“Malaysia should introduce [a] GST as soon as possible.” (Structural Policy Country Notes, Malaysia, OECD, 2013).
Prior to April 1, 2015, there was no value added tax or goods and services tax (GST) in Malaysia. Instead, Malaysia levied a Sales Tax and a Service Tax. The Sales Tax was a federal consumption tax imposed on a wide variety of goods, and governed by the Sales Tax Act 1972. The Service Tax, also a federal consumption tax, was levied on customers who consumed certain taxable services, and was governed by the Service Tax Act 1975. Both were single stage taxes. They were abolished on April 1, 2015, upon the introduction of the Malaysian GST.
The GST is administered by The Royal Malaysian Customs Department, with the addition of public rulings on the application of the GST by the Director General of Customs and Excise, and is governed by the Goods and Services Tax Act 2014 (“GST Act”) and the Malaysian Goods and Services Tax Regulations 2014.
The Malaysian GST is a federal consumption tax based on the valued-added concept with a broad base, payable by intermediaries on all stages of the supply chain, with the tax burden ultimately borne by the consumer. As with GSTs in other jurisdictions, businesses may recover input tax credits incurred in connection with standard-rated supplies and zero-rated supplies, but cannot recover input tax credits for exempt supplies. In general, the Malaysian GST is levied on any supply of taxable goods or services made in Malaysia by a taxable person in the course of furtherance of business, (see Section 9(2) of the Malaysian GST Act).
The new GST differs significantly from the previous regime. In addition to the fundamental conversion to a multi-stage consumption tax, the procedural differences are vast. From administrative matters concerning registration and invoicing requirements, to penalty and interest rates, the overhaul will undoubtedly impose a substantial shakeup to commercial operations in Malaysia. The GST is a step forward towards a more modern consumption tax -- one whose principles should be familiar to foreign investors. (Currently over 130 countries have introduced a VAT-like consumption tax, including all OECD member states except the US).
Table 1, below, provides a comparison of key aspects of the new Malaysian GST regime and the prior Sales and Service Tax regime. For more information and a detailed analysis of Malaysian indirect tax, see The VAT Navigator in the Bloomberg BNA Premier International Library, available by subscription.
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Table 1: A Comparison of Key Aspects of Malaysia’s Current and Prior Indirect Tax Regimes
by Max Schofield, Tax Editor
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