GST FOR BUSINESSES

Date: 17 July 2014

Venue: Dewan Perdana MIDA

MIDA Sentral

Presenter: Fazilah Ariff

BAHAGIAN CUKAI

KEMENTERIAN KEWANGAN

Manufacturing

Briefing Agenda

1. GST Treatment on Manufacturing

2. Matters related to Manufacturing

3. Facilities for Manufacturers

4. Business preparation

2

1

3

GST Treatment on Manufacturing

Manufacturing

Goods (e.g.

furniture,

tableware,

television)

Services ( e.g.

loan of mould

INPUT OUTPUT

GST on inputs

= Input tax Claimed

input tax

GST on outputs

= Output tax

4

Goods (raw materials,

machines and other

goods)

Services (rental

telephone and

insurance)

Utilities

(electricity and

water)

Manufacturing

5

Liable to register for GST

• making taxable supplies of goods or

services in Malaysia; and

• business taxable turnover has exceeded the

prescribed threshold (RM 500,000 per

year)

…..section 20

Registration

Registration

Exemption from registration for those who are making wholly zero rated supplies

Example:

Sugar refiner, Flour Manufacturer

Must apply – GST-Adm3 form

If approved, input tax incurred CANNOT be claimed

Must notify DG of any change in nature of supply within 30 days from the date of change

e.g. makes standard rated and zero rated supplies

tapioca flour (6%), plain flour (0%)

….section 32

Generally all supplies made by manufacturers are taxable

supplies,

- standard rated supplies

- zero rated supplies

=> Subject to GST on the supplies

Input tax is claimable on the acquisitions

GST Treatment on Supplies Made

8

Taxable supplies

• sale of goods (manufacturing products such as

tableware, furniture, cooking oil and other goods –

scrap, used mould, used equipment/machine, )

• provision of services (loan of mould)

• sub-contract work

• loan of raw materials

• business assets put to private use

• gifts exceeding RM500

GST Treatment on Supplies Made

9

• Under GST, both FIZ and LMW are to be regarded as places

located in Malaysia

• Physical control procedures will be revised to be in line with

the tax treatment under GST

• Records are not required to be submitted monthly but must be

made available as and when required by Customs

• Auditing by Customs will be done at random based on Risk

Management System (RMS)

FIZ & LMW Concept

10

• Supplies made by FIZ & LMW:

export is subject to zero rated

local sales is subject to GST

• Procedures for local sales goods need to be declared in Customs Forms and subject to

customs duties (if any)

GST on local sales has to be imposed and charged in the tax

invoice issued to the buyers:

If sales to FIZ/LMW companies, the value is based on

transaction value

If sales to non-FIZ/ non-LMW, the value is based on value of

imported goods which include customs duties(if any)

GST Treatments on FIZ & LMW

11

Supplies made by LMW/FIZ company: • To LMW/ FIZ company subject to GST – transaction value

GST Treatment on Supplies Made

LMW/FIZ LMW/FIZ

GST

Example Transaction value : RM100,000.00

GST 6% : transaction value

: RM100,000.00 X 6%

: RM6,000.00

12

Special Valuation for goods supplied locally

“Where a taxable supply of goods is made by a person under

section 65A of the Customs Act 1967 or a person operating in a

free industrial zone under paragraph 10(1)(b) of the Free Zone

1990 to any person who is not licensed under section 65A of the

Customs Act 1967 or to any person who is not operating in a FIZ

under paragraph 10(1)(b) of the Free Zones Act 1990, the value of

the goods shall be the value as determined under section 16”.

…. Paragraph 7 of the Third Schedule of GST Act 2014

Special Valuation on Supplies Made

13

GST Treatment – LMW

LMW/FIZ Non-FIZ /

Non-LMW GST

Supplies made by LMW/FIZ company:

•To non- LMW/ non-FIZ

subject to GST - the value of the goods is the

value of imported goods

14

GST Treatment – Special Valuation

Example ABC Electronics Sdn Bhd (a company in FIZ) sold a consignment of car

audio to MAC Sdn. Bhd (non-FIZ/non-LMW) at a price of RM100,000.00.

(Assuming duty import =10% and GST= 6%).

Transaction value : RM100,000.00

Import duty (100,000 x 10%) : RM10,000.00

GST 6% : Customs value + Import Duty

: (RM100,000.00 + RM10,000) X 6%

: RM6,600.00

Item Description of

goods

Unit Value

(RM)

1. Car audio 100 pcs 100,000.00

Import Duty (10%) 10,000.00

Supply made by LMW to non-FIZ /non-LMW company

• Import duty must be paid in Customs no.1 form

• GST must be charged in a tax invoice and must be paid in

GST return in the relevant taxable period

GST Treatment – Local Supply

(a) Customs no.1 form

15

GST Treatment – Local Supply

Item Description Of Supply Unit Price

(RM)

Total

(RM)

100 pcs Car audio

GST on value + Import Duty @ 6%

on RM110,000.00

1000.00 110,000.00

6,600.00

TOTAL AMOUNT PAYABLE 116,600.00

GST No: 003456007707

Invoice No: 007

Date: 8.8.2014

ABC Electronics Sdn Bhd

Lot XX, Jalan YY,

Sg Way, Petaling Jaya

Selangor

TAX INVOICE

MAC Sdn Bhd

Jalan CC, Johor Baru, Johor

(b) GST on local sales charged in a tax invoice

16

17

Current treatments GST Treatments

Under the Sales Tax legislation,

FIZs and LMWs are deemed to be

a placed outside Malaysia

For GST, it is treated as a place

located in Malaysia.

Local sales made by FIZs and

LMWs are as if importation into

Malaysia

For GST, it is considered as local

supplies and subject to normal

rules.

For documentary control, LMWs

are required to submit monthly

records but not for FIZs.

For GST, FIZs and LMWs who are

approved under the special

schemes (ATS/ATMS) are required

to submit certain records.

FIZ & LMW Concept

18

Current treatments GST Treatments

Importations of raw materials and

machineries directly used for

manufacturing are eligible for

customs duties / sales tax

exemptions.

Importations or acquisitions of

goods indirect used for

manufacturing purposes eg

stationaries, tires and office

equipments are subject to tax.

GST on importations of goods

including raw materials and

machineries or locally acquisitions

in the course or furtherance of

businesses are subject to GST.

GST on inputs are claimable.

GST on importation of goods is

suspended under ATS

Auditing by Customs will be done

at random based on risk criteria.

Auditing by Customs will be done

at random based on Risk

Management System (RMS)

Records need to kept for 6 years

Records need to be kept for 7 years

FIZ & LMW Concept

19

LMW COMPANIES

SEC.65/65A CUSTOMS ACT 1967 –IMPORT/EXPORT/LOCAL SALES PROCEDURES

IMPORT

INPUT - Raw materials / components

- Machines / equipments

OUTPUT

Local Supplier

FIZ

LMW

Others

EXPORT

DA

FCZ (outright

export)

LOCAL SALES

EXEMPTION;

• Import Duty

• Excise Duty

GST on importations (6%)

suspended under

ATS

Subject to GST;

• Standard rate

Subject to GST

• Standard rate

• Zero rate

GST REGISTRANT /

ATS

LMW Company LMW / FIZ

/FCZ

GST incurred for making taxable supplies

-Claimable

GST Treatment – LMW/FIZ

Supply GST Treatment

World to LMW/ FIZ: Goods Services

*Suspended

Standard Rate

Between the LMW/FIZ: Goods and Services

Standard Rate

FIZ to World: Goods and Services

Zero Rate

* Under Approved Trader Scheme (ATS) - Subject to DG approval

20

GST treatment for LMW/FIZ

Supply GST Treatment

Non-LMW/non-FIZ to LMW/FIZ:

Goods

Services

Standard rate

Standard rate

LMW/FIZ to non-LMW/non-FIZ:

Goods

Services

*Standard rate

Standard rate

21

GST Treatment – LMW/FIZ

* GST on value of imported goods

2

22

Matters related to Manufacturing

Farming Out Within Malaysia

• No transfer of ownership of goods

not a supply of goods

• Sub-contractor to account for GST on value of services

supplied

Supply of services

ABC SDN. BHD.

(GST registered

person)

XYZ SDN. BHD.

(GST registered person)

Raw materials valued at

RM 100,000

Farmed out

Finished goods and charged

RM15,000 for labour Returned

23

Farming out Outside Malaysia

• No GST on goods returned

• If new parts are added GST will be imposed (similar to

item 51 of the Customs Duties (Exemption Order)

• GST is allowed to be suspended under ATS

ABC SDN. BHD.

(GST registered

person)

ALLAN PTE

LTD

Raw materials valued at

RM 100,000

Farmed out

Returned Finished goods and charged

RM15,000 for workmanship

24

Warranty

• Manufacturer’s warranty normally includes:

the charge for after–sale services and repairs

any replacement of spare-parts free of charge during the

warranty period

• Services and replacement of parts free of charge, not subject to

GST

Discount

• Discount is allowed

Gift

• Gift of goods not more than RM500 made in the course or furtherance of business to the same person in the same year

not subject to GST

25

Warranty, Discount and gift

26

Disposal of assets

• Sale of capital assets, other than TOGC

subject to GST

• Sale of assets as TOGC

not subject to GST (not a supply)

• Given free

the value will be the open market value

subject to GST

• Sell as scrap

the value will be the sale value of scrap

subject to GST

• Destroyed, no commercial value or not economic to sell

not subject to GST (not a supply)

27

• Employees benefit include any right, privilege, service or

facility provided free of charge to employees

• Employee benefits stated in the contract of employment,

not subject to GST

• If not stated in the contract of employment:

Goods provided free to the employees, subject to GST

(subject to gift rule of RM500) except those exempted,

blocked input tax or zero rated goods

input tax claimable

output tax on gifts > RM500

Value to be based on open market value (supply freely offered and

made between persons who are not connected persons)

Employee Benefits

28

Continue…

• Services supplied free

no GST

Input tax claimable

Employee Benefits

• Imported trade sample given relief under

GST Relief Order

• Trade samples given for promotion not subject

to GST on conditions:

packed differently and labelled ‘sample’ or ‘not for

sale’

samples not packed differently is subject to

business gift rules of RM500

29

Sample

3

30

Facilities for Manufacturers

Special schemes:

Special schemes are introduced to alleviate negative cash flow

impact to businesses

Approved Trader Scheme (ATS)

Approved Toll Manufacturer Scheme (ATMS)

Warehousing Scheme (WS)

Facilities for Manufacturers

31

32

• Purpose

A facility to relieve GST payment on importation of goods

• Under ATS ATS participants are allowed to suspend GST on the importation of goods

Goods imported is used in the course or furtherance of business

The amount of GST suspended needs to be declared in the GST return for the taxable period to which the suspension relates

• GST Regulation provides : Definition Application for approval Eligibility for ATS Goods not eligible for the scheme Commencement and expiry of the scheme Revocation of approval

•

32

Approved Trader Scheme (ATS)

33

AA Pte Ltd

overseas

Malaysia

Port (June 2015)

Value of imported

Goods (CIF + Duty

Import )= RM100,000

GST 6%= RM6,000

XX Sdn Bhd

ATS approval

GST-03 (June 2015)

Customs no.1

GST is

suspended

Total value of goods

imported under ATS

= RM100,000

Total value of GST

suspended= RM6,000

Approved Trader Scheme

ATS 1122334455

34

GST Return

35

Persons eligible for ATS

• Companies located within Free Industrial Zone (FIZ)

• Licensed Manufacturing Warehouse (LMW)

• International Procurement Centre (IPC)

• Regional Distribution Centre (RDC)

• Toll manufacturers under ATMS

• Jewellery manufacturers under AJS

• Companies with turnover above RM25 million and at least 80% of their supplies made are zero-rated; or

• Any other person approved by the Minister

ATS

36

Approval subject to the following criteria:

• Must be registered under Sec. 20 of the GST Act 20XX

• Must make wholly taxable supply

• Must be a registered user of electronic service

• Must submit monthly GST return

• Must make declaration on the importation of goods electronically

• Must have good compliance record as a GST payer

• Must have good accounting and internal control system

• Must furnish security if required; and

• Any other conditions as may be determined by DG

ATS

37

Goods not eligible for ATS

• Liquor, beer, wine and spirits

• Tobacco and tobacco products • Any goods to which input tax credit is disallowed

(blocked input tax) • Goods for personal use and non- business use

ATS

38

Administratively the RMC will monitor the approval • Application can be made in a Special Scheme Form

Status of the applicants Sales turnover and the details of zero-rated supplies per

annum

• Approval would be given for a period of 2 years • Approval subject to renewal and notices would be sent 2 months

before expiry date. Second notice will be issued 14 days before expiry date

• The approval of this scheme will be revoked by DG if

provided false, misleading or inaccurate declaration ceased to satisfy any eligibility requirements failed to comply any conditions imposed applied to deregister by the approved person

ATS

39

Purpose • a facility to overcome the GST embedded when a person buys goods from an

overseas person via a local toll manufacturer Approved Toll Manufacturer Scheme

Any taxable person (Toll Manufacturer) is allowed to disregard the supply of services to the overseas principal (who belongs to a country other than Malaysia)

Any person (belongs to Malaysia) who receives the processed goods from

the toll manufacturer shall account and pay tax as if he had himself supplied and acquired the goods in the course or furtherance of his business

GST Regulation provides: Definition Application for approval Eligibility for ATMS Commencement and expiry of the scheme Revocation of approval

Approved Toll Manufacturer Scheme

40

ATMS - concept

Overseas

Principal

Local Customer Toll Manufacturer

TM imports

consigned goods

from the overseas

principal (ATS)

TM drop-ships finished

goods to local customer

of overseas principal

Malaysia

Overseas principal

invoices local customer

on finished goods

received

TM invoices overseas

principal for value-

added services (SR)

-disregarded 1.

2.

3. 4.

Recipient accounting

Local supplier

Local supplier deliver

goods on behalf of OP (ZR)

41

ATMS

Eligibility for approved under the ATMS Any toll manufacturer who has contract(s) with overseas principal who is

not belong in Malaysia i.e. he is not a taxable person He carries out value added activities with the overseas principal:

worth RM2 million or more (excluding the cost of raw materials supplied or belonging to the overseas principal) per annum; and 80% of the processed goods must be exported;

What types of value added activities allowed under ATMS?

related to manufacturing, treatment, processing, finishing, assembling and other manufacturing-related works on consigned goods

42

ATMS

GST treatment for ATMS

• Supply of services by toll manufacturer (TM) to overseas principal (processing charges/toll) to be disregarded

• TM delivered the processed goods on behalf of his overseas principal to the local customer

• Supply of processed goods by overseas principal to the local customer not subject to GST

• Local customer whether registered or not has to account for the GST

by way of recipient accounting

“ …..processed goods received from the TM shall account and pay tax as if he had himself supply the goods and acquired the goods in the course of furtherance his business.”

Acquisition of goods by overseas principal

Local supplies delivered to the toll manufacturer under the account of overseas principal is zero rated

43

Time of supply to account for GST under ATMS The tax on the supply of the treated or processed goods

received need to be accounted based on the following (whichever

is earlier):

(a) When a payment in respect of the supply is made; or

(b) When the recipient receives an invoice from oversea

principal relating to the supply

ATMS – Time of Supply

Accounting of GST under ATMS

The supply is made by overseas principal

Local customer (registered person & non-registered person ) will account for output tax on the processed goods received by way of “Recipient Accounting”

Registered person – GST return (GST-03)

Non-Registered person – prescribed form (GST-04)

44

Example: “Recipient Accounting” A Toll Manufacturer (A) approved under ATMS delivers processed goods on behalf of overseas principal to the local customer (B) on 29 April 2015. The Overseas principal issued an invoice to local Customer (B) with the amount of RM200,000.00 on 5 May 2015 How to account for the tax?

OUTPUT TAX = RM12,000 INPUT TAX = RM12,000 NET TAX = 0.00

GST Return - May 2015(GST-03)

ATMS

Local Customer (registered person) Needs to account the tax amounting RM12,000 (6%XRM200,000.00) in his GST return.

Local customer (not a registered person)

Needs to account the tax not later than the last day of the subsequent month from the month in which the supply is made

*GST No.4 - May 2015

Value of supply RM200,000.00

GST amount payable RM12,000.00

*Return for non-registrant

45

ATMS

Approval subject to the following criteria:

• Must be registered under Sec. 20 of the GST Act • Must be a registered user of electronic service • Must submit monthly GST return • Must have good compliance record as a GST payer • Must have good accounting and internal control system • Must furnish security if required; and • Any other conditions as may be determined by DG

46

Administratively the RMC will monitor the approval

• Application can be made in a Special Scheme Form Details of the Toll Manufacturer Details of overseas principals and the contracts Details of the local customers

• Approval would be given for a period of 2 years • Approval subject to renewal and notices would be sent 2 months before expiry

date. Second notice will be issued 14 days before expiry date • The approval of this scheme will be revoked by DG if

provided false, misleading or inaccurate declaration ceased to satisfy any eligibility requirements failed to comply any conditions imposed applied to deregister by the approved person

ATMS

Warehousing Scheme (WS)

• Under WS

Importer/owner of the imported goods is allowed to suspend the payment of GST at the time of importation on goods imported and deposited in a warehouse.

The imported goods will be subject to GST when it triggers the duty point that is the time when such imported goods are taken out from the warehouse. The value of the imported goods is its customs value.

47

Goods released to local market – standard rate

Goods released to overseas - zero rate

WS – concept

•GST suspended on

goods imported

and deposited into

a warehouse

•Supplies made

within a

warehouse

is disregarded

•GST suspended on

removal of goods from

a warehouse to

another warehouse

Warehouse A Warehouse B

Duty

point •Goods and services

consumed in a

warehouse

are standard rated

Malaysia Overseas

48

• GST on goods deposited into the warehouse to be suspended • GST on goods moved from one warehouse to another warehouse to be

suspended • Intermediate supplies within a warehouse to be disregarded • The last supply is subject to GST (trigger the duty point) • Goods released to local market to be subjected to GST • Goods released to overseas market to be zero- rated • All goods and services consumed in warehouse to be standard-rated

WS

49

50

WS

Example Daim Sdn Bhd keeps his imported goods in a warehouse approved under section 65 of the Customs Act. One of his customers has agreed to buy certain goods at RM10, 000.00 and the goods are to be taken out from the warehouse. How does his customer determine the value of the last supply? (Prevailing import duty rate = 10% and GST = 6%)

51

WS

*Value of supply = RM 10,000.00 Rate of import duty = 10% Total duty import payable = RM1000.00 (10%X RM10,000.00) Daim Sdn Bhd’s customer needs to declare the following amount: Value for customs purposes = RM 10,000.00 Import duty (10%) = RM 1,000.00 Total value for calculating GST = RM 11,000.00 GST Payable (6% x RM11,000) = RM 660.00 *

52

GST Implementation Approach

To implement a GST compliant system

GST

Project

Team

Develop

implementation

plan

Post

implementation

1st phase 2nd phase 3rd phase

Implementation

and execute

Key areas requiring attention

Tax

regulatory

compliance

Documentation

and system

Legal and

transitional

issues

Education

and training

Vendor and

supplier

communication

53

DEPARTMENT ACTION TO BE TAKEN

Finance,

Administration and

Legal

Cash flow impact and cash optimisation

Compliance cost and budgeting

Review legal contracts and documents

Maximise claim for input tax

Claim special refund

Monitor bad debts

Get the correct appropriate registration

Apply for special schemes

Cancel sales tax and service tax licence

Marketing and Sales Effect on prices

Tax invoice

Credit terms

Purchasing Supplier selection

Document for input tax claim

IT Accounting system

Corporate Strategy Optimise business model

Optimise corporate structure

Staff Staff training

GST Project Team

MAPPING TRANSACTIONS

54

There are no major compliance problems. Taxpayers have generally

been compliant and most of the errors uncovered stem from a lack of

awareness of GST obligations or an inadequate understanding of GST

rules.

Wish List:

1. Both business community and Government are well -prepared to

implement GST

2. Implementation problems are minimized

3. Minimum impact on prices of goods and services

4. Public accept GST implementation

General Comment from countries implemented GST /

VAT” on compliance:

BUSINESS PREPARATION FOR GST

Thank You Fazilah Ariff

fazilah.ariff@customs.gov.my

55

56

Royal Malaysian Customs Ministry of Finance

Malaysia

Thank you

57

i) BAHAGIAN CUKAI

Komplek Kementerian Kewangan,

No.5, Persiaran Perdana,

Pusat Pentadbiran Kerajaan Persekutuan Malaysia,

62596 PUTRAJAYA.

Tel : 03-88823000

ii) GST PORTAL

www.gst.customs.gov.my

iii) Customs Call Centre (CCC)

Tel: 03- 78067200

Fax: 03- 78067599

Email: ccc@customs.gov.my

Comments and Enquiries