GST: WHAT TO WATCH OUT FOR LEGALLY

Chris Tan Chur Pim Managing Partner

®advocates & solicitors ||| registered trade mark agent

LAW

vs

POLICY

vs

MINISTER’S SPEECH

HOW TO READ THE LAW • Perception or Experience

• Mindset – Singapore Finelah or Malaysia Boleh?

• Interpretation – Conservative or Liberal (within

the box)?

• Risk Profile – Survival (within the box) or Opportunist (outside the box)?

WHAT IS BUDGET?

GST EXEMPTIONS • Zero-rated supply: Basic food items; Vege, fish, meat, poultry, eggs, etc

• Exempt supply: Education services, public transport, financial services, etc

• Relief

• Out of scope supply

• Shopper’s Guide (1 Jan 2015)

GST Compliance: WHO SHALL REGISTER?

• Compulsory: annual sales turnover exceeding

RM500,000

• Voluntary: turnover below RM500,000

• When to Register: 1 June 2014 – 31 December 2014

• Penalty for failing to register: Customs have threatened use of Section 96, GST Act.

• fine of up to RM30,000.00 and/or 2 years prison.

FILE YOUR GST RETURNS

• All taxable persons must account for tax in a GST return

• Use GST-03 form

WHEN TO SUBMIT GST RETURNS

• Not later than the last day of the month after end of the taxable period.

OR

• If your taxable period does not finish on the last day of the month; not later than the last day of the 30 day period from the end of the taxable period.

TAXABLE PERIOD?

• A period where a taxable person must account for and pay GST.

• Can apply to the Customs to be placed in a different category.

Category Annual Sales

Taxable

Period

A RM 5 Million

and more

1 month

B Less than RM 5 Million

3 months

DEVIL IS IN THE DETAILS…

Penalty for incorrect return

Section 88 of GST Act 2014:

Person convicted under s.88 liable to:

a) Fine not more than RM50,000.00 and/or imprisonment for a term not more than 3 years; and

b) Penalty equal to the amount of tax which has been/would have been undercharged if the information had been accepted as correct.

MYTHBUSTER

vs

MYTHBUSTER

Can everyone collect GST?

GST Challenges: Interpretation LESSONS FROM UK

• July 2008

– UK High Court: a famous brand of potato chips is not a “crisp” because it is only 42% potato (standard rated)

– Rest made from dough, making them more like a cake or biscuit (zero rated)

• The producer of the chips saves millions of pounds

• May 2009

– Court of Appeal rules in favour of HM Customs.

– Chips are a potato snack, liable for VAT(GST).

– Judge: “There is more than enough potato content for it

to be a reasonable view that it is made from potato”.

CHALLENGE FOR MALAYSIA?

• Raw chicken: ZERO-rated

• Marinated chicken: Standard rated

(Value Added!)

• Will traders manipulate the system?

GST/VAT FRAUD

“Carousel” Fraud

Criminal gangs trade goods, such as mobile phones, across EU countries.

Imports from the EU are exempt from VAT.

Fraud happens when the criminals sell the goods with VAT in the UK but do not pass the VAT to HM Customs.

CHALLENGES FOR MALAYSIA?

Generally, GST is also charged on goods imported

into Malaysia, except:-

• Imported goods subject to the ‘GST Relief Order’

– (e.g: medical equipment, multimedia equipment for teaching, etc)

– Relief Order: Orders on GST gazetted items, released by the MOF.

Possible challenge:

Businesses charging GST on imported goods even

though the goods are gazetted for relief.

Greedy Grandma • Allison Hawksworth , 61, claimed £286,649 (RM 1.5

mil) of VAT (GST) on a fake children’s clothing company.

• Lied about having ovarian and liver cancer, pretended to be her own daughter, Julia, telling inspectors her ‘mother’ had a major stroke and was in a nursing home.

• Sentenced to 12 months in prison.

Losses of UK Government

• In 2004/05, £1.1bn and £1.9bn (RM5.8bn and RM10bn) tax revenue was lost due to carousel fraud;

• In 2006, loss was estimated between £13bn and £18bn (RM68bn and RM94bn).

CHALLENGES FOR MALAYSIA?

• Merchants who claim to be GST registered, charge GST, but are not registered.

• Possible solution: Check the registered GST number of your supplier with the RMCD.

GST INCENTIVES Training grant RM100m for employees attend GST

courses;

Financial assistance RM150m to SMEs to purchase accounting software;

Accelerated Capital Allowance on purchase of ICT equipment and software;

Expenses incurred for training in accounting and ICT relating to GST will be given additional tax deduction.

HOW TO APPLY FOR E-VOUCHER

• Register for GST at www.gst.customs.gov.my

• Register for the e-voucher at www.gst.evoucher.smecorp.gov.my

(deadline: 31 December 2014!!!)

• Value/valid: RM 1,000 and valid 1 June 2014-28 February 2015

INCOME TAX REDUCTION

YA 2015 (Individual) Individual income tax rate reduced by 1-3%

300,000 individual taxpayers no longer pay income tax

No tax liability on tax payer with family and income of

RM4,000 per month

Chargeable income maximum rate increased from exceeding RM100k to RM400k

Current maximum tax rate (26%) to be reduced to 24%,

24.5% and 25%

YA 2016 (Corporate) Income tax rate reduced by 1% (25% -> 24%)

YA 2016 (SME) Income tax rate reduced by 1% (20% -> 19%)

christan@churassociates.com

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COMING SOON…

The Most Wanted Series: GST