What To Expect When GST becomes 0%
Updated: Jan 21
GST - 6% to 0% come 1st June 2018. SST Targeted on 1st September 2018
Latest news from Putrajaya, the new Sales and Services Tax (SST) is expected to come into effect on September 1 this year, after the Goods and Services Tax (GST) goes zero-rated
on 1st June. Prime Minister Tun Dr Mahathir Mohamad said that the price of goods should go down by at least six percent once the zero-rated GST system kicks in, effective today 1st of June 2018.
GST to SST
On 16th May 2018, the Ministry of Finance had made an order that the standard rated rate of GST will be reduced from 6% to 0% effective from 1st June 2018 and implemented throughout Malaysia until a further order is made. This amendment will not include goods and services listed in the Goods and Services Tax (Exempt Supply) Order 2014, as they are already exempted from GST.
The following Gazette orders (effective from 1.6.2018) were issued to give effect to the above:-
Goods and Services Tax (Zero-Rated Supply) (Revocation) Order 2018
Goods and Services Tax (Relief) (Revocation) Order 2018
Goods and Services Tax (Imposition of Tax for Supplies in respect of Designated Areas) (Revocation) Order 2018.
Goods and Services Tax (Imposition of Tax for Supplies in respect of Free Zones) (Revocation) Order 2018
Goods and Services Tax (Rate of Tax) (Amendment) Order 2018
Goods and Services Tax (Application to Government) (Revocation) Order 2018
Many questions were posed to us here at KDJLaw, and we shall address the few most common concerns. For further questions and queries, feel free to contact our esteemed lawyers.
1. Would I still have to pay GST now for a supply made after 1.6.2018?
Yes, depending on the situation.
As per the Goods and Services Tax Act 2014 Section 66 (2);
where there is a change in the rate of tax on any supply spanning the change in the tax rate
a) tax shall be charged at the old tax rate on the higher of: -
i. full payment or part payment received before the date of change in the rate of tax; or
ii. value of the supply of goods where the goods are wholly or partly removed or made available or the services are wholly or partly performed before the date of change in the rate of tax;
b) the new tax rate shall be charged on the difference, if any, between the amount of the whole supply and the amount referred to in paragraph (a).
The new rate (i.e. 0%) would only be applied on the difference, if any, between the amount of whole supply and the above.
2. Do I still have to account for GST during this period if I’m a GST Registered Person?
The existing GST law is still applicable until repealed. Even though it is unlikely for any output tax to be accountable, all GST registered businesses should continue to file their GST returns.
3. Do I need to update my retail price displays?
Any advertisements, quotes and price displays currently published at a price which displays the 6% GST, will need to be varied to reflect 0% GST come 1st June 2018.
4. I have ongoing contracts entered based on a GST-inclusive consideration price, what do I do now?
In light of the recent reduction of the GST rate from 6% to 0% it would be prudent for you to review the GST clauses in these contracts to determine how the change in the GST rate will impact the total consideration payable under these contracts.
5. Why is GST zero rated instead of abolished?
It is to be noted that the zero-rating approach is likely a temporary measure to enable the immediate removal of GST. However, the GST Act 2014 remains valid law until repealed, therefore registered taxpayers are still subject to the current regulations in respect of tax invoices, claiming of input tax and submission of GST-03 tax returns form within the prescribed periods.
On 17th May 2018, the Ministry of Finance released a further announcement, confirming that the sales and service tax ("SST") will be re-introduced, although no fixed timeline for implementation was announced then. Further, it was indicated that the shortfall in GST revenue collection following the reduction of the GST rate will be supported by specific revenue and expenditure measures which will be revealed soon. It remains to be seen whether this SST regime will be the same as the previous SST regime which was in force prior to the introduction of GST in Malaysia.
Malaysians will have a “tax holiday” from the 1 June until the re-introduction of the Sales and Services Tax (SST). Tun Daim Zainuddin, chairman of the Council of Eminent Persons (CEP), said the SST would be introduced in two or three months, giving consumers an opportunity to enjoy buying goods at a reduced rate until the SST is in force again.
6. Will the prices of goods and services increase or decrease after the removal of GST?
One of the most commonly discussed worries among the people of Malaysia is whether the directive of making the Goods and Service Tax zero rated to pave away for the return of SST would play a role in increasing the price of goods.
Bank Negara Malaysia expects the price of goods and services to drop with the implementation of zero-rated GST. In theory GST will be beneficial for consumers as the manufacturing cost is supposed to be absorbed by the producers.
Transition from GST to SST
A look at how other countries roll out their GST in comparison with Malaysia
Implementation of GST has historically come with much protests, inflation spikes, compliance burdens on small businesses. Canadian province British Columbia is an example where GST was implemented but two years later reverted to the older system, known as PST (provisional sales tax) due to implementation challenges. Puerto Rico government rolled out VAT in 2016 but faced businesses shutting down which turned to social media for protest.
Credit Rating Agency Moody’s Investor Services raised the concern on the abolishment of GST and the reinstatement of SST as it will translate into revenue loss for Malaysia’s GDP.
Although crude oil revenue can be a buffer, Moody’s further adds that in the absence of other effective offsetting fiscal measures, GST removal is credit negative for the sovereign because it increases government’s reliance on oil-related revenue, whilst straining fiscal strength.
On the other hand, Malaysian Rating Corporate Berhad (MARC) presented its own views, saying that the gap between the amount of SST to be collected in the near future and the abolished GST would not be as large as expected due to the larger number of taxpayers already paying taxes. It expects the repealing of GST to be neutral on private consumption, although there may be a temporary uplift in consumer sentiments, as actual spending trend would depend on the impact of the GST removal on general prices.
How we can help
If you believe that you or your business will be affected by this recent development, or if you have any queries at all, please contact us at KDJLaw and we will be pleased to provide you with our advisory services.
Koh Dipendra Jeremiah Law - “KDJLaw” is a multi-disciplinary legal practice, which offers specialised services, especially in these specific areas of law:
Banking and Finance
Dispute Resolution and Arbitration
Employment and Industrial Relations
Intellectual Property and Technology
The partners at KDJLaw are passionate in their field of work and bring to the table decades of experience. Our clients include multinationals, public listed companies, financial institutions, private sectors, and state-owned enterprises across a range of industry sectors.
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