GST TREATMENT ON GST TREATMENT ON MANUFACTURING AND RETAIL MANUFACTURING AND RETAIL SECTORSECTOR

Venue : KLSFEA Shah Alam

Date : 26 February 2014

Organised by: Organised by: KLSFEAKLSFEAPresenter: Sabariah Md YusofPresenter: Sabariah Md Yusof

ROYAL MALAYSIANCUSTOMS

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Current treatments GST Treatments Under Customs and Sales Tax

legislation, FIZs and LMWs are deemed to be a placed outside Malaysia

For GST, it is treated as a place located in Malaysia.

Local sales made by FIZs and LMWs are as if importation into Malaysia

For GST, is considered as local supplies and subject to normal rules.

For documentary control, LMWs are required to submit monthly records but not for FIZs.

For GST, FIZs and LMWs who are approved under the special schemes (ATS/ATMS) are required to submit certain records.

FIZ & LMW Concept

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Current treatments GST Treatments

Importations of raw materials and machineries directly used for manufacturing are eligible for customs duties / sales tax exemptions.

Importations or acquisitions of goods indirect used for manufacturing purposes eg stationaries, tires and office equipments are subject to tax.

GST is suspended on importations of raw materials and machineries directly/indirectly used for manufacturing .

GST on importations of goods or locally acquisitions in the course or furtherance of businesses are subject to GST. GST on inputs are claimable.

Auditing by Customs will be done at random based on risk criteria.

Auditing by Customs will be done at random based on Risk Management System (RMS)

Records need to kept for 6 years Records need to be kept for 7 years

FIZ & LMW Concept

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4

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• a facility to relieve GST payment on importation of goods

• Under ATS ATS participants are allowed to suspend GST on the importation of

goods Goods imported is used in the course or furtherance of business

The amount of GST suspended needs to be declared in the GST return in the month which the importation takes place

Proposed amendment 2013:

“Sec.72(2) Any taxable person granted an approval under the Approved Trader Scheme shall declare the suspended payment of tax in the return for the taxable period to which the suspension relates”

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Approved Trader Scheme (ATS)

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AA Pte Ltd

overseas

Malaysia

Port (November 20XX)Value of imported Goods (CIF + Duty Import )= RM106000GST 6%= RM6000

XX Sdn Bhd

ATS approval

GST-03 (November 20XX)

Customs no.1

GST is suspended

Total value of goods imported under ATS= RM106,000

Total value of GST suspended= RM6000

Approved Trader Scheme

Goods cannot be suspended under ATS•Liquor, beer, wine and spirits•Tobacco and tobacco products•Blocked input tax goods•Goods for personal/non- business

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Persons eligible for ATS• Companies located within Free Industrial Zone (FIZ) • Licence Manufacturing Warehouse (LMW)• International Procurement Centre (IPC) • Regional Distribution Centre (RDC)• Toll manufacturers under ATMS• Jewellery manufacturers under AJS• Companies with turnover above RM25 million and at least

80% of their supplies made are zero-rated; or• Any other person approved by the Minister

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ATS

IMPORT

INPUT- Raw materials / components- Machines / equipments

OUTPUT

Local SupplierFIZ

LMWOthers

LMW COMPANIESSEC.65/65A CUSTOMS ACT 1967 –IMPORT/EXPORT/LOCAL SALES

PROCEDURES

EXPORTDA

FCZ (outright export)

LOCAL SALES

EXEMPTION;•Import Duty•Excise Duty GST on importations (6%)

suspended under ATS

Subject to GST;•Standard rate Subject to

- Import duty- GST at standard rate

Subject to GST•Standard rate

• Zero Rated

GST REGISTRANT /ATS

LMW Company GPB / FIZ /FCZ

GST incurred for making taxable supplies-Claimable

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Approval subject to the following criteria:

• Must be registered under Sec. 20 of the GST Act 20XX• Participant must make wholly taxable supply• Must be a registered user of electronic service• Must submit monthly GST return • Must makes declaration on the importation of goods

electronically• Must have good compliance record as a GST payer• Must have good accounting and internal control system• Must furnish security if required; and • Any other conditions as may be determined by DG

ATS

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Purpose • a facility to overcome the GST embedded when a person buys goods

from an overseas person via a local toll manufacturer

Sec. 73 (2) – Approved Toll Manufacturer Scheme (proposed amendment 2013)

Any taxable person (Toll Manufacturer) are allowed to disregard the supply of services which comprises the treatment or processing of goods to the overseas principal (who belongs to a country other than Malaysia)

Any person (belongs to Malaysia) who receives the processed goods from the toll manufacturer shall account and pay tax as if he had himself supplied and acquired the goods in the course or furtherance of his business

Approved Toll Manufacturer Scheme

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Approved Toll Manufacturer Scheme (ATMS)

Overseas Principal

Local Customer Toll Manufacturer

TM imports consigned goods from the overseas principal (ATS)

TM drop-ships finished goods to local customer of overseas principal

Malaysia

Overseas principal invoices local customer on finished goods received

TM invoices overseas principal for value-added services -disregarded1.

2.

3. 4.

Recipient accounting

Local supplier

Local supplier deliver goods on behalf of OP (ZR)

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ATMS

Eligibility for approved under the ATMS Any toll manufacturer who has contract(s) with overseas principal who

is not belong in Malaysia e.g he is not a taxable person

He carries out value added activities with the overseas principal: worth RM2 million or more (excluding the cost of raw materials

supplied or belonging to the overseas principal) per annum; and

80% of the processed goods must be exported;goods must be exported;

What types of value added activities are allowed under ATS? related to manufacturing, treatment, processing, finishing, assembling

and other manufacturing-related works on consigned goods

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ATMS

GST tax treatment for ATMS• Supply of services by toll manufacturer (TM) to overseas principal

(processing charges/toll) to be disregarded• TM deliver the processed goods on behalf of his overseas principal

to the local customer • Supply of processed goods by overseas principal to his local

customer subject to GST Local customer has to account the GST by way of recipient

accounting Need to account based on whichever is earlier:

Invoice received from overseas principal; or Payment made to overseas principal

Acquisition of goods by overseas principal Local supplies delivered to the toll manufacturer under the account

of overseas principal is zero rate

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Example: “Recipient Accounting”A Toll Manufacturer (A) approved under ATMS delivers processed goods on behalf of overseas

principal to the local customer (B) on 29 April 2015. The Overseas principal issued an invoice to local Customer (B) with the amount of RM200,000.00 on 5 May 2015

How to account for the tax?

OUTPUT TAX = RM12,000

INPUT TAX = RM12,000

GST Return - May 2015(GST-03)

ATMS

Local Customer (registered person) Needs to account the tax amounting RM12,000 (6%XRM200,000.00) in his GST return.

Local customer (not a registered person)Needs to account the tax not later than the last day of the subsequent month from the month in which the supply is made

*GST No.4 - May 2015

Value of supply RM200,000.00

GST amount payable RM12,000.00

*Return for non-registrant

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ATMS

Approval subject to the following criteria: Must be registered under Sec. 20 of the GST Act

Must be a registered user of electronic service

Must submit monthly GST return

Must have good compliance record as a GST payer

Must have good accounting and internal control system

Must furnish security if required; and

Any other conditions as may be determined by DG

Warehousing Scheme

B

C A

Supply made in warehouse:

Disregarded supply

Supply made in

warehouse:

Disregarded supply

Declares supply and pays GST

Inputs:Forklift charges, storage charges

Types of warehouses license under Customs Act 1967:Types of warehouses license under Customs Act 1967: Customs warehouse Licensed warehouse Duty free shops Inland clearance depot

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• GST on goods deposited into the warehouse to be suspended

• GST on goods moved from one warehouse to another warehouse to be suspended

• Intermediate supplies within a warehouse to be disregarded

• The last supply is subject to GST (trigger the duty point)

• Goods released to local market to be subjected to GST

• Goods released to overseas market to be zero- rated

• All goods and services consumed in warehouse to be standard-rated

WS - GST Treatment

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WSWS

Example

Daim Sdn Bhd keeps his imported goods in a warehouse approved under section 65 of the Customs Act. One of his customers has agreed to buy certain goods at RM10, 000.00 and the goods are to be taken out from the warehouse. How does his customer determine the value of the last supply? (Prevailing import duty rate = 10% and GST = 6%)

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WSWS

*Value of supply = RM 10,000.00 Rate of import duty = 10% Total duty import payable = RM1000.00 (10%X RM10,000.00) Daim Sdn Bhd’s customer needs to declare the following amount:Value for customs purposes = RM 10,000.00Import duty (10%) = RM 1,000.00Total value for calculating GST = RM 11,000.00

GST Payable (6% x RM11,000) = RM 660.00

*

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Designated Area – Langkawi, Labuan & Tioman

GST Treatment on DA:

* Except for petroleum and other goods as prescribed by the Minister of Finance

Supply GST Treatment

DA to DA:Goods and Services

* Not Subject to GST

Within the DA:Goods and Services

* Not Subject to GST

World to DA:Goods and Services

* Not Subject to GST

DA to World:Goods and Services

Zero rated

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* Except for petroleum and other goods as prescribed by the Minister of Finance

Supply GST Treatment

PCA to DA:Goods

Services Zero rated

Standard rated

DA to PCA:Goods

Services

Standard rated

(as if importation)Standard rated

Designated Area – Langkawi, Labuan & Tioman

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Farming Out Drop shipment Employee benefit Loan on stock and equipment Discount Other transactions

Gifts Samples Warranty Disposal of assets Goods lost/destroyed

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GST TREATMENT ON MANUFACTURING SECTORGST TREATMENT ON MANUFACTURING SECTOR

No transfer of ownership of goods.it is not a supply of goods

Sub-contractor to account for GST on value of services supplied

ABC SDN. BHD.(GST registered

person)

XYZ SDN. BHD.(GST registered

person)

Raw materials valued at RM 100,000

Farmed out

Finished goods and charged RM15,000 for labour

Returned

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Farming out within Malaysia

No GST on goods returned If new parts are added GST will be imposed

(similar to item 51 of the Customs Duties (Exemption Order)

Recipient to account GST on the supply of imported services

ABC SDN. BHD.(GST registered

person)ALLAN PTE LTD

Raw materials valued at RM 100,000

Farmed out

ReturnedFinished goods and charged RM15,000 for labour

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Farming out outside Malaysia

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Overseas

Non-Resident

Local Customer

GST registered Contract

manufacturer (CM Sdn.Bhd)

Non resident makes order for finished goods from CM Sdn. Bhd.

CM Sdn. Bhd. drop-ship finished goods to local customer of non-resident

Malaysia

Non-resident invoices local customer on finished goods received

CM Sdn.Bhd invoices finished goods supplied to the non-resident.

1.

3.

4. 2.

Drop Shipment

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Non-Resident (non-registrant)

Supply made by contract manufacturer to non-resident is subject to GST

goods exported is zero rate

Supply of goods by contract manufacturer (taxable person) to non-resident :

subject to GST at standard rate

GST needs to be charged to the non-resident based on transaction value

Supply of goods (drop-ship) by non-resident to the local customers are not liable to GST

Drop Shipment (Contract Manufacturer)

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Employee benefits include any right, privilege, service or facility provided free of charge to employees as stated in the contract of employment

not subject to GST and input tax is claimable If not stated in the contract of employment all goods provided free to the employees is subject to GST (subject to

gift rule of RM500) except those exempted, blocked input tax and zero rated goods

input tax claimable output tax on gifts > RM500 value to be based on open market value

Services supplied free no GST

Employee Benefits

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Loan stock and equipment

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GST on the value after discount includes : Cash discount Prompt payment discount Volume discount, etc Normally given in percentage or value Given when using discount card/coupon at the time of sale or

after sale Sales to connected person based on open market value and not

on discounted price

Discount

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Gifts and samples

Gift Gift of goods not more than RM500 made in the course or

furtherance of business to the same person in the same year :

not subject to GSTSamples

Imported trade sample given relief under GST Relief Order

Trade samples given for promotion not subject to GST on conditions

packed differently and labelled ‘sample’ or ‘not for sale’

samples not packed differently is subject to business gift rules of RM500

Manufacturer’s warranty normally includes: after–sale services and repairs any replacement of spare-parts free of

charge during the warranty period

not subject to GST

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Warranty

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Disposal of Assets

Sale of capital assets, other than TOGC subject to GST

Sale of assets as TOGC not subject to GST (not a supply)

Given free the value will be the open market value subject to GST (>RM500)

Sell as scrap the value will be the sale value of scrap subject to GST

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• Pricing• Consignment Sales• Trade in Goods• Hire purchase• Credit Sales

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Agenda

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RETAILING – PRICING

GST charged on standard rated supplies

Assuming the value of goods or services supplied is RM100.00 and GST chargeable is 6%.

Value : RM 100.00

6% GST charged (output tax) : RM 6.00(RM100.00 X 6%)

Total (price inclusive of 6% GST) : RM 106.00

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RETAILING – PRICING

GST incurred on standard rated supplies

Assuming the price of goods supplied to the registered retailer is RM106.00 inclusive of 6% GST.

Price (inclusive of 6% GST) : RM 106.00

The GST incurred (input tax) : RM6.00(RM106.00 X 6% / 106%).

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Registered retailer sales price:Assuming the GST inclusive price of goods supplied to the registered retailer is RM106.00 and at the point of sale, the registered retailer marks up 20% on the cost of goods.

Price of goods (inclusive of GST) : RM106.006% GST inclusive (Input tax incurred) : (RM 6.00)(RM106.00 X 6%/106%) Actual cost : RM100.0020% Mark-up on Actual cost : RM 20.00(RM20% X RM100.00)Value (cost) at the point of sale : RM120.006% GST Charged : RM 7.20Price at the point of sale : RM127.20

RETAILING – PRICING

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Registered retailer sales price:

Incorrect method

Price of goods (inclusive of GST) : RM106.0020% Mark-up on Actual cost : RM 21.20(RM20% X RM106.00)Value (cost) at the point of sale : RM127.20

6% GST Charged : RM 7.63Price at the point of sale : RM134.83

RETAILING – PRICING

6% Input tax claimed : (RM 6.00) ?

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Non-registered retailer sales price:Assuming the GST inclusive price of goods supplied to the non-registered retailer is RM106.00 and at the point of sale, the registered retailer marks up 20% on the cost of goods.

Price of goods (inclusive of GST) : RM106.00No input tax : (RM 0.00)Actual cost : RM106.00

20% Mark-up on Actual cost : RM 21.20(RM20% X RM106.00)Value (cost) at the point of sale : RM127.20

No GST Charged : RM 0.00Price at the point of sale : RM127.20

RETAILING – PRICING

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Consigned Goods

Goods sent by consignor to a consignee.

the consignee has possession of goods and will attempt to sell them, but the consignee does not own the goods.

RETAILING – CONSIGNMENT GOODS

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Features of consignment are:

•The consignor is entitled to receive all the expenses in connection with consignment.

•The consignee is not responsible for damage of goods during transport or any other procedure.

•Goods are sold at the risk of consignor.

•The profit or loss belongs to consignor only

RETAILING – CONSIGNMENT GOODS

Examples:

Household

accessories Shoes

Clothes

Perfumes

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ShoesFurnitures

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When consignor has to account for GST? Time of Supply (TOS)

when it becomes certain that a supply has taken place, (i.e. goods has been sold by consignee)

Basic TOS : Date of Statement of Sale

Actual TOS : Date of tax invoiceProvided that the tax invoice was issued within 21 days from the basic TOS

GST Treatment on Supplies MadeRETAILING – CONSIGNMENT GOODS

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Company A

Sales Statement

Actual Time Of Supply(Invoice Date)

Sales statement issued by consigneeSales statement issued by consignee

21 days rule21 days rule

Example:

01.05.2015

25.05.2015

Shop B

05.06.201515.06.2015(21 days)

1

2

3

Basic time of supply (Date of Sales Statement)(Date of Sales Statement)

Consignor Consignee

If Tax invoice If Tax invoice issuedissued

Goods removed

25.05.2015

Time Of Supply(If no Tax Invoice

issued within 21 days)

RETAILING – CONSIGNMENT GOODS

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When consignor has to account for GST? Time of Supply (TOS)

12 months after the removal of the goods, Basic TOS : Date after 12 months the

goods were sent

Actual TOS: Date of tax invoiceProvided that the tax invoice was issued within 21 days from the basic TOS

GST Treatment on Supplies MadeRETAILING – CONSIGNMENT GOODS

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Company A

No sales statement issued by consigneeNo sales statement issued by consignee

21 days rule21 days rule

Example:

01.05.2015

01.05.2016

Shop B1

2

3

Basic time of supply (12 months after goods removed)(12 months after goods removed)

Consignor ConsigneeGoods removed

No Sales Statement

Actual Time Of Supply(Invoice Date)

05.05.201621.05.2016(21 days)If Tax invoice If Tax invoice

issuedissued

01.05.2016

Time Of Supply(If no Tax Invoice

issued within 21 days)

RETAILING – CONSIGNMENT GOODS

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Sec 15(4)When a transaction involves trade-in goods, the consideration for the supply is not wholly in money. In such a supply, the consideration of supply is the aggregate of:-

(i) the amount in money as part of the

consideration; and

(ii) the open market value of the trade-in goods as

part of the consideration.

RETAILING – TRADE-IN GOODS

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GCUSTOMERRETAILER

supply : new goods

Consideration : Trade-in goods + cash

$

GT

Scenario 1: Customer is a non-registered person

RETAILING – TRADE-IN GOODS

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Retailer Price (+6% GST) of new sofa : RM1,908.00

Consideration Cash : RM 848.00Trade-in old sofa : RM1,060.00Total Consideration : RM1,908.00

6% GST inclusive : RM 108.00(RM1,908.00 X 6%/106%)

The retailer accounts for output tax amounting to RM108.00.

RETAILING – TRADE-IN GOODS

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GTCUSTOMER(GST registered)

RETAILER(GST registered)

supply : trade-in goods

Consideration : new goods

G

Scenario 2: Customer is a registered person.

Sec 15(3)Where the supply is for a consideration not in money, the value of the supply shall be taken to be an amount, with the addition of the tax chargeable, equal to the open market value of that consideration.

RETAILING – TRADE-IN GOODS

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Supply = of old televisionConsideration = Open market value of consideration

= price (+6% GST) of new television

= RM1,908.00

Consideration for old television : RM1,908.006% GST inclusive : RM 108.00(RM1,908.00 X 6%/106%)

customer has to account for output tax amounting to RM108.00

RETAILING – TRADE-IN GOODS

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Hire Purchase

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RETAILING – HIRE PURCHASETreated as 2 supplies- Supply of goods and supply of credit

payment for goods supplied to buyer

(no GST)

BUYER

SUPPLIERFinancial Institution

Deposit for goods (GST : Standard rated - if a part of payment)

Deferred payment

Supply of goods(GST : Standard rated)

Processing fee(GST : Standard Rated)

Supply of credit (GST : exempt)

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Credit Sales

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RETAILING – CREDIT SALES

A sale in which the full amount will be made in one payment some time in the future or in smallerregular payments over a period of time.

Purchases made by a consumer that do not require a payment made in full at the time of purchase.

Example: Courts, Singer

What is credit Sales?

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RETAILING – CREDIT SALESTreated as 2 supplies- Supply of goods and supply of credit

BUYER

SUPPLIER

Deferred payment

Supply of goods(GST : Standard rated)

Supply of credit (GST : exempt) Processing fee

(GST : Standard Rated)

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RETAILING – GST Implementation Day

Matters to considerprice display

GST inclusive tax invoice to show GST chargeable

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RETAILING – GST Implementation Day

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Replace of price tag

New price tag during GST regime shown is the amount plus GST chargeable.

Amount inclusive of GST= Amount inclusive of GST= RM1060.00RM1060.00

Tax fraction = 6%/106% x RM1060.00 = RM60.00

RM1060.00

Thank Thank YouYou

Thank Thank YouYouGST UnitGST Unit

Royal Malaysian Customs DepartmentRoyal Malaysian Customs Department