Currently, consumption taxes that are being implemented comprise of sales tax and service tax.
Sales tax is imposed on certain locally manufactured goods and imported goods. Local sales tax is imposed when annual turnover (threshold) exceeds RM100,000. Sales tax rates are 5%, 10% and at a specific rate.
Service tax is imposed on selected services. The rate is 6% while specific rate is charged on credit cards. Most services are not subject to a threshold except for a few types of services where the thresholds are set at RM150,000, RM300,000 and RM3 million a year.
It is proposed that current sales tax and service tax be abolished and be replaced with a consumption tax based on the value-added concept and known as GST. The proposed GST model to be implemented in Malaysia is as follows :
i. GST to be charged on goods and services at all levels starting from production, manufacture, wholesale and retail ;
ii. GST to be charged on goods and services supplied within the country or imported into the country ;
iii. Supplies made by the Federal and State Government departments are not within the scope of GST except for some services prescribed by the Minister of Finance ;
iv. Supplies made by the local authorities and statutory bodies in relation to regulatory and enforcement functions are not within the scope of GST ; and
v. GST charged on all business inputs such as capital assets and raw materials is known as input tax. Meanwhile, GST charged on all supplies made (sales) is known as output tax. For eligible businesses, the input tax incurred is fully recoverable from the Government through the input tax credit mechanism.
B. Zero-rated supply
Zero-rated supply means goods and services sold by businesses are charged GST at zero rate. For businesses, GST paid on their inputs can be claimed as credits.
C. Exempt supply
Exempt supply means goods and services sold by the businesses are exempted from GST. For businesses, GST paid on their inputs cannot be claimed as credit.
D. Standard rate
GST standard rate is 6%
The threshold for purpose of registration under GST is the annual sales value of RM500,000. This means that any business with annual sales of RM500,000 and above is required to be registered under the GST legislation. Businesses below the threshold are not required to register but may register on a voluntary basis.