GST or Goods and Services tax or Value Added Tax is a consumption based tax charged on all taxable supply of goods. There are a few “Zero Rated Supply” group of items is exempted from GST which includes
- Basic food items (flour,rice)
- Public Transportation
- Healthcare and education
Malaysian government has long proposed the current Sales and Service Tax to GST as means to reform tax collection in Malaysia. The implementation of GST will eliminate the current tax system weakness in Malaysia.
How GST Works ( Based on 6% GST calculation)
GST is charged at every supply chain on the industry. The figure above illustrates example of GST mechanism. The manufacturer sells a product
A manufacturer of Standard Rated Supplies will pay a RM 6 (6%) GST when buying materials at RM100. The RM 6 would be the total Input tax which is claimable from Customs Department.
The manufacturer process these items into items which are sold to suppliers at RM 200 and charges a 6% GST of RM 12. The RM 12 would be the total Output tax which payable to the Customs Department.
RM 12 (Output tax) – RM 6 (Input Tax) = RM 6 Net GST payable to Customs Department.
A supplier will pay RM 12 (Input Tax) of 6% based on RM 200 goods that was obtained from manufacturer. The supplier will sell the price to consumer at RM 300. The supplier will collect a RM 18 (Output Tax) of 6% from the RM 300 price.
RM 18(Output tax) – RM 12 (Input Tax)= RM 6 Net GST payable to Customs Department
Consumer will pay total of RM 18 GST based of 6% purchased price of RM 300. Consumer will have no option to claim back Input tax as being lowest in the GST chain.