As of next month, IT products and services — even those that were zero-rated previously — will carry a 6% GST charge, but there are some exceptions.
GST (goods and services tax) will be coming our way starting next month. Some may view this as a cause for concern, but this really need not be the case as long as you have grasped the concepts and application of GST.
Each sector within the Malaysian economy will face a unique set of scenarios as a result of GST. Even within the IT industry, there will be specific things to bear in mind whenever we make any purchases from April onwards.
Back to basics
Simply put, GST is a consumption tax that will be imposed whenever a user pays for a product or service.
“The more you consume, the more you have to pay tax,” says Joel Liew, chief technology officer at Feradigm Sdn Bhd.
However, many of us may have the wrong perception of GST, as we view it as something new.
“Everybody in the country thinks it’s a brand new tax, but it’s not,” says Bernard Yap, tax partner for indirect tax and financial services at Ernst and Young Tax Consultants Sdn Bhd (EY).
He says this is because currently there are two taxes – sales tax (10%) and services tax (6%) – both of which will be replaced by GST come April 1.
The implication of this is that GST will have a different effect when applied to the purchase of some goods or services that had previously borne either the sales or service tax.
For example, if a particular IT product had no sales tax imposed on it previously, it may actually increase in cost when GST takes over, as the item will now be taxed at a 6% rate.
On the flip side, any IT goods or services that had been subject to sales or services tax prior to GST would likely end up showing a decrease in price.
“The impact of GST is not automatically 6% across the board,” Datuk Paul Selvaraj, chief executive officer at the Federation of Malaysian Consumers Associations (Fomca) points out. “It’s more complicated than that. You must know the supply chain, as the GST could be less but never more than 6%.”
“You need to look at individual transactions,” says Tan Eng Yew, executive director, GST, customs and global trade at Deloitte Touche Tohmatsu Tax Services Sdn Bhd (Deloitte).
“GST will be imposed on goods and services supplied in Malaysia, and also on imported items.”
Another criteria that needs to be satisfied is that the transaction concerned needs to have been done in the course of business. “The responsibility to account for GST properly lies with the seller,” he adds.
Besides that, Tan says there is a “principle of neutrality” behind GST.
“It should not have the effect of changing our consumption patterns,” he says. “Consumer choices should not be biased towards either local or overseas purchases because of GST.”
According to Tan, the Government ensures that this principle is upheld through what is called a reverse charge mechanism. This is where all businesses need to account for the GST they pay (input tax) and that which they impose on consumers (output tax), regardless of whether or not they have registered as a GST vendor.
Also, companies are not automatically authorised to impose GST – they will first have to register with the Royal Malaysian Customs Department (Customs) as a GST vendor before they can do so.
“If a company’s sales turnover is more than RM500,000 per year, they would need to register for GST and charge GST on all goods and services they provide,” says RS Raja Kumaran, executive director at PricewaterhouseCoopers Taxation Services Sdn Bhd (PwC).
Smaller organisations that earn below the RM500,000 threshold can also voluntarily register for GST with Customs at their own discretion.
“When you pay GST, make sure you’re paying it to a person who is registered for GST,” says Raja.
He views GST as being a better system as it prevents the tax from being compounded, as it passes through the supply chain.
“You will not face a cascading tax amount when it comes to GST. This is because businesses will not pass on input tax to the customers, but instead claim it back from the Government,” he explains.
“The Government expects traders and retailers to share the benefit of input tax credits with consumers when they price their goods and services,” says Yap from EY.
“The Minister has the power to check for unreasonable profits,” says Raja from PwC. “This will prevent businesses from using GST as a reason to increase prices excessively.”
It will be enforced via the provisions made in the Price Control and Anti-Profiteering Act 2011, which will continue to be in effect until June 2016.
Local or imported?
Within the IT industry, most goods and services will have a standard GST rate of 6% applied to them.
Cheah Kok Hoong, chairman of national ICT association of Malaysia, Pikom, shares that the organisation has lobbied the Government for IT goods and services to be zero rated (i.e. have 0% GST imposed on them) several times in the past. However, it has not been successful in achieving this thus far.
“It’s not that straightforward to get things zero rated,” he says.
At the same time, he highlights that price hikes in IT related items may not be entirely due to GST alone.
“It’s also because of the exchange rate and inflation. It will be very difficult to differentiate between these causes moving forward,” Cheah adds.
Despite this, it’s good to know that there are still some cases where you will be spared from having to pay for GST.
For example, there is a tax relief that you can enjoy when buying IT goods from overseas.
“If any goods were delivered through courier services with a value of not more than RM500 (per delivery), then it is given relief from paying GST,” says Faizulnudin Hashim, senior assistant director at the GST division of Customs.
Furthermore, he says, “There will not be any GST on IT services (from overseas) provided that it is being used for private, non-business purposes.
“This applies to any services purchased online, including mobile apps.”
As for digital currencies such as bitcoins, Faizulnudin says that for the purposes of GST, Customs views it as a form of services.
“If the supplier of the bitcoins is from Malaysia, they should charge GST for it. But if the supplier is from outside Malaysia, whether or not GST is imposed depends on whether it’s for business or private use,” he says.
Although this is Customs’ current policy on bitcoins, he admits that the position may be subject to change in the future.
“We’ll have to look at how bitcoins are treated in other (international) jurisdictions. Everyone has a different approach to it. We will have to evaluate whether it’s beneficial for us here or otherwise.”
Meanwhile, Faizulnudin points out that different principles would apply in the case of online transactions made via e-commerce sites as Mudah.my, eBay, Groupon, Zalora and the like.
“You have to look at what sort of business model they use. Different platforms use different models of e-commerce,” Faizulnudin says.
“For instance, Mudah.my uses a brokerage model whereby it brings buyers and sellers together on one website. So if you make a purchase and the seller is a registered GST vendor, he would charge you GST. But if he is not, then there would not be GST.”
According to an eBay spokesperson, the company adopts a similar approach for its site as well.
“Prices listed on our site will be inclusive of GST,” he says. “The relevant sellers will include it in their final sales price. We provide the marketplace for them, but won’t know whether a particular seller is eligible to charge for GST or not. Consumers can figure out which ones are GST inclusive by noting the prices which are more expensive compared to the others for a certain item,” he says.
“They can report to us if they think a seller is charging them GST illegally. We will certainly listen to the feedback from all customers and will take action against errant accounts.”
As for other e-commerce sites like Zalora, Faizulnudin says the scenario is slightly different.
“Zalora is an e-retailer. They are the ones selling the product directly to consumers so they will charge the GST in their invoice,” he says.
For group buying sites such as Groupon, Raja says that GST is not charged upon purchase of the deal online, but rather only when you redeem the coupon you’ve bought at the applicable retail outlet.
“When you are given the voucher (from Groupon), the tax doesn’t crystallise. It’s only money. But when you go and redeem it, that’s when the GST will be charged on it,” he says.
On the whole, Paul points out that the onus rests on consumers to ascertain whether a particular seller is a genuine GST vendor.
“Consumers need to do regular checks to ensure that a sale transaction and the company behind it are genuine. We’ve asked the Government to ensure consumers know how to tell it’s a GST registrant. These kinds of information will help consumers in making informed choices,” he says.
One more thing to bear in mind here is what happens in the case of private second-hand sales between individuals.
“GST is only imposed for supply (of goods or services) made in the course of business,” Tan from Deloitte says. “So, first you’ll have to determine whether the seller is operating a business. If he is, then only can he charge you GST provided he has registered with Customs.”
Prepaid and postpaid
GST will be imposed differently on prepaid and postpaid services.
“When you purchase a prepaid SIM card, there will be no GST. But when you activate the SIM card, your telco will charge you GST,” says Faizulnudin from Customs. “Even now, prepaid cards are actually subject to service tax, but consumers don’t realise this because the cost is absorbed by the telcos.”
For subsequent credit top-ups, however, the GST will be included in the amount you pay.
“If you want to reload RM50, you’ll have to pay an additional RM3 (6%) of GST for it,” says Johary Mustapha, president of the Malaysian Mobile Content Providers Association (MMCP). “So there’s an inconsistency here.”
He hopes that these differences can be resolved soon.
“It should be standardised by Customs,” he says.
In contrast, for postpaid accounts, GST is charged on the total value of services used within a month.
“It will be reflected in the customer’s bill,” he says.
As there is already a service tax (6%) being levied on postpaid users presently, he says there would be no real difference in terms of the additional amount that will be charged once GST kicks in.
Calls made locally on mobile networks are taxable for GST, and so are international calls. However, you wouldn’t pay GST if you were receiving a call from abroad.
The only exception to this rule, according to Raja from PwC, is international roaming, which is zero rated.
“GST is charged based on where the service is consumed,” he says. “You’re consuming mobile services overseas, which makes it not taxable.”
Those we interviewed said that they planned to buy their gadgets before GST takes effect.
However, Cheah from Pikom advises consumers to only “buy what you need, not what you want”. He says this is still key to managing your finances well, even with GST thrown into the mix.
Something else worth noting is that the Government will be reducing the income tax rates for individuals by 1% to 3%. The is a means of partially cushioning consumers against the effects of GST.
“You will have more net salary in your pocket. As and when you spend, you will contribute back to the Government in the form of GST. You are contributing GST based on your own spending choices, so spend wisely,” says Yap from EY.
Also, as these principles have yet to be put into practice, do expect to see some changes taking place closer to the date of implementation.
Challenges of GST: Cost management and competitiveness
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