Saturday, October 26, 2013

Is GST implementation confusing you?

The Malaysia 2014 Budget is tabled on the 25th October 2013, and one thing consider new concern from the rakyat will the implementation on 6% of  Goods and Services Tax (GST) starting from 1st April 2015.

There are few website can be refer to check more info for the GST, like the official website  and if it is too complicated to flip the pages on the official website, is rather useful for your reading reference.

And I think what most of the consumer is concerning is how is the final goods price end up to the end user? Is it will be higher or lower with compare to the previous tax method?

Taking and extraction from a forum discussion may have a clearer view on this,

The question start with,

People who doing business in trading of goods should have some confusing on GST.

For example, how a car spare parts end up at end user.

If using normal circumstances, it will be,

Importer in Malaysia (Dealer or Distributor) -> Retailer (Spare Parts shop) --> Foreman (Workshop) --> End User (Car Owner)

So when distributor sell to retailer, their bill need to impose 6% GST, and retailer sell to foreman another 6% and foreman to owner another 6% ?

In the scenario, end user is concerning if the GST is charging as such above example ended up with compounding 6% for 4 times (In some industry may be more than 4 level of transaction), but please find how the actual transaction go through in the below example,

After registration, all businesses say with revenue > RM1 million must charge GST at the prevailing rate. This GST that they charge and collect is known as output tax, which has to be paid to LHDN. GST incurred on business purchases and expenses (including import of goods) are known as input tax. Businesses can claim input tax if conditions for claiming are satisfied. This credit mechanism ensures that only the value added is taxed at each stage of a supply chain, hence GST also known as Value Added Tax (VAT). 

As an Illustration

The GST-registered manufacturer imports leather from overseas
The GST-registered manufacturer uses them to manufacture a bag. 
The GST-registered manufacturer sells the leather bag to a GST-registered retailer. 
The GST-registered retailer sells the bag to end user like you and me

1. Manufacturer

Pays GST to Malaysia Customs for imports
Import value = $100
Import GST paid = 6% X $100=$6 (input tax to claim from LHDN)

Charges and collects GST for sale of toys to retailer
Selling price to retailer = $200
GST charged to retailer = 6% X $200 = $12 (output tax to pay LHDN)

Net GST payable to LHDN = $12 - $6 = $6 (6% of original import amount)

2. Retailer

Pays GST to Manufacturer
Purchase value = $200
GST paid = 6% X $200=$12 (input tax to claim from LHDN)

Charges and collects GST for sale of toys to end consumer
Selling price to end consumer = $300
GST charged to end consumer = 6% X $300 = $18 (output tax to pay LHDN)

Net GST payable to LHDN = $18 - $12 = $6  (still 6% of original import amount)

3. End Consumer

Pays GST to Retailer
Purchase value = $300
GST paid = 6% X $300=$18

Net GST payable to LHDN = $18 - $0 = $18 (End consumer is not GST-registered. Therefore, he cannot claim GST paid on his purchase from LHDN

4. How to check how many people should pay GST in the above mentioned supply chain?

No. of parties
= End Consumer GST / Intermediate GST
= RM18 / RM6
= 3

5. How to minimise your GST as end consumer?

Always buy from the top source, meaning directly from manufacturer. 
Those people who have been overseas will know warehouse sales very popular overseas, reason is able to bypass all the intermediaries.
So I forsee a lot of retailers will die off slowly and a lot of manufacturers will come out with warehouse direct selling !

6. How a RM1 million revenue kopitiam can avoid collecting GST?

Simple, split into 2 companies with RM500k each.

The above example is extract from a forum discussion which I personally feel it is rather simple for consumer to understand the mechanism without need to reading such a long article in the official website.

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