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Types of GST And its Impact on Other Taxes Levied in Malaysia

GST or Goods and service tax was implemented in Malaysia in 2015 and was a major change, which has impacted most of the businesses and every common individual in Malaysia.

What is GST – It is a tax levied on goods and services based on consumption. This tax is charged at every stage of the supply chain. Tax is collected when a sale is made and is directly paid to the Government.

Types of GST

  • Standard rated – GST, under this bucket is charged on goods like clothing, accessories, household items and utensils. A tax rated 6% is charged at every stage even if the goods are imported. Typically, the tax levied is standard across unless there is any guidance from a particular state to treat it differently. Small businesses are exempted from this tax.
  • Zero rated – GST, under this bucket is charged on goods like food and education material. Tax rate is 0% on these items. Final consumer in the supply chain is not charged but businesses do have the flexibility to claim the credits back.
  • Exempt rated – GST, under this bucket is not charged on healthcare and residential properties. There is no way to recover GST or claim credits if levied at any stage. GST therefore will become an added cost to goods at this stage.
  • Out of scope – Goods and services falling under this bucket are not required to pay or recover GST. Issuing licenses or passport are some of examples of these services.

Impact of GST on other sales and service taxes – Sales and service tax was replaced by GST.

  • Sales tax – Businesses cannot recover sales tax at any stage unlike GST thus making this amount an added cost to the company. In addition, sales tax may vary anywhere between 5% to 10% and in the end; the consumer is not even aware how the tax is flowing back in the supply chain. GST on the other hand is applicable at a standard rate and gives clarity to the end consumer how tax has been imposed at every stage.
  • Service tax – Service tax was implied on certain services extended to the consumer. Implementation of GST on the other hand was a good move as there was clarity on tax applicability at every stage on all services even if they were being exported.

Introduction of GST in Malaysia has been a positive move to improve the GDP and keep the inflation rate under control. All the accounting companies have considered this change while preparing the ledgers for their clients. Malaysian economy has been positively impacted since there has been a value add to the country, businesses and people.