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The Zero-Rated GST Guide for Malaysian Business Owners

[UPDATED] May 28, 2018:

  • Tax code revision according to Malaysian Customs Dept
  • Good news, StoreHubbers – we’ve released a one-click GST price adjustment tool for you. Check your inbox ;).

As of May 16th, the Ministry of Finance of Malaysia has announced that from June 1st, the GST in Malaysia will be zero rated.

General consumer reaction:  

Despicable Me minions cheering

Business owners in Malaysia:

confused John Cena

So… we’re here to guide things along.

  • What does this mean for your business?
  • What can you do?
  • How do you take action?

If you’re a GST-registered business, read on. This is important.

1. Abolishing vs Zero-Rating GST: What’s The Difference?

There is actually a difference between the two. Abolishing the GST would require the Malaysian parliament to repeal the GST Act 2014 before the tax can be completely removed.

According to Alan Chung, the executive director of Grant Thornton Malaysia (interviewed by The Edge Financial Daily), this is why:

“This is because it is the easiest to do, and represents the least cost to the business community. Zero-rating GST will allow transitional issues to be smoothened out. [For example] taxpayers have six years to claim their input tax credit and a lot of them may not have the proper invoice at the present time to claim them,” he told The Edge Financial Daily. If you have an abrupt cut-off of GST or repeal of GST, they may not be able to claim the input tax in the future.

By zero-rating, the rights of the taxpayers to claim input tax within six years are sustained.Zero-rating essentially means changing your tax code percentage from 6% to 0%”. 

2. SR = 0% vs. ZR vs. New Tax Codes?

Which tax code should you implement?  The verdict is out on this one. And there are a ton of conflicting reports.

man weighing boxes in hands

Typically, the Zero-Rated (ZR) code is reserved for zero-rated supplies such as beef, rice, sugar, water and electricity.

The Standard-Rated (SR) code is for.. well, everything else. After spending the last several hours (and night) reading through the GST Act, talking to tax accountants, GST experts, and scouring the Custom’s website… we’ve come to the conclusion that the best way forward will be to adjust the SR code to 0% (SR = 0%). 

We’ve heard that some traditional, non-cloud based POS vendors might  come up with a new tax code for the zero rating. It remains to be seen if these made up tax codes are compliant with the law (unlikely though), but will definitely make reporting more challenging.

If you enjoy reading through legalese in Bahasa Malaysia, you can go check out the official Malaysian Customs site about GST.

See the full FAQ in BM or English.

screenshot of Customs GST FAQ

3. How Does This Affect My Pricing?

Regardless of whether you run a retail, F&B or service-oriented business, there are some pricing adjustments you need to take into account.  There are 2 very simple scenarios in this case:

A. The Simplest Scenario

If you’re selling a cup of coffee for RM10.60 because it’s priced with 6% GST. Now, with Zero Rated GST, the price will be reduced to RM10.

Kinda like Daiso. 

B. A Little More Complicated

Let’s say your cup of coffee is RM10 and already inclusive of GST. How do you adjust the pricing? You will have to deduct the 6% which then gives you the total of RM9.43396 – but of course that number is a little too messy for receipts. We highly suggest rounding it up or down to the nearest 5 cents. 

Check with your POS vendor if there’s a simple way to bulk edit your pricing. StoreHub, for instance, will be rolling out a quick bulk pricing edit function to assist our >2,500 Malaysian customers who are impacted by this (Update: #StoreHubbers, we’ve released a one-click GST Price Adjustment tool to help you bulk edit everything and save a ton of time. Check your inbox for the guide, or go here).

cat in a mailbox

ALSO, side note: If you’ve invoiced a customer PRIOR to June 1, 2018, GST SR at 6% still applies… even if the customer hasn’t paid, or hasn’t collected the product, or your product / services will be received by the customer after June 1, 2018 (#StoreHubbers, we have a workaround for this as well. Check your inbox or go here). 

See the full list of scenarios here in the Malaysian Customs Dept FAQ Guide in Section 4 “Tax Invoices” in BM or English.

 

4. Can You Zero Rate Your Entire Business In 2 Weeks?

It depends on your POS system. For some it might be simpler, for others it might be a huge hassle.

As you might recall, the GST implementation process took an entire year and was a tedious and difficult process for most businesses. After all, it wasn’t a simple addition to the end of your receipt – GST had to be included in the price of the item (e.g. a cup of RM10 coffee had to be inclusive of 6% GST).

If you own a shop, the speed and ease of zero-rating your GST depends entirely on what kind of POS system you might be using.

Some questions you can ask your POS vendors:

man asking questions
  1. What’s the process like? 
    Can the zero-rating of your products be done by yourself or will you need to enlist your POS technician do this for you? 
    For most Cloud POS providers like StoreHub, we’re working on a one-click solution to help our customers adapt to the change with the least amount of pain. For more traditional POS providers however, the 2 week timeline to execute this will be incredibly tight as technical manpower is needed to make the changes in-store. 

  2. How much will the zero-rating cost your business?
    Some POS providers might charge a fee for the update (from our investigations and early calls we made this morning, it can run to over RM10,000!), AND an additional fee later when a new tax code is passed. Yup. You read right. 
man is confused

Now, assuming SST will be implemented some time in the near future (since the government is moving at an unprecedented speed of light), this can be really costly.

The cost to update cloud-based POS systems will be low to zero. We can’t speak for other providers, but for StoreHub, our GST-compliance implementation might cost our customers mostly time (which we are trying to mitigate), and no additional ringgits.

5. What About My Tax Invoices & GST Reports?

As it is Zero Rated GST, yes. Every mechanism / implementation / rule / law according to the GST Act 2014 still applies (this means tax invoices, annual GST reports, etc). The only difference is that now, your tax is 0.

According to the GST FAQ released by the Customs Dept (entirely in BM but downloadable here), you are still required to send in your GST-03 statements and fill up your zero-rated sales in field Section C (10).

screenshot of Customs form

6. What About Future Tax Codes? SST?

There’s some uncertainty for the future at the moment. The new Pakatan Harapan government has indicated that they might revive the Sales and Services Tax (SST) somewhere down the line. But the fact that GST is zero-rated, and not abolished, leaves them with the opportunity to possibly reinstate GST in future, albeit at a rate that’s lower than 6%. 

man standing on mountain

IN SUMMARY… 

  • Talk to your POS vendor
  • Change your SR tax codes to 0%
  • You still have to issue GST invoices and file GST reports
  • You still have to be GST-registered if your taxable turnover is >RM500,000 (within 12 months). 
  • You might need to adjust your pricing. 

All in all, the general sentiment around GST is positive. While it might be a hassle at first for businesses, business owners and experts feel that the zero-rating of GST will spur consumer spending, and ultimately drive the domestic economy.

We’ll be updating this as we go along and if new information comes in.

But #StoreHubbers, go here to check out the guide on how to adjust all your prices in one-click.

In the meantime, if you need a POS system for your business or you might be looking for a change… you know who to call to #UbahPOS.

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