
Cr Property, Plant & Equipment 4,000

Dr Loss on Disposal 500


Cr Disposal of PPE 500

Page 48
OVERVIEW OF ACCOUNTING ENTRIES

Example

Answer:

30 April 2015

Dr Other Receivables 21,200


Cr Management Fee Income 20,000
Cr Output tax 1,200

Amount of GST payable / refundable :

Total amount of Output Tax : RM 7,260

Total amount of Input Tax : RM 2,400

Amount of GST payable ( output tax > input tax) = RM 4,860.

Page 49
Credit Note & Debit Note
REFERENCE
GST Act :
Section 35 Credit Note & Debit Note

Credit Note & Debit Notes


Section 35

Where any taxable supply is made by or to any registered person which


involves the issuance and receipt of credit note or debit note under the
prescribed circumstances and conditions, the registered person, whether he
is a supplier or recipient of the taxable supple, shall make adjustments in his
returns accordingly and the credit note and debit note shall contain the
prescribed particulars.

To allow trader to make necessary GST adjustments in the account to show


the actual GST liability in his return

The change occurs after GST return for the supply has been submitted to the
Director General

Page 50
Credit Note
Credit Note ( Due to change in legislation )
A change in the rate of tax E.g. Standard rated to zero rated/exempted
A change in the description Tax charge on that supply is incorrect

Credit note shall be issued under the following situations:

A tax invoice in relation to the supply has been issued

A return on the supply has been submitted to the DG,

Taxable person shall:

Make an adjustment in the return for the taxable period where the change in
the rate or description took place

Supplier reduced output tax for the corresponding amount stated in the credit
note

Recipient reduced input tax.

Page 51
Credit Note
Credit Note ( Due to adjustment in the course of business )

Adjustments in the course of business:

When goods invoiced as standard-rated should have been exempt or zero


rated.

The supply of goods & services is cancelled.

Consideration for the goods have been partly or fully waived;

Quantity discount given after the goods are supplied;

When sub-standard goods re accepted by the customer at a reduced price.

Goods are returned or services are not accepted, or

Goods & services are supplied for unconfirmed consideration

Page 52
Credit Note
Credit Note ( Due to adjustment in the course of business )

Credit note shall be issued under the following situations:

A tax invoice in relation to the supply has been issued

A return on the supply has been submitted to the DG,

Taxable person shall:

Make an adjustment in the return for the taxable period in which the credit
note is issued or received.

Supplier reduced output tax for the corresponding amount stated in the credit
note

Recipient reduced input tax.

Page 53
Adjustment - Credit Note
Example 1

Goods sold on 20/01/16 by Company A to Company B amounting to RM 1,000 plus


GST of 6%. Goods returned on 10/2/16 to Company A amounted to RM 212.
Credit note issued on 25/2/16 by Company A.

Company A ( Seller )

Jan 20 Output
Tax
Output tax : RM 1,000 x 6% = RM 60 (Jan 2016 return)

Feb 10 (Adjustment)

Decrease output tax : RM 212 x 6/106 = RM 12 (Feb 2016 return)


Company B ( Buyer)
Input
Jan 20
Tax
Input tax : RM 1,000 x 6% = RM 60 (Jan 2016 return)
Feb 10 ( Adjustment)

Decrease input tax : RM 212 x 6/106 = RM 12 (Feb 2016 return)

Page 54
Adjustment - Credit Note
Example 2

Goods sold on 24/01/16 by Company A to Company B amounting to RM 1,000. Goods


returned on 10/2/16 to Company A amounted to RM 100.
Credit note issued on 25/2/16 by Company A.

Company A ( Seller )

Jan 24 Output
Tax
Output tax : RM 1,000 x 6% = RM 60 (Jan 2016 return)

Feb 10 (Adjustment)

Decrease output tax : RM 100 x 6% = RM 6.00 (Feb 2016 return)


Company B ( Buyer)
Input
Jan 20
Tax
Input tax : RM 1,000 x 6% = RM 60 (Jan 2016 return)
Feb 10 ( Adjustment)

Decrease input tax : RM 100 x 6% = RM 6.00 (Feb 2016 return)

Page 55
Adjustment - Credit Note

Credit Note Issuance Accounting Entry

Example 1

Dr Sales Returns RM 200.00


Dr GST (Output tax) RM 12.00

CR Trade Debtors RM 212.00

Example 2

Dr Sales Returns RM 100.00


Dr GST (Output tax) RM 6.00

CR Trade Debtors RM 106.00

Page 56
Debit Note
Debit Note ( Due to change in legislation )
A change in the rate of tax E.g. zero rated/exempted to standard rate
A change in the description (Tax charge on that supply is incorrect)

Debit note shall be issued under the following situations:

A tax invoice in relation to the supply has been issued

A return on the supply has been submitted to the DG,

Taxable person shall:

Make an adjustment in the return for the taxable period where the change in
the rate or description took place.

Supplier increases output tax for the corresponding amount stated in the
debit note

Recipient increases input tax.

Page 57
Debit Note
Debit Note ( Due to adjustment in the course of business )

Adjustments in the course of business:

When goods invoiced as zero - rated should have been standard rated.

Additional charges such as transportation cost imposed after delivery of


goods.

When goods delivered to customers are under priced;

Over supply of goods or services to the customer; or

Goods & services are supplied for unconfirmed consideration

Page 58
Debit Note

Debit Note ( Due to adjustment in the course of business )

Debit note shall be issued under the following situations:

A tax invoice in relation to the supply has been issued

A return on the supply has been submitted to the DG,

Taxable person shall:

Make an adjustment in the return for the taxable period in which the debit
note is issued or received.

Supplier increases output tax for the corresponding amount stated in the
debit note

Recipient increases input tax.

Page 59
Adjustment - Debit Note
Example
On 20/03/XX WUB Enterprise issued a tax invoice to BHX Enterprise for RM
10,600 inclusive of GST 6% (RM 10,000 + RM 600 GST).

In March taxable period, WUB Enterprise includes the output tax of RM 600
(i.e. RM 10,000 x 6%) for that particular transaction, while BHX Enterprise
claimed an input tax of RM 600 ( i.e. RM 10,000 x 6%).

On 10/04/XX, WUB Enterprise raised a debit note for the amount of RM 1,060
inclusive GST 6%.

To clearly reflect the actual liability, in the April taxable period, WUB
Enterprise has to make adjustment by increasing the output tax by RM 60.00
(i.e. RM 1,000 x 6%) because his actual sales has increase by RM1,000.

Correspondingly, BHX Enterprise has to make adjustment by increasing the


input tax by RM 60.00 (i.e. RM 1,000 x 6%) since the price increased by
RM1,000 compared to the initial tax invoice.

Page 60
Credit & Debit Note

A credit note or debit note shall contain the following particulars:

a. The words credit note or debit note in a prominent place.

b. The name, address and GST identification number of the supplier

c. The name, address of the person to whom the goods or services is supplied.

d. The reason for the issue

e. A description which identifies the supply of goods & services

f. The quantity and amount for each supply

g. The total amount excluding tax

h. The rate & amount of tax

i. The number and date of the original tax invoice.

Page 61
Adjustment - Discount
Discount given
Usually given directly through an invoice. Output tax is on the discounted
value.
If given later after invoice has been issued, then discount is usually given
through a credit note.
Supplier decreases his output tax.
Customers decreases his input tax.

Example
A trader gives RM 200.00 discount subsequent to the first invoicing. His account
should reflect the following:

Dr Sales RM 200.00

Dr GST (Output tax) RM 12.00

Cr Trade Debtors RM 212.00

Page 62
Adjustment Bad Debts
Condition for relief of bad debts
Tax has been accounted for and paid on the supply.
No payment has been received in 6 months from the date of supply; or
The debtor has become insolvent before the period of six months has lapsed;
and
Reasonable efforts have been made by such person to recover the tax (shall
notify the debtor of his intention to claim bad debt).
Have written off the debt in the accounts.
Have transferred the debt to separate debt account.
The debt has not been sold of passed to a factoring company.
Still entitle to receive relief even though bad debts is not written off.

Entitlement of Supplier
Claim within 6 years from the date of supply
Claim relief as input tax
Subsequently receive payment after claiming the tax : -
Account as output tax in return for the taxable period he receives the
payment from the customer.
Page 63
Adjustment Bad Debts
Condition for relief of bad debts Issues

Para 59 of the RMCs Guide on Tax Invoice & Record Keeping states that in
order to claim GST relief on bad debts must show documented proof &
record to show sufficient effort have been taken to recover the debt.

Sufficient effort as defined here is more rigorous and may include letter of
demand or reminder from the company, letter from companys solicitor or
legal action taken, action by collection agency or the bad debt has been
written off in the companys account. This is inconsistent with the GST Act
and the GST General Guide.

The RMC on 28 October 2014 issued DGs Decision 1/2014:


a) Taxable person may claim bad debt relief subject to the requirements &
conditions set forth in S.58 of the GST Act and the person has not received
any payment or part of the payment in respect of the taxable supply from the
debtor after 6 months from date of supply.
b) Bad debt relief must be claim immediately after the expiry of the 6 months
period.
c) If the bad debt relief is not claimed immediately after the expiry of the sixth
month, the taxable person must apply in writing for the DGs approval on his
intention to claim bad debt relief at a later date.
Page 64
Adjustment Bad Debts
Condition for relief of bad debts Issues

d) The word month in s.58 of the GST Act refers to calendar month or
complete month.
The concept of bad debt relief is as follows: If an invoice is issued on 8 January
2016, the sixth month expiry is at the end of June and the bad debt must be
claimed immediately in the July taxable period.
This decision again is inconsistent with the GST Act and Guides as mentioned
above. The decision forces the company to claim the bad debt relief despite
there being no reasonable efforts or document proof.
DG decision 1/2014, item (ii) (b) - ( w.e.f. 28/10/2015)

The supply is made by a GST registered person to another GST registered


person.

The impact to supplier reduced cash flow due to non-


claimability for non GST registered customers.

Page 65
Formula for Bad Debt Relief

Supplier has not receive any payment. Supplier can claim for whole of the tax
paid.

Supplier received part payment for taxable supply. Supplier can claim for an
amount calculated in accordance with this formula:

A1
------------------- x C
B

Where :

o A1 The payment not received for the taxable supply

o B - The consideration for the taxable supply

o C - The tax due and payable on the taxable supply

Page 66
Formula for Repayment

Supplier has claimed the bad debt relief


Buyer subsequently paid the debt to the supplier
Supplier has to repay an amount calculated with the following formual

A2
------------------- x C
B

Where :

o A2 The payment received in respect of the taxable supply

o B - The consideration for the taxable supply

o C - The tax due and payable on the taxable supply

Page 67
Adjustment - Bad Debt

Buyer (taxable person) fails to pay within six months from date of supply:

If he has claim input tax on that supply:

Pay back the input tax by accounting an amount equal to the input tax
as his output tax

Account for the output tax in his taxable period immediately after the
six months period

If he subsequently pays the supplier :

Claim back the output tax he pays to the supplier as his input tax for
the taxable period in which he made the payment

Page 68
Adjustment - Bad Debt
Payment not received after 6 months
Example 1

AR Sdn Bhd made a supply and issued a tax invoice on 5/2/2016 to RB Sdn
Bhd for RM 21,200 inclusive GST 6% ( RM 20,000 + RM 1,200.00 GST)

AR Sdn Bhd accounts for output tax for the month of February

AR receives part payment of RM 12,000 ( inclusive of tax RM 680) for the


supply on 12/05/2016

The balance of RM 9,200.00 was received after six months from the date of
the tax invoice issued.

AR Sdn Bhd can claim bad debt relief in the month of August

The claimable bad debt relief is as follows:

RM 9,200.00
------------------------- x RM 1,200 = RM 520.75
RM 21,200.00

Page 69
Adjustment - Bad Debt
Example-1

If only part payment is received after 6 months:

If in the case of AR Sdn Bhd, assume that the customer pays only RM
3,900.00 (inclusive of tax) in 5/11/2016 i.e. after the expiry of six months from
the date of supply;

AR must account for Output Tax calculated as follows:

RM 3,900.00
-------------------------- x RM 1,200 = RM 220.75
RM 21,200.00

Page 70
Adjustment - Bad Debt
Example 2
A company issues an invoice to a customer for RM 106,000 (inclusive of GST)
dated 10 January 2016. What are the GST implication (journal entries) if:
The customers pays in October 2016; or
The customer never pays up and the debt is written off as bad debts on the
financial statements in December 2016. Subsequently, the bad debt is
recovered after being written off in Feb. 2017.
Answer:
10 Jan 2016
Dr Accounts Receivable 106,000
Cr Output Tax 6,000
Cr Sales 100,000
July 2016
Dr Input Tax Credit 6,000
Cr GST Bad Debt Relief 6,000
If the customer pays in October 2016, the corresponding entry is as follows:
Dr Bank 106,000
Dr GST Bad Debt Relief 6,000
Cr Accounts Receivable 106,000
Cr Output Tax 6,000
Page 71
Adjustment - Bad Debt
Example 2
If the customer never pays and the bad debt is written off as bad debts on the
financial statements in December 2016. Subsequently the bad debt is recovered
in February 2017. The following accounting entries illustrates two different
scenarios:
100% of the debt recovered
80% of the debt recovered.
July 2016
Dr Input tax credit 6,000
Cr GST Bad Debt Relief 6,000
December 2016
Dr Bad debt 100,000
Dr GST Bad Debt Relief 6,000
Cr Account Receivable 106,000
February 2017 (100% recovery)
Dr Bank 106,000
Cr Output tax 6,000
Cr Bad Debt Recovery 100,000
February 2017 (80% recovery)
Dr Bank 84,800
Cr Output Tax 4,800
Cr Bad Debt Recovery 80,000
Page 72
Adjustment - Bad Debt
Example 3

LLN Sdn Bhd is making wholly taxable supply and has monthly taxable periods.
The company has acquired raw materials from a supplier for which invoice of
RM 106,000 (inclusive of GST) was raised on 14 August 2015. The company
made the following payments to the supplier

December 2015 RM 50,000


April 2016 RM 30,000
June 2016 RM 26,000
What are the GST implication and the accounting entries?
Answer:

14 August 2015
Dr Purchase 100,000
Dr Input Tax 6,000
Cr Account payable 106,000

December 2015

Dr Accounts Payable 50,000


Cr Bank 50,000
Page 73
Adjustment - Bad Debt
Example 3

End of February 2015 (Expiry of 6 months)

Dr GST Bad Debt Relief 3,169.81


Cr Output Tax 3,169.81
April 2016 (2nd Payment)
Dr Accounts Payable 30,000
Cr Bank 30,000
End of April 2016
Dr Input tax credit 1,698.11
Cr GST Bad Debt Relief 1,698.11
June 2016 (3rd payment)
Dr Accounts payable 26,000
Cr Bank 26,000

End of June 2016

Dr Input Tax credit 1,471.70


Cr GST Bad Debt Relief 1,471.70
Page 74
Repayment of Bad Debt Relief

Subject to penalty if tax is remain unpaid after the last day which it is due

Failure to make declaration is an offence

Fine < RM 50,000

Imprisonment < 3 years

Or both

Page 75
Disbursements and Reimbursements
Registered persons may incur expenses and subsequently recover the
expenses from their customers.
The GST treatment for the recovery of such expenses depends on whether
those expenses are acquired by such registered persons as a principal or an
agent.

Principal reimbursement (GST levied)

The principal is the registered person who contracts or acquires the goods
and services from the supplier in his own capacity and these supplies are
incurred in the course of furtherance of business.

Therefore, the recovery of expenses from the supplier is a separate supply


and is subject to GST. The principal who incurred these expenses can claim
back the input tax. Such recovery us treated as a reimbursement.

Agent Disbursement (No GST)

Agent is the registered person who is the paying agent and no supply is
made by him. Thus the recovery of a payment by the registered person
incurred as an agent for another party is treated as disbursement. Such
recovery of expenses under disbursement does not constitute a supply and
not subject to GST.

Page 76
Disbursements and Reimbursements
Agent Disbursement (No GST)
Agent has no obligation to pay for the goods & services.
Agent is not a party to the contract and does not have the discretion to alter
the nature or value of supplies made between his customer (principal) and
third party supplier.
Agent is authorized by his customer (principal) to make payment to supplier
on his behalf.

If recovery of expense is A reimbursement A disbursement


GST Treatment The recovery of the The recovery of expenses
expenses from another does not constitute a
party may amount to a supply and hence will not
supply and may be subject be subject to GST
to GST

Input tax claim You are entitled to claim Your are not entitled to any
input tax incurred on goods input tax claim since the
or services you procure if goods or services are not
the subsequent recovery of supplied to you but to your
such expenses constitutes principal
a taxable supply.

Page 77
Disbursements and Reimbursements
Decision by DG of RMC (w.e.f. from 30.4.2015)
GST treatment on disbursement and reimbursement are as follows:
Disbursement Reimbursement
Not a supply Is a supply
Not entitled for input tax claim Entitled for input tax claim

In general, to determine whether recovery expenses is a disbursement for


GST purposes, a registered person must fulfill all the following criteria:(w.e.f.
6/6/2016)
i. Incur expenses as an agent acting on behalf of the client.
ii. The client is the recipient of the supply (invoice is in the clients
name).
iii. The client is the person responsible to pay for the supply.
iv. The payment is authorized by the client.
v. The client knew that the supply is made by a third party.
vi. The exact amount is claimed from the client and the agent has no
right to alter or add value to the supply.
vii. The payment is clearly an additional to the supply made to the client.
Page 78
Disbursements and Reimbursements
Example

Customer B approaches you to buy goods worth RM 10,000 exclusive of the


transportation charge which will be charged separately.

Are such transportation charges paid on behalf of Customer B which you will
subsequently recover from Customer B, a reimbursement or a disbursement?

Transport
You Customer B
Company

Paid Charged

In order to distinguish whether it is a reimbursement or a disbursement you


have to ascertain who has the contractual obligation to pay.

The way to ascertain this is to check the tax invoice or the contract, i.e who
the tax invoice is billed to.

Page 79
Disbursements and Reimbursements
Example
a) If the tax invoice is issued to you and you have the contractual obligation to
pay, when you charge the cost back to your customer, this is a
reimbursement. You will have to charge GST on the recovery of the
expenses. Subsequently your customer can claim back the GST

Contractual Obligation to pay

Transport Customer B
You
Company Charged
Paid

b) If the tax invoice is issued to your customer and he has the contractual
obligation to pay, then this qualifies as a disbursement where no GST is
chargeable on the recovery of the expense.

Contractual Obligation to pay

Transport You Customer B


Company Paid Charged

Page 80
Disbursements and Reimbursements
Example

You are a legal firm. When you charge your client legal free, there are stamp
duty and out-of-pocket expenses incurred.

Are the stamp duty and out- of pocket expenses considered reimbursements of
disbursements.

Answer

In such a transaction, both disbursement and reimbursement exist. Stamp duty,


which is chargeable to the client and the same amount claimed back from the
client, qualifies as a disbursement.

Out-of-pocket expenses which normally involves a mark-up is a reimbursement.

Page 81
Transactions Affecting Assets Specific issues

Hire Purchase

Hire purchase is a method of acquiring an asset on credit by way of periodic


payments or installments.

Seller of the asset is the dealer and the purchaser is the hirer.

Ownership does not pass to the hirer until the hirer has exercise his option to
purchase or has fully settled the price agreed upon in the hire purchase
agreement.

For GST purpose, hirer can claim input tax credit on the tax charged by the
dealer when the asset is acquired through hire purchase agreement.

No GST on the hire purchase installments to financial institutions as it relates


to a financial supply which is exempt from GST.

Same applies to any late payment interest or penalty imposed by financial


institutions.

Page 82
Transactions Affecting Assets Specific issues

Finance Lease
The lessee makes periodic payments or installments to the lessor over a
specific period of time.
At the end of the lease term, the lessee will obtain the ownership of the asset.
Under such arrangement, the company can claim full input tax credit upon
acquisition of the asset.
Operating Lease
Generally, the operating lease agreement is subject to GST charge imposed
on each successive lease payment under a lease agreement than extend over
a number of taxable period.
Each payment is treated as though the lessee is making a separate purchase
for each taxable period.
The arrangement is similar to rental agreement whereby the lessor issues a
tax invoice every month/quarter (period as specified in the lease agreement).

The lessee will return the asset to the lessor at the end of the lease period
without any further obligations.

Page 83
Transactions Affecting Assets Specific issues
Disposal and write off of asset
The transfer or disposal of asset is a supply of goods.
Transfer or disposal can be made to any person and it may or may not
involve a consideration.
If company decided to dispose the asset and write-off the asset from the
books, company is required to account for GST on the market value of such
asset or scrap.
Most cases it is zero value and thus GST is not chargeable. Company will
write off the asset by posting accounting entries.
Disposal of blocked Items
In case of disposal of blocked items (e.g. motor car), in view of the fact that
when the company acquires the motor car, no input tax credit has been
claimed (blocked input tax), therefore no GST shall be chargeable upon
supply of such motor car i.e. it is considered an out-of-scope supply.

This is pursuant to Sch 2 of the GST Act:


Supplies excluded from credit where the whole or any part of tax charged
on any supply or importation of goods is excluded from any credit under
subsection 38(12), the subsequent supply of the same goods shall be treated
as neither a supply of goods or a supply or service
Page 84
Transactions Affecting Assets Specific issues
Example 1

MAC Sdn Bhd acquired a lorry on 1 January 2015. On 1 January 2016, the
company decided to sell the lorry. What is the GST implications?

Answer:
When the company acquired the lorry, no GST is charged and no input tax credit
has been incurred. In view of the fact that the sale of the lorry does not comply
with Sch 2 of the GST Act, when the company decides to sell the lorry on 1
January 2016, GST shall be chargeable.

Example 2

MAC Sdn Bhd acquired a lorry on 1 May 2015. On 1 January 2019, the company
decided to sell the lorry. What is the GST implications?

Answer:
When the company acquired the lorry, GST is charged and there is input tax
credit incurred. Therefore, when the company decided to sell the lorry on 1
January 2019, GST shall be chargeable.

Page 85
Transactions Affecting Assets Specific issues
Example 3

MAC Sdn Bhd acquired a passenger motor car on 1 January 2015. On 1 January
2019, the company decided to sell the car. What is the GST implications?

Answer:
When the company acquired the motor car, no GST is charged and no input tax
credit has been incurred. In view of the fact that the sale of the motor car does
not comply with Sch 2 of the GST Act, when the company decides to sell the car
on 1 January 2019, GST shall be chargeable.

Example 4

MAC Sdn Bhd acquired a passenger motor car on 1 May 2015. On 1 January
2019, the company decided to sell the lorry. What is the GST implications?

Answer:
When the company acquired the motor car, GST is charged but the claim of
input tax credit is disallowed, i.e. blocked item. Therefore in compliance with
Sch 2 of the GST Act whereby no GST shall be chargeable upon sale of the
motor car (out of scope supply) as the sale of the motor car shall be treated as
neither a supply of goods nor a supply of service.

Page 86
Transactions Affecting Assets Specific issues
Trade-in
Generally, the trade-in of goods for another goods or the trade-in of assets
for another asset is treated as two separate transaction.
Example 1

On 1 January 2016, Song & Co, a manufacturing company, acquired a lorry for
RM 212,000 ( inclusive of GST) in cash. The company has a policy of
depreciation based on 20% straight line method.
On 21 December 2018, the company decided to trade-in the lorry in exchange for
a new model. At that time, the trade in value of the old lorry was RM 20,000
(exclusive GST) and the price of the new lorry is RM 150,000 (exclusive GST).

What is the GST and accounting implications?

Answer:

1 Jan 2016

Dr Motor Vehicle 200,000


Dr Input Tax 12,000
Cr Bank / Other payables 212,000

Page 87
Transactions Affecting Assets Specific issues
Trade-in
Answer:
31 Dec 2018 (Old Asset)
Dr Other Receivable 21,200
Cr Output Tax 1,200
Cr Disposal of Motor Vehicle 20,000
The company will issue a tax invoice upon trading in this old asset.

Dr Accumulated Depreciation 120,000


Dr Disposal of motor vehicle 80,000
Cr Motor Vehicle 200,000

Dr Loss on disposal 60,000


Cr Disposal of motor vehicle 60,000

31 Dec 2018 (New Asset)


Dr Motor Vehicle 150,000
Dr Input tax 9,000
Cr Bank /other payables 159,000

Dr Other payable 159,000


Cr Other receivable 21,200
Cr Hire Purchase 137,800

This entry is important as it zerorises other receivable account. i.e. RM 21,200. Some
Page 88
software will automatically make six months bad debt relief is account is not zerorised.
Dealing with Accruals & Prepayments
Accruals & Prepayments.
Prior to GST, companys accounts are not closed promptly and there are
instances where the company has incomplete recording keeping, practices of
backdating and re-issuing invoices and adjusting accounting entries after the
accounting period has ended.
All these are discouraged in the GST regimes and the RMC expects the
company to get it right the first time.
Example
THS Sdn Bhd has subscribed for building fire insurance which costs RM 200
(exclusive of GST) per month. On June 15 2015, the company decided to make a
prepayment for a year (i.e. July 2015 June 2016) for its building fire insurance.
What is the GST implication and related accounting entries?
At the same time, knowing that it will incur a software upgrade cost of its
accredited accounting software, THS Sdn Bhd has accrued a software upgrade
of RM 5,000 (exclusive of GST).
What is the GST implication and related accounting entries ?
On 2nd July 2015, the company receives the invoice from the software company
and on 15th July 2015, the company makes payment to the software company

What the further GST implications and related accounting entries?


Page 89
Dealing with Accruals & Prepayments
Answer
15 June 2015
Dr Prepaid Insurance 2,400
Dr Input tax 144
Cr Bank 2,544
End of every month : July 2015 to June 2016
Dr Insurance expense 200
Cr Prepaid Insurance 200
15 June 2015
Dr Software upgrade cost 5,000
Cr Accrued Software Cost 5,000
2 July 2015
Dr Accrued Software Cost 5,000
Dr Input Tax 300
Cr Other payables 5,300
16 July 2015
Dr Other payables 5,300
Cr Bank 5,300
Page 90
Record Keeping
REFERENCE
GST Act :
Section 36 Duty to keep record

Record Keeping
Section 36 of the GST Act requires both taxable and certain non taxable
person to keep full and true records of all transactions which affect or may
affect their tax liabilities
These records must be kept in Malaysia except as otherwise approved by the
DG and shall be in the national language or English language and
Should be preserved for a period of seven years from the latest date to which
the records relate.
All taxable persons should keep accounting documents and records of all
business supplies and acquisitions
To enable GST auditors to establish the nature , time and value of all taxable
supplies and importation of goods & services
To reconcile accounting records with the GST returns submitted.
Details of any exempt supplies & any method of apportionment used should
also be made available

Page 91
Record Keeping

Methods of preserving records


The taxable person must keep the original documentation
Where records is in electronic form, the record shall be kept in such a
manner as to enable the record to be readily accessible and convertible into
writing
Where the record is originally in a manual form and is subsequently
converted into an electronic record, the record shall be retained in its original
form prior to the conversion.
Such records shall be admissible as evidence in any proceedings

Failure to keep records

Any person who contravenes Section 36 of the GST Act commits an offence
and shall conviction, be liable to a fine:

Not exceeding fifty thousand Ringgit

To imprisonment for a term not exceeding three (3) years


or both

Page 92
Record Keeping
REFERENCE
GST Act :
Section 37 Accounting Basis

Current Treatment
Sales tax taxpayer declare based on invoice basis
Service tax tax paper declare based on invoice & payment basis
Two types of GST accounting basis
Accounting for tax on:
Invoice basis (accrual)
Payment basis
Accounting for tax on Invoice Basis
Account for output tax on the date tax becomes due (at the time of supply)
Basic Tax Point
Date of invoice or the date of payment, whichever earlier;
The date of Invoice ( 21 days rule)
Claim input tax on the date of a valid invoice.
Page 93
Accounting Basis
Advantages
Can claim GST input before payment is made
Easy to account for sales and purchase transactions
Disadvantages
Have to account for GST before receiving payment from customers
Tax payer may face cash flow problems

Accounting for tax on payment basis


A basis where a taxable person is required to account for output tax on the
date payment / other consideration is received.
Claim input tax on the date payment is made or other consideration is given
Payment basis is applicable only to:
Public bodies; or
Certain group of registered person due to the nature of the business
and the nature of the accounting system employed by that person
Example : Retailers, grocery shops, hair salons, restaurants etc.Professional
services are specifically excluded.

Page 94
Accounting Basis
Accounting for tax on payment basis
The following are the business factors that are favorable for the approval of an
application to use payment basis: (RMC Guidelines)
The annual taxable turnover is not expected to be more than RM 1 Million
Small size of the business (taking into account the number of employees,
quantum of overheads and quantity of trading stock)
Most sales (at least 80%) are made for immediate cash e.g. barber shop,
convenience store, restaurant or bakery).
No formal policy or procedure to extend credit and collect debts.
The business involves making high volume, low value supplies.
The business does not rely on circulating capital or consumables to produce
supplies
Low reliance on the use of capital items
The business records its transactions on a cash basis in its accounting
system as using invoice basis would involve administrative difficulties.

Page 95
Accounting Basis
Every taxable person shall account for GST on an accrual or invoice basis
Easy to account for sales and purchase transactions
However, the Director general may allow a registered person to account for
tax solely on a payment basis
A person may apply in writing to the Director General to account tax on a
payment basis
Persons approved under this scheme:
Account for tax on the day on which payment or other consideration is
received
Claim input tax on the date on which payment is made or other
considerations given
Approval under this scheme is effective for a period of three years only and
is subject to extension by the Director General
Any person who ceases to use the payment basis because it has expired has
to account for and pay tax on an invoice basis
Where there is a change in accounting basis, the registered person has to
make adjustments to tax and inform the officer of GST regarding the tax
payable in respect of the change in the basis of accounting.

Page 96
Accounting Basis
Where payment basis does not apply:

Even a person who has been approved to account for tax on a payment basis
is required to account for tax on an invoice basis on any supply of goods or
services:

a) Made under any lease, hire purchase or credit sale agreement where title will
pass at some time in the future

b) Where a tax invoice is issued and the full payment of the amount shown on
the invoice is not due for the period of more than 6 months from the date of
the invoice

c) In respect of which a tax invoice is issued in advance for the delivery or


making available of the goods or performance of the service.

Page 97
Adjustment Change of Accounting Basis

Requirement as a result of change from an invoices basis to payment basis


or vice versa

Registered person has to prepare up to the last day of the taxable period
before change takes effect:

List of creditors - amount due by the registered person

List of debtor - amount due to the registered person

Calculate the tax payable or refundable

Make adjustment of tax by including the tax payable, or refundable in the


first return where the change of accounting takes effect

Page 98
Adjustment Change of Accounting Basis

Calculation of tax payable due to change from an invoice basis to payment


basis.

Determined in accordance to this formula:

[A-B]

A - An amount equal to the amount of input tax deducted in relation to


the amount due as shown in the list of creditors.
B - An amount equal to the amount of output tax accounted in relation to
the amount due as shown in the list of debtors.
Should A exceed B, the excess is treated as a positive adjustment that
increases the amount of GST payable to RMC.
Should B exceeds A, the excess is treated as a negative adjustment that
reduced the amount payable to RMC.

Page 99
Adjustment Change of Accounting Basis

Adjustment change of accounting basis from invoice to payment basis

Must pay the difference if GST on creditors is higher than GST on debtors

Include the amount as output tax payable in the first return where the change
in the accounting basis takes effect

If GST on debtors is higher than GST on creditors, you are entitle to a credit.
Can increase your ITC

Once under the payment basis, you can only claim a credit when you pay for
the supply and account for output tax only when you receive payment for the
supply.

Page 100
Adjustment Change of Accounting Basis

Adjustment change of accounting basis from invoice to payment basis

Creditors List end of the month (A) Debtors List end on the month (B)
Co. Amount Paid Balance Co. Amount Paid Balance
A 1,600 400 1,200 AA 1,300 1,000 300
B 2,100 1,200 900 AB 1,900 700 1,200
C 1,600 900 700 AC 1,800 900 900
D 1,500 300 1,200 AD 1,600 500 1,100
Total 6,800 2,800 4,000 Total 6,600 3,100 3,500

Tax payable when change from Invoice basis to payment basis

Amount of input tax deducted - A 4,000 x 6/106 226.42


Amount of Output tax accounted - B 3,500 x 6/106 198.11
Tax payable A-B 28.31

Page 101
Adjustment Change of Accounting Basis

Calculation of tax payable due to change from payment basis to an Invoice


basis.

Determined in accordance to this formula:

[C-D]

C - An amount equal to the amount of input tax would have been


accounted in relation to the amount due as shown in the list of creditors
required to be prepared in invoice basis.
D - An amount equal to the amount of output tax would have been
deducted in relation to the the amount due as shown in the list of
debtors required to be prepared in invoice basis.
If C exceeds D, the excess is treated as a negative adjustment that
reduces the amount of GST payable to RMC.
If D exceeds C, the excess is treated as a positive adjustment that
increases the amount of GST payable to RMC.

Page 102
Adjustment Change of Accounting Basis

Adjustment change of accounting basis from payment to invoice basis

Creditors List end of the month (C) Debtors List end on the month (D)
Co. Amount Paid Balance Co. Amount Paid Balance
A 2,100 1,100 1,000 AA 1,500 900 600
B 1,400 900 500 AB 1,900 700 1,200
C 1,900 900 1,000 AC 2,100 900 1,200
D 2,300 1,300 1,000 AD 1,800 1,000 800
Total 7,700 4,200 3,500 Total 7,300 3,500 3,800

Tax payable when change from Invoice basis to payment basis

Amount of input tax deducted - D 3,800 x 6/106 215.09


Amount of Output tax accounted - C 3,500 x 6/106 198.11
Tax payable D-C 16.93

Page 103
Adjustment Change of Accounting Basis

Adjustment change of accounting basis from payment basis to Invoice


basis

Must pay the difference if GST on debtors is higher than GST on creditors.

Include the amount as output tax payable in the first return where the change
in the accounting basis takes effect.

If GST on creditors is higher than GST on debtors, you are entitle to a credit.
Can increase your ITC.

Once under the invoice basis, you can only claim a credit when you receive a
tax invoice for the acquisition and must account for output tax when you issue
invoice for the supply.

Page 104
Taxable Period
REFERENCE
GST Act :
Section 40 Taxable Period

Regular interval period where a person accounts & pays GST to the government.
The registered person will be allocated monthly and quarterly taxable periods
according to the annual business turnover on the approval of GST registration as
below:
Below RM 5 Million Quarterly
Above RM 5 Million Monthly
The default taxable period is the quarterly taxable period.
Taxable person may request in writing to the DG for a taxable period other than
the two taxable period. (e.g. businesses which are small or seasonal in nature may qualify for
half yearly taxable period)

The DG may, as he deems fit, reassign the taxable person to any taxable period
other than the period he has been previously assigned.

The registered person may also apply to vary the length of any taxable period or
the date of which any taxable period begins or ends ( Due to the accounting nature of the
business). Example, the varied taxable period may begin other than the first day of the month for e.g,
15th of the month.

Page 105
Taxable Period
The filing frequency of the various taxable periods are as follows:

Filing Frequency Taxable Period


Jan-Mar, Apr-Jun, Jul-Sep, Oct-Dec
Feb-Apr, May-Jul, Aug-Oct, Nov-Jan
Quarterly
Mar-May, Jun-Aug, Sep-Nov, Dec-Feb

Monthly Every Month

Jan-Jun, July-Dec
Feb-July, Aug-Jan
Half Yearly
Mar-Aug, Sep-Feb
(Apply in writing to DG)
Apr-Sep, Oct-Mar
May-Oct, Sep-Apr
Jun-Nov, Dec-May

Page 106
Declaration and payment by person other
than taxable person on imported services

Page 107
Imported Service
Sec. 13(3)-a person other than a taxable person shall be liable for any tax
due and payable on the supply of imported services

Imported service is subjected to GST if all of these rules is applicable :

Supplier belongs outside Malaysia


Recipient belongs in Malaysia
Supply is taxable if made in Malaysia
Supply is consumed in Malaysia
Supply is used for business purposes

Supply shall be treated as supply made by the recipient himself.

Thus GST is accounted for as an output tax by him in the taxable period in
which the payment is made to the supplier.

The mechanism for this is known as reverse charge as the supply is


deemed to be made by the receipient.
Page 108
Imported Service
Tax Liability
Budget 2016 (w.e.f from 01 January 2016)
Time of Supply
Date payment is made
The RMC via Director Generals decision 1/2014 has indicated that the
recipient may choose to account for output tax on the date of the
suppliers Invoice (provided it is issue earlier than the payment date)
Budget 2017 (w.e.f from 01 January 2017)
Time of supply for imported services
Date payment is received
Date received of foreign supplier issued invoice.
Value of Supply
Invoice value (Tax exclusive)

( The law appears to be ambiguous on whether the payment to non-resident should be multiplied with the rate of 6% of the tax fraction
(i.e .6/106) in arriving at the amount of output tax to be accounted for. The RMC favors the former DG decision 1/14)

Page 109
Imported Service
Example
A Bhd, a steel manufacturer, seeks engineering services of XYZ plc, a company
that belongs to Italy and does not have any business presence in Malaysia. XYZ
plc flies its employees to Malaysia in January 2016 for a period of 2 weeks to
render the service. In Feb. 2016,XYZ plc invoices A Bhd an amount equivalent
to RM 140,000. A Bhd pays XYZ plc RM 100,000 in March 2016 and RM 50,000
in April 2016 (total is greater than RM 140,000 due to foreign exchange losses).
It is statutory deemed that A Bhd made a supply of RM 100,000 in March 2016
and RM 50,000 in April 2016 and thus has to account for GST of RM 6,000 and
RM 3,000 in the respective months.

If A Bhd is making wholly taxable supplies, it will claim input tax credit of RM
6,000 and RM 3,000 in the respective months and thus the net effect on the
imported services on the GST payable to the RMC is nil.

Page 110
Accounting for Supply of imported Service
Recipient is a taxable person
Declaration in return GST - 03
Account as output tax
Entitle to claim input tax if imported service is used to make taxable supplies
If imported services are used for making both taxable & exempt supplies
(subject to proportion)
Recipient is a not taxable person
Declaration in return GST - 04
Pay tax not later than the last day of the subsequent month from the month in
which the supply is made.
Note that the time of supply for imported services is the date when payment
with regards to the supply is paid.

Page 111
Accounting for Supply of imported Service
Example.

What is the amount of tax payable and the due date for payment of tax ?

CIPS Sdn Bhd is not a taxable person. It entered into a service contract as
follows:

Event Tax Due


Amount Date
RM
15 April 2015 Sign contract with service provide from UK for RM20 M
1 May 2015 CIPS transferred RM 5 million as first payment for services 300,000 30 June
1 June 2015 CIPS started using the services
10 June 2015 CIPS transferred another RM6 M as payment 360,000 31 July
20 June 2015 CIPS transferred another RM4 M as payment 240,000 31 July
1 July 2015 Due to unsatisfactory services, CIPS refuse to pay the NiL NIL
balance of RM 5M
1 August 2015 UK Service provider sued CIPS in London High Court NiL NiL
5 August 2015 Ask London base lawyer for advice & pays RM 50,000 NIL NIL

Page 112
Accounting for Supply of imported Service
Summary of GST treatment on imported services

Recipient category Output Tax Input Tax


Taxable person (wholly taxable supplier) Due & payable Credit in full
Taxable person Due & payable Credit to be
( Mixed Supplier) apportioned
Other than taxable person Due & payable No input tax
Recipient in Designated Area Disregard for
charging GST

Page 113
GST Return & Declaration

Furnishing of returns and payment of tax

(1) Every taxable person shall, in respect of his taxable period, account for
tax in a return as may be prescribed and the return shall be furnished to
the Director General in the prescribed manner not later than the last day
of the month following after the end of his taxable period to which the
return relates.

GST Regulation 2014

Regulation 41 Manner of making a return

Regulation 42 Furnishing of returns or declaration

Page 114
GST Return & Declaration

GST returns by a non-registered person


Non-registered persons are not required to account for taxes or to submit GST
returns.
However, certain non registered persons are required to account for GST and to
submit GST returns:
A person who imports services for the purpose of business
An agent acting on his own name as auctioneer
A person approved under the Approve Toll Manufacturing Scheme as
recipient of processed goods from a toll manufacturer.
These persons are required to submit a special GST returns (GST-04) not later
than the last day of the subsequent month from the month in which the supply is
made or treated as having taken place.
Example
XYZ Sdn Bhd is not registered for GST. It contracts a German company to provide
consultancy services and on 10 April 2015 paid RM 100,000 for such services. This
service is deemed to be provided by XYZ Sdn Bhd and thus it has to account for GST
of RM 6,000, being 6% of the amount paid. This is done by submitting GST-04 and
paying the tax not later than 31 May 2015. No input tax credit is available as XYZ is
not a registered person.
Page 115
GST Return

For e-service users

GST-03 For GST Registered persons only

For e-service users personalizes GST-03 will be available


through GST portal

For Non e-service users

Blank GST -03 can be downloaded from GST portal

Can request for a printed personalized copy of the GST-03

From the nearest GST office

By contacting custom call center

Page 116
GST Return

Manner of Submission
Personally

to GST Processing Centre

to the nearest GST station.

By post to GST Processing Centre

By electronic service

Electronic filing is highly encouraged.

When GST Return deemed to be furnished

When Director General received the return personally delivered


On the date of the post mark in the case the return is delivered by post
When Director General received the return by electronic service
Page 117
GST Return

Tax Declaration

Payment : Output Tax > Input Tax

Refund : Output Tax < Input Tax

No payment : Output Tax = Input Tax

No payment : No output tax, no input tax

Certification / declaration that such return is TRUE and COMPLETE

Upon submission of any return, Acknowledgement Receipt (AR)


Slip will be issued to the taxable person.

Page 118
GST Return

When to Submit GST Return & Payment of tax

Normal period - not later than the last day of the month following
after the end of his taxable period [sec 41(1), sec 41(5)]1

Other period as approved by DG - Not later than the last day of the
30 days from the end of the varied taxable period, [sec.41 (1-3),
sec.41(5)]

The returns referred to shall be furnished whether or not there is tax


to be paid.

Page 119
GST Returns
When to submit GST Returns
Normal Period
Monthly Taxable Period

December January February March

Last date of submission 31 January 28 February 31 March

Page 120
GST Returns
When to submit GST Returns
Normal Period
Quarterly Taxable Period

Jan - March April -June

January January March April May June July

Last date of submission 30 April 31 July

Note : Same principle applies for varied taxable period


Page 121
PARTIAL EXEMPTION & ANNUAL
ADJUSTMENT

Page 122
Partial Exemption

A person who makes both taxable and exempt supplies is known as mixed
supplier

Eligible to claim full amount of input tax credit if the input tax incurred is
exclusively attributable to the taxable supplies

Not entitled to claim input tax incurred if the input tax incurred is exclusively
attributable to the exempt supplies.

Residual input tax - Input tax incurred is neither directly attributable to


taxable supplies nor exempt supplies (Example utilities charges,
professional fees, rental etc)

The term partial exemption is used to describe the situation of a mixed


supplier who has to apportion the amount of residual input tax claim in
respect of making taxable and exempt supplies using an approved partial
exemption method

Page 123
Apportionment

STANDARD METHOD OF APPORTIONMENT


The following is the standard method applicable to all mixed suppliers unless the DG
of Customs specifically directs or allows other wise.
Under this method, the percentage of recoverable residual input tax for a taxable
period is basically obtained by dividing the value of taxable supply (including
supplies outside Malaysia which would be taxable supplies if made in Malaysia) with
the total value of all supplies (including supplies outside Malaysia which would be
taxable supplies if made in Malaysia) made in the taxable period which is expressed
in the following formula:
Where : r = (t / s ) x 100%

r Is the recoverable percentage of residual input tax


t Is the total value (exclusive of GST) of taxable supplies (including
supplies outside Malaysia which would be taxable if made in
Malaysia, deemed taxable and disregarded supplies) made in the
taxable period
s Is the total value (exclusive of GST) of taxable supplies (including
supplies outside Malaysia which would be taxable if made in
Malaysia, deemed taxable and disregarded supplies) and exempt
supplies made in the taxable period.

Page 124
Apportionment

STANDARD METHOD OF APPORTIONMENT


However, certain value of business supplies is excluded from the standard method so
as not to significantly distort the result of the calculation. Value of the supplies that are
excluded from the standard method are:

a) The value of any supply of capital assets used by the taxable person for the
purposes of his business. If an asset or part of an asset is disposed of as Transfer
of Going Concern (TOGC), such value also should be excluded from the standard
method.

b) The value of any supply made by a recipient in accordance with the Approved Toll
Manufacturer Scheme under section 72 of the Act;

c) The value of any supply referred as incidental exempt supplies in Part VI of GST
Regulations that are made by him where such supply is incidental to one or more
of his business activities.

d) The value of any exempt supply of land for general use (i.e. burial ground,
playground or religious building) made by a taxable person to any public body
where that supply of goods by the taxable person is made in compliance with the
requirement enforced by any public body.

e) Value of any supply of imported services.


Page 125
Apportionment

STANDARD METHOD OF APPORTIONMENT


To exclude the above values from the standard method, the formula for calculating the
amount of recoverable percentage of residual input tax shown above has to be
adjusted as follows:
Where : r = [(t - o ) / (s o)] x 100%
r Is the recoverable percentage of residual input tax
t Is the total value (exclusive of GST) of taxable supplies (including
supplies outside Malaysia which would be taxable if made in
Malaysia, deemed taxable and disregarded supplies) made in the
taxable period.
o Is the total value (exclusive of GST) of all excluded supplies
s Is the total value (exclusive of GST) of taxable supplies (including
supplies outside Malaysia which would be taxable if made in
Malaysia, deemed taxable and disregarded supplies) and exempt
supplies made in the taxable period.

Page 126
Apportionment of Input Tax Other Methods
Alternative methods of apportionment
DG may direct a taxable person to use a specific method of apportionment:
If he is satisfied that the standard method of apportionment does not provide the
taxable person a fair and equitable recovery of residual input tax.
Alternatively, a taxable person may apply to the DG to use an alternative method if he
considers the standard method does not provide a fair and reasonable result.
Other Methods:
a) The number of taxable transactions made
b) Quantities of output
c) Floor space occupied by staff involved exclusively in taxable activity
d) Time spent exclusive on taxable activity
e) Input cost
f) Taxable input tax divided by total input tax.
Approval must be obtained in writing to use any of the alternative methods. DG may
propose amendments or modifications.
Any alternative method approved or directed shall also exclude the value of any
supplies as stated in the standard method of apportionment Page 127
Apportionment of Input Tax Other Methods

Example

Finance company Arbus Sdn Bhd. deals in taxable leasing and


exempt personal loans services. The value and number of transaction
of taxable and exempt supplies are as follows:

Activities No. of Transactions % Value (RM) %


Leasing agreements
75 60 750,000 42.9
entered into
Personal loans entered
50 40 1,000,000 57.1
into
TOTAL 125 100 1,750,000 100

Page 128
Apportionment

Example 1

ABC Co. Sdn Bhd., whose current tax year ends on 31/12/2016, his current
taxable period is May 2016, made some mix supplies and at the same time
incurred residual input tax as follows :

RM
T Value of all taxable supplies (exclusive tax) 200,000
O Value of capital goods disposed off (exclusive tax) 50,000
O Value of incidental exempt supplies 20,000
E Value of exempt supplies 40,000
Residual Input Tax 10,000

Page 129
Apportionment

Residual input tax recovery rate percentage for May 2016

__200,000 - 50,000 ______________ x 100% =88.24%


200,000 + 40,000 - 50,000 -20,000

Amount of residual input tax that ABC Sdn. Bhd can be claimed for
May 2016.

Residual input tax recovery rate % x residual input tax incurred.

88.24% x RM10,000 = RM 8,824.00

ABC Sdn. Bhd. can only claim RM8,824 out of the RM10,000 of the residual
input tax incurred by him in that taxable period (i.e. May 2016).

Example 2

The following information relates to Universal Sdn Bhd, a company that closes
its account on 31 March each year and accounts for GST on a quarterly basis.

(refer next slide)


Page 130
Apportionment
Apr -June July -Sept Oct-Dec Jan -Marc Total
Value of (RM)
1 Taxable Supply 500,000 650,000 1,000,000 850,000 3,000,000
2 Exempt Supply 100,000 100,000 50,000 110,000 360,0000
Input Tax for:
3 Taxable supply 12,000 10,000 17,000 8,000 47,000
4 Exempt Supply 2,000 5,000 20,000 3,000 30,0000
5 Residual input Tax 4,000 4,000 70,000 4,500 82,500
Other Information
6 Value of Capital - 150,000 - 50,000 200,000
Goods disposed
7 Value of Imported 50,000 50,000
service
8 Value of incidental 10,000 10,000
exempt financial
supplies
9 Proportion of 83.33% 83.33% 95.24% 88.24%
recoverable
residual input tax
11 Total input tax 15,333.20 13,333.20 83,668 11,970.80 124,305.20
credit for the period
Page 131
Apportionment

At the end of the year, an adjustment is made as below:

Annual proportion of recoverable input tax:

RM 3,000,000 RM 200,0000 RM 50,000


= 88.71%
RM 3,000,000 + RM 360,000 RM 200,000 RM 50,000 RM 10,000

Residual input tax chargeable for the year = 88.71% x RM 82,500 = RM 73,185.75

As the residual input tax claimable for the year (RM 73,185.75) is lower than the
residual input tax credit claimed provisionally (RM 77,305.20), the difference (RM
4,119.45) is treated as an output tax for the second taxable period of the following
year (July to September 2016)

Page 132
De Minimis Rule

Page 133
De Minimis Limit

Exempt input tax can be recovered in full in any taxable period or a longer
period if satisfies the following conditions:

Prescribed amount of de minimis limit:

Total value of the exempt supplies does not exceed


an average of $5,000 per month.

And

5% of the total value of total supplies (all taxable and exempt supplies) made
in that period.

Rationale: To relieve small companies from the partial exemption


requirements.

Page 134
De Minimis Rule
Example 1

Taxable period = One month


Value of taxable supply = RM200,000
Value of exempt supply = RM 50,000
Input tax attributable to taxable supply = RM 10,000
Input tax attributable exempt supply = RM 2,000
Residual input tax = RM 1,000
Test for deminis rule first.
Value of exempt supply does not exceed RM 5,000 and 5% of total supply ?
If yes, All exempt input can be claimed. Otherwise use the formula.

In this case de-minimis rule is not fulfilled.

Therefore residual input tax that can be claimed = 200,000/(200,000 + 50,000)


x 1,000 = RM 800

Total ITC can be claimed in January = RM 10,000 + RM 800 = RM 10,800

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Partial Exemption & Annual Adjustment
Example 2
Taxable period = One month
Value of taxable supply = RM 200,000
Value of exempt supply = RM 4,000
Input tax attributable to taxable supply = RM 10,000
Input tax attributable exempt supply = RM 2,000
Residual input tax = RM 1,000
Test for de-minis rule first.
Value of exempt supply does not exceed RM 5,000 and 5% of total supply ?
If yes, All residual input can be claimed Otherwise use the formula.
In this case de-minimis rule is fulfilled.
Therefore all exempt input tax can be claimed
Total ITC can be claimed in January = RM 10,000 + RM 2,000+ RM 1,000 =
RM 13,000

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Longer Period Adjustment /

Annual Adjustment

Page 137
Longer Period Adjustment

A recovery of residual input tax in a taxable period is only provisional.

The proportion of residual input tax recovered may not be reflective or fairly
attributed to the taxable supplies

Fluctuations or high volatility in supplies from taxable period to another


taxable period

Therefore, mix supplier is required to make annual adjustment, which also


refer to as longer period adjustment

DEFINITION
Longer period" means
A tax year or
A period comprising of 2 or more taxable periods or part thereof

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Tax Year

Tax Year means


The first period of 12 calendar months or any period other than 12 calendar
months as may be approved by the DG commencing on the effective date of
registration
Any subsequent period of 12 calendar months commencing on the day
following the end of his first, or any subsequent tax year.
De-registration, any subsequent period commencing on the day following
the end of his first, or any subsequent tax year which ends on the date he
de-registers
Tax years refer to the period in which a registrant remains registered under
the GST Act 2014
A tax year in its ordinary meaning would constitute 12 calendar months
Tax Year = 12 months or other period approved by the DG (i.e. 6 months up
to 18 months)

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Longer Period

Longer period means a tax year or a period comprising of 2 or more taxable


periods or part thereof.

if a taxable person who incurs exempt input tax during any tax year, then a
longer period shall correspond with that tax year.

If he did not incur exempt input during his immediately preceding tax year,
his longer period shall :

begin on the first day of the first taxable period which he incurs exempt
input tax;

and end on the last day of that tax year.

Page 140
Longer Period

If the first partial exemption period falls on the last taxable period of the tax
year, longer period is not applicable to work out adjustment for that tax year.

Generally, longer Period = tax year = 12 months

In some cases, first longer period may be less or even more than a period of
12 months depending on the length of his first tax year.

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Monthly taxable period
Example
Assuming a taxable persons tax year runs from 1st.
January 2016 to 31st.Dec 2016 and he is subject to monthly
taxable period. He starts to make exempt supply on 15th.
August 2016, his first longer period would run from 1st
August to 31st. December 2016

Tax Year

1 2 3 4 5 6 7 8 9 10 11 12

Longer Period

Start to make exempt supply on 15/8/2016

Page 142
Quarterly taxable period
Example
Assuming a taxable persons tax year runs from 1st.
January 2016 to 31st.Dec 2016 and he is subject to
quarterly taxable period. He starts to make exempt supply
on 15th. August 2016, his first longer period would run from
1st July to 31st. December 2016

Tax Year

1 2 3 4 5 6 7 8 9 10 11 12

Longer Period

Start to make exempt supply on 15/8/2016

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Partial Exemption Period falls on the final tax period

Example
Assuming a taxable persons tax year runs from 1 st. January 2016
to 31st.Dec 2016 and he is subject to quarterly taxable period. He
starts to make exempt supply on 3rd. November 2016. His first
partial exemption period would run from 1st.October to 31st.
December 2016 and no longer period is applicable to him

Tax Year
Longer Period

1 2 3 4 5 6 7 8 9 10 11 12

Start to make exempt supply on 3/11/2016

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Longer Period Adjustment

Example ( Annual Adjustment)


Q1 Q2 Q3 Q4 Total
Taxable Supply 50,000 300,000 100,000 600,000 1,050,000
Exempt Supply 500,000 800,000 3,000,000 400,000 4,700,000
Residual Input Tax 9.09% 27.27% 3.23% 0.60% 18.26%
Recovery rate
Residual Input Tax 100,000 150,000 50,000 250,000 550,000
Claimable residual 9,090 40,905 1,615 150,000 100,430

201,610

Total residual input tax claimed in 4 quarters = RM 201,610

Under annual adjustment, claimable input tax is only RM 100,430

Therefore an adjustment of RM 201,610 RM 100,430 = RM 101,180 (over


claim) need to be made. To pay output tax of RM 101,180.

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Longer Period Adjustment

Example ( Annual Adjustment)


Tax year is 1st January 2016 to 31 December 2016
Makes exempt supply on 15th August 2016
First longer period is 1st August to 31 December 2016

Taxable Value of Value of Value of Residual Residual Residual


period Taxable Exempt Excluded input tax input tax input tax
Supply (T) Supply (E) Supply (O) incurred recovery recovered
rate (R)
Aug 300,000 75,000 20,000 12,000 78.87% 9,464.79
Sept 280,000 75,000 14,500 78.87% 11,436.62
Oct 280,000 20,000 14,000 93.33% 13,066.67
Nov 320,000 80,000 10,000 14,000 79.49% 11,128.21
Dec 330,000 80,000 13,000 80.49% 10,463.41
Total 1,510,000 330,000 30,000 67,500 55,559.69

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Longer Period Adjustment

Input tax recovery rate

RM 1,510,000 RM 30,000
=
RM 1,510,000 RM 30,000 + RM 330,000

= 81.7679%
= 81.77% (2 decimal places)
Input tax claimable = 81.77% x RM 67,500
= RM 55,193.37

Has claimed RM 55,193.37

Pay output tax of RM 55,559.69 RM 55,193.37 = RM 366.32

Page 147
END

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