30/07/2015

GSTinSingaporeandMalaysia|InternationalTaxReview

COPYINGANDDISTRIBUTINGAREPROHIBITEDWITHOUTPERMISSIONOFTHE
PUBLISHER

GSTinSingaporeandMalaysia
30September2014

LamKokShangandGanHweeLengofKPMGpreview
theintroductionofgoodsandservicestax(GST)in
MalaysiafromApril12015,comparingitwiththe
equivalentregimeinSingaporeandexplainingwhat
taxpayersmustdotopreparefortheincomingchanges.
TheintroductionofthesixpercentGSTinMalaysiafromApril1
2015willbringforthradicalchangestotheMalaysiantax
landscape.TheGST,alsoknownasvalueaddedtax(VAT)in
somecountries,isnotanewconceptoftaxationasothercountries
intheregionintroducedGST/VATyearsago.
BoththeMalaysiaGSTandSingaporeGSTarebroadlymodelled
ontheUKVAT.Ataglance,theMalaysiaGSTappearstohave
adoptedsomerulesandschemesinSingapore'sGSTregime.
However,differencesdoexistbetweenthetwo,largelyinthescope
oftaxandapplicationofadministrativerequirements.
InSingapore,GSThasbeeninplacefor20years.Singapore
basedbusinesseswithoperationsinMalaysiacantapintosomeof
theirGSTexperiencefromSingaporeasastartingpointto
managetheirGSTcomplianceinMalaysia,sinceimplementation
issettobeeffectiveinlessthansixmonths.
However,whiletheSingaporeandMalaysiaGSTregimesare
broadlysimilar,businessesmustneverthelessbecognisantofthe
salientdifferencesbetweenthetwosothattheyarewellprepared
fortheimplementationofMalaysiaGST.

AnoverviewofGST/VAT
TheGSTisabroadbasedconsumptiontaxongoodsandservices.
ThebasicconceptofGSTisthatonlythevalueaddedtogoodsor
servicesshouldbetaxed.TheGSTsystemisdesignedinthis
mannertoensurethattheGSTcostisultimatelybornebythefinal
consumerofthegoodsandservices,anddoesnotendupasacost
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tobusinessinthevaluechain.
EachcountryhasdevelopeditsrespectiveGST/VATsystemto
incorporatetheseconceptsalongwithspecificrulestomeetits
policyobjectives.

Scopeoftaxablesupplies
Singaporeadoptedacomprehensivetaxationapproach,under
whichalmostallgoodsandservicesaretaxableexceptcertain
financialservices,saleandleaseofresidentialproperties,saleand
importofqualifyinginvestmentmetals,whichareexemptfrom
GST.Onlyexportofgoodsandinternationalservicesarezero
rated.
Zeroratingaffordsclaimingofinputtaxtothesupplierwithout
theneedtochargeGSTtoitscustomers.Exemptionontheother
handdeniestheclaimingofinputtaxtothesupplieralthoughthe
supplyismadewithoutGST.Thus,businesseswouldprefertheir
suppliestobezeroratedsinceGSTchargedbythesuppliersare
claimableandwouldnotbeacosttotheirbusinesses.
Giventhepoliticallandscape,itisnotablethatbasiccommodities
suchasrice,sugar,flour,cookingoil,vegetablesandpoultrywill
becategorisedaszerorated.Theseincludeacertainvolumeof
waterandallutilitiessuppliedtohouseholds.Thisaimstoensure
noGSTcostispassedtotheconsumers.Aswiththeregimein
Singaporeandmostothercountries,exportandinternational
servicesarezerorated.
Exemptionisalsoextendedtoprivatehealthcareandeducation
services,domestictransport,tollfeesandagriculturalland.
Businessesshouldbemindfulofthetypesofgoodsandservices
thatfallwithinthislist.

Timeofsupply
SinceJanuary12011,Singaporehassimplifiedthetimeofsupply
rulesandthishasofferedmuchwelcomerelieftobusinessesasit
alleviatescompliancecosts.Trackingofgoodsdeliveredand
servicesperformedisnolongerrequired,andthetimeofsupplyis
generallytheearlierofthedateofinvoiceandthedateof
payment.
MalaysiahasincorporatedSingapore'sprevious14daytimeof
supplyrules,butinsteadofthe14dayrule,Malaysiahas
implementeda21dayrule.
Inshort,todeterminewhenasupplyis,Malaysiantaxauthorities
willdeterminethetimeofsupplybasedontheearliestofthe
followingthreeevents:
Goodsbeingdelivered/appropriatedorservicesbeing
performed(referredtoasthebasictaxpoint)
Dateofinvoiceand
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Dateofpayment.
Ifthetaxinvoiceisissuedwithin21daysfromthebasictaxpoint,
thetaxinvoicewillberegardedasthetimeofsupply,provided
thatnopaymenthasbeenreceivedearlier.
Hence,insituationswherepaymentisnotreceivedbeforethe
issuanceofinvoiceorthebasictaxpoint,trackingofthebasictax
pointisnecessarytoensurecompliancewiththeGSTrules,unless
ataxinvoiceisissuedwithin21daysofthebasictaxpoint.

Reversechargemechanism
Reversechargeisgenerallyseenasamechanismtoplaceoverseas
suppliersonthesamelevelplayingfieldwithlocalGSTregistered
suppliers,andtominimiseroundtrippingbypartiallyexempt
businesses.
UnlikeSingapore,Malaysiaisimplementingareversecharge
mechanismrequiringrecipientsofimportedservices,regardlessof
theirGSTregistrationstatus,toselfaccountforGSTonimported
services.
IftherecipientisGSTregisteredandusestheservicestomake
taxablesupplies,heisentitledtoclaimasinputtax,theself
accountedoutputtax.However,apartiallyexemptbusinessmay
notbeabletoclaimsuchinputtaxinfull.Hence,suchbusinesses
shouldconsiderestablishingcontrolstocapturesuchinformation.
InSingapore,thereversechargeprovision,whilebeingintheGST
legislation,isnotactivatedasthismaynotberequiredtoaddress
theroundtrippingissuegiventhefewgoodsandserviceswhich
areexemptfromGST.

Exemptionoffinancialservices
TheMalaysianrulesforexemptionoffinancialservicesare
narrowerandmorespecificincomparisontoSingapore'sGST
regime.Forexample,asupplyisonlyexemptforMalaysianGST
purposesiftheconsiderationforthesupplyisintheformofan
interestoraspread.Thefeeschargedinconnectionwiththe
provisionofafinancialproductwouldbetaxable.
Ontheotherhand,wherebythefeesareaconsiderationforthe
provisionofthefinancialserviceswhichareexempt,suchfeesare
similarlyexempt.Forinstance,feeschargedtomaintaincurrent
accountandchequebooks.
TheMalaysiaGSTtreatmentmaybeconsideredsimplerto
implementforfinancialinstitutions,butmaybemorecostlyto
nonregisteredbusinessandconsumersintermsoftheadditional
6%GSTtheyhavetobeartakingeffectfromApril12015.
InSingapore,financialservicesmaybetreatedaszerorated
suppliesiftheyaresuppliedtononresidents.Thisisnotthecase
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inMalaysia,asthetransferofsecuritiesorunitsinunittrusts
tradedinMalaysiaorinsurancecontractsrelatingtorisksin
Malaysiacannotbezerorated,despitesupplyingtoanoverseas
person.
ThismayhaveanadverseimpactsinceGSTincurredforthe
makingofzeroratedsuppliesisrecoverablebutnotthatincurred
forthemakingofexemptsupplies.
Inaddition,theannualcapitalgoodsadjustmentsrequiredby
partiallyexemptbusinesseswouldaddtothecompliancecostas
theformulaisnotstraightforward.Businessesshouldconsiderthe
extractionofsuchinformationwhendesigningaccounting
systems.

Deemedsuppliestoconnected
persons
Malaysiaconsiderstheprovisionoffreeservicesprovidedto
connectedpersonsasadeemedsupplyofservices.Consequently,
Malaysiabusinessesmusttrackthecostsorvalueoffreeservices
providedtocomputethecorrectoutputtaxtobedeemed.
InSingapore,deemingrequirementsdonotapplytothefree
supplyofservicesbutonlytogoods.Malaysiaseemstobemore
stringentinmitigatinganypotentialGSTleakageduetorelated
partytransactions,whileSingaporeispreparedtoletgoofsuch
planning,probablybearinginmindthecompliancecostitwould
otherwiseimpose.

Claimingofinputtaxon
entertainment
Ingeneral,taxablebusinessesareeligibletoclaiminputtax,
providedthatsufficientdocumentsaremaintained.However,
inputtaxincurredoncertainexpensesisspecificallyblocked,
notwithstandingtheseareforthebusinesspurposesastheseare
personalexpensesthatcouldbeabusedifGSTclaimispermitted.
TheMalaysiaGSTprohibitsinputtaxclaimsonentertainment
expensestoapersonotherthanemployeesorexistingcustomers,
probablytocurbabuse.ThereisnosuchrestrictioninSingapore.
Asaresult,Malaysianbusinessesmusttrackanddifferentiate
entertainmentexpensesincurredforexistingcustomersand
prospectivecustomers.Inadvertently,highercompliancecostswill
beraised.

Repaymentofinputtax/baddebt
relief
TheMalaysiaGSTrequiresaGSTregisteredbusinesswhichhas
madeaninputtaxclaimbutfailstopayhissupplierwithinsix
monthsfromthedateofsupplytorepaytheinputtax.Fromthe
supplier'sperspective,hewillbeentitledtoareliefforbaddebtif
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paymentisnotreceivedwithinthesamesixmonthperiodand
subjecttomeetingthequalifyingconditions.
Ontheotherhand,Singaporeallowsalongerperiodof12
months.Thistimelineismorepracticalasasixmonthtimeline
seemsshort,giventhatitisnotuncommonforsupplierstogranta
sixmonthcreditterm.Suchrequirementswouldinvariablydrive
upcompliancecostsforbusinessesinMalaysia.

Freegoodstoemployees
SingaporehasaspecialsetofrulestodeterminewhetherGSTis
applicableonsuchgifts.InMalaysia,freegoodsprovidedto
employeesarenotsubjecttoGSTiftheyarespecificallylistedin
theiremploymentcontracts.
AsummaryofthedifferencesbetweenSingaporeGSTand
MalaysiaGSTarediscussedinTable1.
TABLE1
Areas

Malaysia

Singapore

Administration

MonthlyGSTreturn
filingforbusinesseswith
turnoverinexcessof
RM5million
(approximately
S$200,000)
Registrationthreshold
isRM500,000

QuarterlyGST
returnfiling,
unlessmonthly
filingis
requestedbythe
business
Registration
thresholdisS$1
million

Timeofsupply

Timeofsupplyisbased
ontheearliestofthree
events,includingthe
BasicTaxPointofgoods
deliveryorperformance
ofservices

Timeofsupplyis
generallybased
ontheearliestof
twoevents,date
oftaxinvoice
andreceiptof
payment

Zerorated
supplies

Extensivelistofzero
ratedsupplies

Limitedlist
onlyexportand
qualifying
international
services

Exempt
supplies

Certainfinancial
services
Saleandleaseof
residentialproperties/
agriculturalland
Privatehealthcareand

Certain
financial
services
Saleandlease
ofresidential
propertiesand

educationservices
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Investmentin

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educationservices
Domestictransport
andtollfees.

Investmentin
preciousmetals.

Outputtaxon
freeservices

Provisionoffreeservices
toaconnectedpersonis
subjecttodeemed
outputtax

Notapplicable

Inputtaxon
entertainment
expenses

GSTincurredon
entertainmentexpenses
isonlyclaimableifthey
areincurredtoentertain
existingcustomersand
employees.

Norestriction

Imported
services

Importedserviceswillbe
subjecttothereverse
chargemechanism,that
is,theGSTregistered
businessesmustself
accountforoutputtax

Notapplicable

Financial
services

Onlyinterestandspread
areexemptwhilefees
chargedaretaxable

Feeschargedin
connectionwith
theprovisionof
certainfinancial
servicesare
exempt

Transferof
securities/units
inunittrusts

Transferofsecuritiesor
unittruststradedin
Malaysiaisstandard
rated.

Suchtransferto
nonresidents
couldbezero
rated.

Timeframefor
therepayment
ofinput
tax/baddebt
relief

6months

12months

Capitalgoods
adjustment

Specialannual
adjustmentsappliedto
partiallyexempt
businesses

Notapplicable

Employeegifts
tostaff

Nottaxableifprovided
undertheemployment
contract.

Subjecttogift
rules

Designated
areas

Mostsuppliesofgoods
orservicesmadewithin
orbetweenthe
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Notapplicable
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orbetweenthe
designatedareasof
Labuan,Langkawiand
Tiomanarenotsubject
toMalaysiaGST
Earlypayment
discount

GSTcalculatedonfull
priceofsupply

GSTcalculated
onpricenetof
discount

Statutory
limitation

7years

5years

Nextsteps
IfyouhavenotstartedtheimplementationofMalaysiaGSTfor
youroperationsacrossthecauseway,youshouldstartsoongiven
thattheimplementationdateislooming.
AsGSTisatransactionaltax,anyerrorintheGSTreporting
systemmaymultiplytocreatesignificanttaxexposures.
WhileyoumaybefamiliarwiththeSingaporeGST,differencesin
thescopeandadministrationofMalaysiaGSTshouldnotbe
overlookedtoavoidpenalty.
LAMKOKSHANG
Partnerandhead,indirecttax
KPMG
Tel:+6562132596
Fax:+6562241345
Email:kokshanglam@kpmg.com.sg
KokShangheadstheKPMGindirecttax
practiceandthefreetradeagreementdeskin
Singapore.Hehas27yearsofexperience
workinginapublicaccountingenvironment,
with13yearsspentworkingoncorporatetax
beforemovingontospecialiseinGST.Hewas
involvedwithGSTbeforeitsinceptioninApril
1994.
OnJanuary1lastyear,hewasappointedby
FinanceMinisterTharmanShanmugaratnam
tositontheGSTTaxReviewBoardforthree
years.Theboardisanadministrativetribunal
establishedtoadjudicatedisputesbetween
taxablepersonsandthecomptrollerofGST
withregardtoGSTmatters.KokShangalsosits
ontheGSTcommitteeoftheSingapore
InstituteofAccreditedTaxProfessionals.
KokShanghasvastexperienceadvisingon
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KokShanghasvastexperienceadvisingon
transactionrestructuringtoachieveGST
efficiency,andonGSTimplicationsarising
fromM&A,includingthetransferofbusinesses.
HisexperiencealsoincludesperformingGST
prudentialreviews,GSTduediligenceand
advisingontheapplicationfortheACAP,ASK
andthemandatorycomplianceassurance
programme(CAP).
KokShangisaregularcontributorto
InternationalTaxReviewandmanyof
KPMG'sinternationalindirecttaxpublications.
InternationalTaxReviewnamedKokShangas
oneofSingapore'sleadingindirecttaxadvisers
in2012and2013.

GANHWEELENG
Partner,indirecttax
KPMG
Tel:+6562132813
Email:hweelenggan@kpmg.com.sg
HweeLengisapartneroftheindirecttax
practiceandhasvastexperienceinGSTrelated
mattersbothasaregulatorandasabusiness
adviser.Shehasassistedbusinessesin
respondingtoauditqueriesfromtheIRAS.She
advisesclientsoftheirGSTprocesscontrolsin
connectionwiththeACAP,ASKandtheCAP.
BeforejoiningKPMG,HweeLengwasasenior
taxofficerwiththeIRAS.Shewaspartofthe
GSTimplementationteamthatdraftedthe
circularsontheoperationoftheGST,GSTlaws,
schemesforbusinessesandthemarketingof
GSTtorelevantstakeholders.FollowingGST's
implementationin1994,shewasinvolvedinthe
auditofGSTregisteredbusinesses,thedrafting
ofGSTpolicy,thefinetuningoftheGST
system,theimplementationoftheGSTrate
increaseandthemanagementofsubsequent
amendmentstoGSTlaws.
HweeLengisalectureroftheGSTcoursesat
theSingaporeTaxAcademy.Shealsoadvises
onSingapore'sfreetradeagreements(FTAs).
HweeLengisaregularcontributorto
InternationalTaxReviewandKPMG's
internationalindirecttaxpublications.
InternationalTaxReviewnamedHweeLeng
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InternationalTaxReviewnamedHweeLeng
asoneofSingapore'sleadingindirecttax
advisersin2013.

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