Malaysian PM Strongly Supports Goods and Services Tax

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A range of Malaysian politicians have strongly criticized the country’s recently implemented goods and services tax (GST), causing Prime Minister Najib to step into the fray and reiterate his reasons for the new tax.

Malaysia introduced the tax on April 1, 2015. GST is a value added consumption tax payable by all parties in the production chain, but refunded to all except the final consumer. Malaysia’s six percent GST, the lowest in Southeast Asia, replaces its 10 percent sales tax and six percent services tax.

Chief among the criticisms against the GST are that it will make Malaysia less competitive vis-à-vis other countries in the region by raising the country’s tax burden, as well as hurting economic growth.

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However, Prime Minister Najib has answered this criticism by stating that the GST will widen the country’s tax base – currently only one in 10 Malaysians pay any personal income tax. Additionally, according to Najib, the GST will reduce the government’s dependence on revenues from oil and gas, which make up 23 percent of current revenue. In particular, GST should support exporters since many exports will be zero-rated.

The implementation of GST has been an increasingly common sight throughout ASEAN. Besides Malaysia, only Brunei and Myanmar have not implemented the tax regime. Throughout the world, more than 160 countries have some form of GST already in place.

What does Malaysia’s GST actually do?

According to Malaysia’s GST laws, any business who has made taxable supplies exceeding MYR500,000 (~US$137,000) in the prior 12 months is required to register for the new tax.

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Malaysia’s Customs Department has divided taxable supplies into four groups:

  1. Standard rated: Taxable goods and services subject to GST at a standard rate
  2. Zero-rated: Goods and services subject to a zero percent GST rate, in which consumers pay no GST and businesses claim a GST refund on inputs
  3. Exempt Supplies: Goods and service supplies not subject to consumer GST but for which businesses will not receive a refund of GST paid on inputs
  4. Supplies not within the scope of GST: Non-business transactions, sales of goods outside of Malaysia, and services provided by the government sector

Exempt supplies will mainly include such purchases as fruits and vegetables, as well as other products such as cosmetics, medicines, kitchenware, clothes, and books.

For manufacturers operating in Malaysia, local and imported manufacturing inputs such as capital assets, raw materials and components, and services and utilities are subject to GST, except zero-rated and exempt supplies. In order to avoid double taxation, manufacturers are allowed to claim input tax credit on any purchases that are inputs to their business.

It is recommended that businesses contact a tax expert in the region in order to ensure proper GST compliance.


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