TAX NEWS - 2010

Malaysia GST: Proposed Malaysia GST expected to get second reading

The Malaysian government first announced its intention to implement the Goods and Services Tax (GST) in the 2005 budget and it was originally set to go live on 1 January 2007. However, implementation was deferred and was only mentioned again in the 2010 budget announcement. Although the draft GST legislation has been in place since December 2009, the GST law is expected to get its second reading in the Malaysian Parliament shortly, with an expected implementation in
2012.

The GST will replace the existing Sales and Services Tax (SST) regimes with current prevailing rates of 10% and 5%, respectively. The government is planning to impose a standard GST rate of 4% on all taxable supplies of goods and services and it is expected that businesses with annual turnover below MYR 500,000 will not be required to register for GST purposes.

Essential goods, such as agricultural products and basic food necessities, are proposed to be exempt to minimize the impact of the GST on lower income earners.

Financial services, along with supplies of residential real estate, are proposed to be treated as exempt supplies. Exempt treatment also will apply to private education and private healthcare, mass domestic public transportation and toll highways, as well as land designated for agricultural purposes and land for general use (government buildings). It has further been proposed that a fixed rate of recovery of input GST will be applicable to certain financial institutions. The rationale for the extended exemption approach seems to be to further minimize the impact of the GST on low income earners.

Numerous special schemes will be made available to provide cash flow relief to businesses and to alleviate the compliance burden for various industries. Special rules will exist for businesses operating within a group of companies, those involved in exporting goods from Malaysia, toll manufacturers and businesses that operate in designated areas.

The delay in passing the draft GST bill provides all Malaysian businesses with ample time to ensure they are adequately prepared for when the GST is eventually implemented.