Monday, 4 January 2010

GST – knowing the 3 basics

I have really been getting quite a number of mails asking me about GST. Let me reiterate, I am not a GST expert. In fact, no one in this country can be considered an expert since it has never been done in this country before. Even the top tax consultants in the big consultancy firms have to import expertise from Singapore and Australia to assist them in providing consultancy services.

Hence, what I am sharing is just what I know and what I think you should know in preparation for the imminent.

A mail from GanKC asked me “Zewt, what is the difference between exempt and zero-rated? Isn’t that the same thing?”

Good question!

Like I said, to talk entirely about GST is going to take ages. So let’s just start with the basics. In understanding GST, one has to know that GST is segregated into 3 supplies.

Taxable supplies --- as the name suggests, this comprises of goods and services which will be taxed at the prevailing GST rate.

Exempt supplies --- again, as the name suggests, this comprises of goods and services which will not be subject to GST. This should include essential goods such as nasi-lemak, char-kuey-teow rice, sugar and salt.

Zero-rated supplies --- now, this is the tricky one. This actually comprises of goods and services which are taxable, i.e. subject to GST… but… the rate of GST is 0%…

Isn’t exempt and zero rated the same as what GanKC asked? The answer is of course… yes and no.

Yes to the consumer as he/she will not be paying GST.

No to the trader/vendor due to this important element in GST… known as “Input Tax Credit”.

What is Input Tax Credit? Well, the title of this post is “knowing the 3 basics”. Input Tax Credit is no basic. It’s rather complicated. No worries, I will tell you more about it and how it will affect you later.

For now, I hope you that you learned the 3 basic points of GST as mentioned above.

14 comments:

Ai Shiang said...

Haha! Exempt supplies and zero-rated supplies sound clear enough. The "Input Taxed" always confuses the general public. I always wonder why those people who write the taxation law always pick weird nouns.

Ai Shiang said...

Zewt, I'm re-reading this. You got me confuse lah haha! Isn't the essential like food, health, education etc fall into Zero-rated (GST free supply)?

Exempt and input taxed almost the same? As they are for financial services, resident rent etc?

Or maybe Malaysia's Tax Law is different?

Anonymous said...

Zewt...boleh jumpa u personally to discuss further tak...hehehe

JJ - L17

deusXmachina® said...

Damn GST....
Maybe we need to change the government i guess....
But if still in the same situation
We make our own government
Erk888

tomatoinc said...

GST in New Zealand works this way:

For end-consumers:
1. Flat rate of 12.5% on every goods and services (G&S).

For business:
1.Flat rate of 12.5% on goods not used in manufacturing or retail - i.e. G&Sthat have been 'consumed' by the business.
2.For G&S that have been used for the business - tax credit is given, and at the end of the year, GST tax refund will be given.
3. However, business must also pass on the 12.5%GST they imposed on their customers (end user) in the first place. This is based on the sales figure.

Examples:
A. Ah Kau bought a coke from the supermarket ABC. 12.5% tax on the coke, so, Ah Kau paid 112.5%.

B. Supermarket ABC must report & pay 12.5% of the coke price to the government. False report of sales/income therefore is GST tax evasion.

C. Supermarket ABC bought the coke from a local bottler XYZ. When they bought the stock of coke, they would have paid 12.5% (of the wholesale price) as GST. This 12.5%*wholesale price is refundable. So, Supermarket ABC, as an intermediary retailer - pay nearly no GST on the coke.

D. Bottler XYZ again must report and pass the 12.5% wholesale price GST back to the govt. Recall, this is refunded back to the supermarket ABC.

E. For the production of the coke, XYZ would have bought various material/supplies. Most of them are charged GST when purchased, and will be refunded at the end-of-the-year.

Hope that helps someone.

Ninja Coffee said...

Eagerly waiting for your next 'complicated' post

dy said...

so 0% consumer no need pay. exempted is both consumer and seller no need pay. correct? aih.. that day my company organized a gst forum too bad i wasn't paying attention!

Huei said...

Exempted Supplies etc. sugar? no la..sugar bad for our health! must implement wan! first remove subsidy..then implement GST and tell them it's for the sake of their health. BLEGHHHHHHH

"Joe" who is constantly craving said...

haha yes input tax credits will send ppl scratching their head real hard!

wait till you got blocked ITC, mixed supplies, apportioned ITC n etc etc etc..

Thomas Chan said...

Input Tax Credit = GST paid when purchase goods or services (INPUT), you are entitled to receive a deduction agaisnt Tax Payable (The amount of deduction is call Input Tax Credit). BUT, this is ONLY entitled for vendors, producers and supplies. Consumers can go flykite.

Taxable supplies= Both vendor and consumers pay tax. However, ONLY the VENDOR is entitled for an Input Tax Credit on GST paid.

Exempt supplies = Both vendor and consumers does not pay GST. No Input tax credit for vendors here.

Zero-rated supplies = Consumer doesnt pay GST. Vendor pays GST, but remember Vendor still has Input Tax Credit.

Am i right ah? Zewt.

sinlady said...

this mumbo-jumbo done on purpose right?

autumn said...

*bow* terima kasih, cikgu! =P

zewt said...

Ai Shiang - ah... my bad, those should be zero rated.

anon aka JJ - of cos, i will also be providing training on this :)

deusXmachina - hello there. welcome. indeed, we make our own govt.

tomatoinc - yup... ITC is all about the refund part, which many ppl are not aware of.

Ninja Coffee - with so many hot happenings around, that may have to wait though.

zewt said...

dy - haha... nope. shall explain more.

huei - hahaha... that is a separate discussion.

constantly craving joe - blocked ITC, let's not go there ler :P

Thomas Chan - accurate. looks like you have all the info already :)

sinlady - hahaha... by who? ;)

autumn - my pleasure.