The introduction of the six percent GST in Malaysia from
April 1 2015 will bring forth radical changes to the Malaysian
tax landscape. The GST, also known as value added tax (VAT) in
some countries, is not a new concept of taxation as other
countries in the region introduced GST/VAT years ago.
Both the Malaysia GST and Singapore GST are broadly modelled
on the UK VAT. At a glance, the Malaysia GST appears to have
adopted some rules and schemes in Singapore's GST regime.
However, differences do exist between the two, largely in the
scope of tax and application of administrative
In Singapore, GST has been in place for 20 years.
Singapore-based businesses with operations in Malaysia can tap
into some of their GST experience from Singapore as a starting
point to manage their GST compliance in Malaysia, since
implementation is set to be effective in less than six
However, while the Singapore and Malaysia GST regimes are
broadly similar, businesses must nevertheless be cognisant of
the salient differences between the two so that they are well
prepared for the implementation of Malaysia GST.
An overview of GST/VAT
The GST is a broad-based consumption tax on goods and
services. The basic concept of GST is that only the value added
to goods or services should be taxed. The GST system is
designed in this manner to ensure that the GST cost is
ultimately borne by the final consumer of the goods and
services, and does not end up as a cost to business in the
Each country has developed its respective GST/VAT system to
incorporate these concepts along with specific rules to meet
its policy objectives.
Scope of taxable supplies
Singapore adopted a comprehensive taxation approach, under
which almost all goods and services are taxable except certain
financial services, sale and lease of residential properties,
sale and import of qualifying investment metals, which are
exempt from GST. Only export of goods and international
services are zero-rated.
Zero-rating affords claiming of input tax to the supplier
without the need to charge GST to its customers. Exemption on
the other hand denies the claiming of input tax to the supplier
although the supply is made without GST. Thus, businesses would
prefer their supplies to be zero-rated since GST charged by the
suppliers are claimable and would not be a cost to their
Given the political landscape, it is notable that basic
commodities such as rice, sugar, flour, cooking oil, vegetables
and poultry will be categorised as zero-rated. These include a
certain volume of water and all utilities supplied to
households. This aims to ensure no GST cost is passed to the
consumers. As with the regime in Singapore and most other
countries, export and international services are
Exemption is also extended to private healthcare and
education services, domestic transport, toll fees and
agricultural land. Businesses should be mindful of the types of
goods and services that fall within this list.
Time of supply
Since January 1 2011, Singapore has simplified the time of
supply rules and this has offered much welcome relief to
businesses as it alleviates compliance costs. Tracking of goods
delivered and services performed is no longer required, and the
time of supply is generally the earlier of the date of invoice
and the date of payment.
Malaysia has incorporated Singapore's previous 14-day time
of supply rules, but instead of the 14-day rule, Malaysia has
implemented a 21-day rule.
In short, to determine when a supply is, Malaysian tax
authorities will determine the time of supply based on the
earliest of the following three events:
- Goods being delivered/appropriated or services being
performed (referred to as the basic tax point);
- Date of invoice; and
- Date of payment.
If the tax invoice is issued within 21 days from the basic
tax point, the tax invoice will be regarded as the time of
supply, provided that no payment has been received earlier.
Hence, in situations where payment is not received before
the issuance of invoice or the basic tax point, tracking of the
basic tax point is necessary to ensure compliance with the GST
rules, unless a tax invoice is issued within 21 days of the
basic tax point.
Reverse charge mechanism
Reverse charge is generally seen as a mechanism to place
overseas suppliers on the same level playing field with local
GST-registered suppliers, and to minimise round-tripping by
Unlike Singapore, Malaysia is implementing a reverse charge
mechanism requiring recipients of imported services, regardless
of their GST registration status, to self-account for GST on
If the recipient is GST-registered and uses the services to
make taxable supplies, he is entitled to claim as input tax,
the self-accounted output tax. However, a partially exempt
business may not be able to claim such input tax in full.
Hence, such businesses should consider establishing controls to
capture such information.
In Singapore, the reverse charge provision, while being in
the GST legislation, is not activated as this may not be
required to address the round-tripping issue given the few
goods and services which are exempt from GST.
Exemption of financial services
The Malaysian rules for exemption of financial services are
narrower and more specific in comparison to Singapore's GST
regime. For example, a supply is only exempt for Malaysian GST
purposes if the consideration for the supply is in the form of
an interest or a spread. The fees charged in connection with
the provision of a financial product would be taxable.
On the other hand, whereby the fees are a consideration for
the provision of the financial services which are exempt, such
fees are similarly exempt. For instance, fees charged to
maintain current account and cheque books.
The Malaysia GST treatment may be considered simpler to
implement for financial institutions, but may be more costly to
non-registered business and consumers in terms of the
additional 6% GST they have to bear taking effect from April 1
In Singapore, financial services may be treated as
zero-rated supplies if they are supplied to non-residents. This
is not the case in Malaysia, as the transfer of securities or
units in unit trusts traded in Malaysia or insurance contracts
relating to risks in Malaysia cannot be zero-rated, despite
supplying to an overseas person.
This may have an adverse impact since GST incurred for the
making of zero-rated supplies is recoverable but not that
incurred for the making of exempt supplies.
In addition, the annual capital goods adjustments required
by partially exempt businesses would add to the compliance cost
as the formula is not straightforward. Businesses should
consider the extraction of such information when designing
Deemed supplies to connected persons
Malaysia considers the provision of free services provided
to connected persons as a deemed supply of services.
Consequently, Malaysia businesses must track the costs or value
of free services provided to compute the correct output tax to
In Singapore, deeming requirements do not apply to the free
supply of services but only to goods. Malaysia seems to be more
stringent in mitigating any potential GST leakage due to
related party transactions, while Singapore is prepared to let
go of such planning, probably bearing in mind the compliance
cost it would otherwise impose.
Claiming of input tax on entertainment
In general, taxable businesses are eligible to claim input
tax, provided that sufficient documents are maintained.
However, input tax incurred on certain expenses is specifically
blocked, notwithstanding these are for the business purposes as
these are personal expenses that could be abused if GST claim
The Malaysia GST prohibits input tax claims on entertainment
expenses to a person other than employees or existing
customers, probably to curb abuse. There is no such restriction
As a result, Malaysian businesses must track and
differentiate entertainment expenses incurred for existing
customers and prospective customers. Inadvertently, higher
compliance costs will be raised.
Repayment of input tax/bad debt relief
The Malaysia GST requires a GST-registered business which
has made an input tax claim but fails to pay his supplier
within six months from the date of supply to repay the input
tax. From the supplier's perspective, he will be entitled to a
relief for bad debt if payment is not received within the same
six month period and subject to meeting the qualifying
On the other hand, Singapore allows a longer period of 12
months. This timeline is more practical as a six month timeline
seems short, given that it is not uncommon for suppliers to
grant a six month credit term. Such requirements would
invariably drive up compliance costs for businesses in
Free goods to employees
Singapore has a special set of rules to determine whether
GST is applicable on such gifts. In Malaysia, free goods
provided to employees are not subject to GST if they are
specifically listed in their employment contracts.
A summary of the differences between Singapore GST and
Malaysia GST are discussed in Table 1.
||• Monthly GST
return filing for businesses with turnover in excess of
RM 5 million (approximately S$200,000)
• Registration threshold is RM500,000
|• Quarterly GST
return filing, unless monthly filing is requested by the
• Registration threshold is S$1 million
|Time of supply
||Time of supply is based
on the earliest of three events, including the Basic Tax
Point of goods delivery or performance of services
||Time of supply is
generally based on the earliest of two events, date of
tax invoice and receipt of payment
||Extensive list of
||Limited list –
only export and qualifying international services
||• Certain financial
• Sale and lease of residential properties /
• Private healthcare and education services;
• Domestic transport and toll fees.
|• Certain financial
• Sale and lease of residential properties;
• Investment in precious metals.
|Output tax on free
||Provision of free
services to a connected person is subject to deemed
|Input tax on
||GST incurred on
entertainment expenses is only claimable if they are
incurred to entertain existing customers and
||Imported services will
be subject to the reverse charge mechanism, that is, the
GST-registered businesses must self-account for output
||Only interest and spread
are exempt while fees charged are taxable
||Fees charged in
connection with the provision of certain financial
services are exempt
securities/units in unit trusts
||Transfer of securities
or unit trusts traded in Malaysia is standard-rated.
||Such transfer to
non-residents could be zero-rated.
|Timeframe for the
repayment of input tax/bad debt relief
adjustments applied to partially exempt businesses
|Employee gifts to
||Not taxable if provided
under the employment contract.
||Subject to gift
||Most supplies of goods
or services made within or between the designated areas
of Labuan, Langkawi and Tioman are not subject to
||GST calculated on full
price of supply
||GST calculated on price
net of discount
If you have not started the implementation of Malaysia GST
for your operations across the causeway, you should start soon
given that the implementation date is looming.
As GST is a transactional tax, any error in the GST
reporting system may multiply to create significant tax
While you may be familiar with the Singapore GST,
differences in the scope and administration of Malaysia GST
should not be overlooked to avoid penalty.
Partner and head, indirect tax
Tel: +65 6213 2596
Fax: +65 6224 1345
Kok Shang heads the KPMG indirect tax practice and
the free trade agreement desk in Singapore. He has 27
years of experience working in a public accounting
environment, with 13 years spent working on corporate
tax before moving on to specialise in GST. He was
involved with GST before its inception in April
On January 1 last year, he was appointed by Finance
Minister Tharman Shanmugaratnam to sit on the GST Tax
Review Board for three years. The board is an
administrative tribunal established to adjudicate
disputes between taxable persons and the comptroller of
GST with regard to GST matters. Kok Shang also sits on
the GST committee of the Singapore Institute of
Accredited Tax Professionals.
Kok Shang has vast experience advising on
transaction restructuring to achieve GST efficiency,
and on GST implications arising from M&A, including
the transfer of businesses. His experience also
includes performing GST prudential reviews, GST due
diligence and advising on the application for the ACAP,
ASK and the mandatory compliance assurance programme
Kok Shang is a regular contributor to
International Tax Review and many of KPMG's
international indirect tax publications.
International Tax Review named Kok Shang as
one of Singapore's leading indirect tax advisers in
2012 and 2013.
Partner, indirect tax
Tel: +65 6213 2813
Hwee Leng is a partner of the indirect tax practice
and has vast experience in GST related matters both as
a regulator and as a business adviser. She has assisted
businesses in responding to audit queries from the
IRAS. She advises clients of their GST process controls
in connection with the ACAP, ASK and the CAP.
Before joining KPMG, Hwee Leng was a senior tax
officer with the IRAS. She was part of the GST
implementation team that drafted the circulars on the
operation of the GST, GST laws, schemes for businesses
and the marketing of GST to relevant stakeholders.
Following GST's implementation in 1994, she was
involved in the audit of GST-registered businesses, the
drafting of GST policy, the fine-tuning of the GST
system, the implementation of the GST rate increase and
the management of subsequent amendments to GST
Hwee Leng is a lecturer of the GST courses at the
Singapore Tax Academy. She also advises on Singapore's
free trade agreements (FTAs). Hwee Leng is a regular
contributor to International Tax Review and
KPMG's international indirect tax publications.
International Tax Review named Hwee Leng as
one of Singapore's leading indirect tax advisers in