MANAGE YOUR GST TRANSITIONAL ISSUES
On 16 May 2018, our Prime Minister, Tun Dr Mahathir Mohamad signed a gazette order under Section 10(2) of the Goods & Services Tax Act, 2014 which changes the rate of GST from 6% to 0%. This is effective 1 June, 2018.
There will be transitional issues that have to be considered and managed properly. These include:
- Prices may need to be reduced. The provisions of the Price Control and Anti-Profiteering Act, 2011 and the terms of the contract will have to be studied.
- Supplies spanning the change in rate:
- By virtue of section 66 of the Goods and Services Tax Act, 2014, the old rate of 6% would be chargeable on the higher of the following amounts:
(1) full payment or part payment received before 1 June, 2018; or
(2) value of the supply of goods where the goods are wholly or partly removed or made available or the services are wholly or partly performed before 1 June, 2018.
0% GST is applicable on the difference between the amount of the whole supply and the amount referred to above.
- Where a tax invoice has been issued before 1 June, 2018 for supplies spanning the change in rate and no payment has been received, a credit note should be issued to revise the GST previously charged in accordance with the value of work done before 1 June, 2018. Pursuant to regulation 25 of the Goods and Services Tax Regulations, 2014, the adjustment due to the change in rate has to be made in the return for the taxable period where the change in rate occurs (i.e. 1 June, 2018). Consider the credit notes that have to be issued before this return is filed.
- Where the supply straddles the change in rate but nothing has been invoiced and no payment has been received, the value of the supply before 1 June, 2018 has to be identified. 6% GST will be applicable on this and a tax invoice should be issued. There should be adherence to the 21-day rule.
- There may be payments received before 1 June, 2018 for supplies that straddle the change in rate. To the extent that the payment received does not cover the value of the supply up to 31 May, 2018, 6% GST will have to be accounted for that excess in value.
- In light of the above, businesses should consider valuing the supplies made before 1 June, 2018 and issuing tax invoices before 1 June, 2018 for work done up to 31 May, 2018. Business should also consider getting their suppliers to do the same in light of input tax credit claims.
- Sales by consignment and construction contracts may have other peculiar issues.
- Cancellation of tax invoices issued for work already done may amount to an offence under the Goods and Services Tax Act, 2014.
- For new contracts, provisions on GST transitional issues as well as Sales Tax & Service Tax should be included, depending on the circumstances.
Our Tax Practice Group will be happy to assist you. Please do not hesitate to contact any of the following persons if you need any assistance:
Vijey M Krishnan
Partner
E: mkvijey@rdl.com.my
T: +603 – 2694 9999 (ext. 112)
William Wong
Senior Associate
E: williamwong@rdl.com.my
T: +603 – 2694 9999 (ext. 127)
Nicholas Mark Pereira
Associate
E: nicholaspereira@rdl.com.my
T: +603 – 2694 9999 (ext. 278)