This is the area that gives a big headache for those individual owners whom owned a lot of commercial property/land. Some of the individual owners maybe just so happen treat these purchases of commercial property/land as an investment without any business intention. However, the person should be treated as carrying out a business if he/she fulfil certain criteria in Custom viewpoint.
On 1 April 2016, the Royal Malaysian Customs has issued a new guideline on this area. Under this new guideline at any point of time after 1 April2015 that you owned as below, you may subject to be registered as a GST registered person. Any disposal of the commercial property/land will be subjected to account for GST.
However, Customs has suspended this guideline until further notice on 18 April 2016. The disposal of commercial property/land by individual owners whether is subjected to GST is still unknown.
GST revision notes and common mistakes
Since the implementation of Goods and Services Tax (GST) in Malaysia a year ago, how well the SMEs have complied with the GST regulations? Cheng & Co has highlighted below some of the GST common mistakes and the regulations which are confusing the SMEs.
Tax invoice format
After a year since the implementation, most of the SMEs are thinking that the tax invoice format they are practicing is correct. However, SMEs may get into trouble with minor incompliances on the invoice format.
SMEs must ensure the entire tax invoice format adopted is in compliance with the samples given by Royal Malaysian Customs i.e the Custom’s Guide on Tax Invoice and Record Keepings.
The guide advises that we should insert GST wording on the tax invoice’s Rate of GST column. If we insert ‘Tax’ only instead of GST, we may breach Section 33 (2) of the GST Act 2014 and punishable under Section 96 of the same act, which is liable to a fine not exceeding RM30,000 or a jail term of not exceeding two years or both upon conviction.
Recently, the GST enforcement officers are focusing on this area so it is advisable that the SMEs must ensure the tax invoice format used is correct.
There are a lot of foreigners complaining that the price displays by retailers are misleading and with little transparency because the price are shown excluding GST and inconsistent which are violating the GST Act.
All the prices displayed, published and quoted on taxable supply of goods and services must be included with GST unless there is an approval obtained from the Royal Malaysian Customs’ Director General.
Business owners maybe fined not exceeding RM30,000 or a jail term of not exceeding two years or both upon conviction for incompliance of price display.
Claim Input Tax
Under the GST Act 2014, we can claim the input tax within 6 years from the date of tax invoice. However, Custom is still inserting additional conditions that you must claim the input tax within one year from the date you holds the tax invoice which means, if you are holding the tax invoice on 5 April 2015 and you are not claiming the input tax until 5 April 2016 the input tax will be burnt and you will not be able to claim the input tax in the future.
Input tax on electricity and water expenses invoiced under the owner of the property’s name.
A lot of SME(s) may face this issue where the electricity and water expenses are invoiced under the property owner’s name. There are many reasons that why SMEs are reluctant to change the name as it is troublesome and extra deposits will be incurred for the water and electricity application. Prior to 1 April 2016, we are still able to claim the GST provided we fulfilled certain criteria.
However, the exemption is only last until 31/3/2016. That means all the GST expenses under the property owner’s name cannot be claimed onwards.
If the GST expenses cannot be claimed, is it deductible for income tax? Under the new income tax guideline, this kind of GST expenses is not deductible! For example, if you rent a factory and the water and electricity expenses invoiced under the name of the owner and you are unable to claim the GST and these GST expenses is not applicable to deduct income tax, you are losing a lot of money!
A common question often rise from this matter is in the event if I do not claim the input tax on the goods that I purchased for gift, should I account for GST when I give the goods (worth more than RM500) as a gift?
The answer is Yes! Custom has made it clearly that regardless of whether you claim back the GST or not during purchase, as long as gift rule is fulfilled you need to account for GST.
How about for those goods which you have received for free and you give it for free to another person? Should you account for GST?
Custom decides that if you do not incurred any cost when acquire the goods, you do not need to account for GST when you give it away to another person.
How do we know whether the goods are acquired by free/gift term? When we want to give to people as a gift, we also must be clear on whether we should account for GST. Relevant records or documents for filling are required to comply with this rule.
Reimbursement vs disbursement
GST treatment for disbursement and reimbursement are totally different. Before GST implementation, disbursement is not entitled to charge service tax. With GST implementation, Customs has made it clear on the disbursement and reimbursement criteria.
GST treatment on disbursement and reimbursement are as follows:
|Not a supply||Is a supply (entitled to charge GST)|
|Not entitled for input tax claim||Entitled for input tax claim|
The difference between disbursement and reimbursement are as follows:
|Incur expenses as an agent acting on behalf of the client.||Incur expenses as a principal.|
|The client is the recipient of the supply (invoice is in the client’s name).||The client is not the recipient of the supply (invoice is in the principal’s name).|
|The client is the person responsible to pay for the supply.||The principal is the person responsible to pay for the supply.|
|The payment is authorised by the client.||The payment is not authorised by the client.|
|The client knew that the supply is made by a third party.||The client has no knowledge that the supply is made by a third party.|
|The exact amount is claimed from the client and the agent has no right to alter or add on the value of the supply.||The principal has the right to alter or add on the value of the supply.|
|The payment is clearly an additional to the supply made to the client.||The payment is for the supply made to the client.|
Example: The Service Industry will charge disbursement such as printing fee and travelling expenses to the client. This disbursement will be classified as ‘reimbursement’ in GST and subject to GST. Forget to account for GST will cause problems to taxpayer!
Disposal of asset
Lots of taxpayer may put themselves at risk by forgetting to account for GST for disposal of asset. Once you are registered for GST, the disposal of asset is consider as a taxable supply and need to account for GST. You cannot argue that this is a capital transaction!
Disposal of motor vehicles is another complicated issue. For the disposal of motor vehicles (purchased before 1/4/2015), you need to charge GST for the transaction. But for the disposal of motor vehicles (purchased on or after 1/4/2015), there is no need to account for this GST transaction if you do not claim the GST during purchase. As passenger car is a block item, GST is not claimable. If you purchase on/after 1/4/2015 and claim the GST back on the motor vehicle, you still need to charge GST for the transaction. You must check these 3 scenarios before you dispose a motor vehicle.
Too many tax code!
There is just too many GST tax code in Malaysia! We have 10 tax codes for supply and 13 tax codes for acquisition. Some of the tax codes are very confusing as well such as:
- ZRL vs ES
- OS vs RS
- ZP vs EP
- NR vs EP
I think some of you may be having confusion whether to put ZP/OP/GP for RON95 or diesel in the past days.
There are too many GST error and notes that we should avoid. Besides that, we must settle our GST storage issue as well. Not to forget about the GST audit preparation. If you have any enquiry, please do not hesitate to contact our Cheng & Co GST Team.