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GST amendments in the budget – a damp squib!
At first glance the Appendices to the Finance Bill appear thin on GST. Instead, what do we have?
Kuala Lumpur, 23 October 2015 - Given the number of uncertainties, inconsistencies and ambiguities in the GST legislation that existed even before 1 April 2015, the commencement date of the GST regime, and which have become increasingly apparent in the ensuing months, we are surprised that the Finance Minister has not seized the chance to address these issues at the first opportunity. At first glance the Appendices to the Finance Bill appear thin on GST. Instead, what do we have?
- While many parts of the world are considering a “health tax” on food groups considered to be contributing to the increasing rise in obesity, diabetes and obesity related illness, the zero-rating of a few more food items includes jaggery powder. Some would argue that, jaggery, in its purest form is not as detrimental to health as refined sugar. This may be true, but in a country with one of the highest rates of diabetes, (12th highest in the world in 2014 out of 193 countries/territories), are any forms of sugar a basic necessity? Pleasingly organic-based infant milk and soy-bean-based infant milk, dhal beans, a few more vegetables and a few more spices, as well as and some more noodle products are also zero rated.
- Several hundred more drugs and medicines are to be zero rated. This is welcomed.
- Domestic air fares in East Malaysia (Sabah, Sarawat and Labuan) are to be exempt from GST. Good luck for the citizens of Sabah and Sarawak, but this is the thin end of the wedge – GST preferences for a small group of consumers. Others will be lining up to plead their case at the next budget. In addition, exemption is not necessarily good news. The businesses running the airlines are unlikely to be able to reclaim GST they incur on the cost of their business. Therefore, it might just become a cost component of the airfare, resulting in increased prices!
- The extensions to the Approved Trader Scheme to companies carrying out maintenance repair and overhaul in the aerospace sector is welcomed. This is a good cash- flow alleviating measure to a sector. Presumably Malaysia Airlines Maintenance centre is the significant beneficiary. It is one of the largest aerospace maintenance businesses in the world. Over 100 airlines generally outsource their maintenance to this centre.
- Relief from GST for teaching materials purchased by skills training providers: these materials are relieved when purchased by schools, so this measure just extends the relief to a further education providers and is welcomed.
- Relief from payment of GST on certain goods re-imported after export: businesses whose goods are temporarily exported for exhibitions etc, or for rental or lease, will now be relieved of the need to pay GST to Customs on re-importation of those goods. This seems pretty sensible, since these are not new goods, and presumably they are existing assets of a Malaysian business.
In addition to the changes announced in the Appendices to the Bill, the Finance Minister mentioned two other GST changes in his speech:
Small-scale farmers’ Flat Rate Scheme
The first relates to small-scale farmers’ Flat Rate Scheme: reduction of the sales turnover from RM100,000 to RM50,000. This will allow a lot more small-scale farmers to benefit from the 6% GST-input tax credit allowed under this scheme, while charging only 2% GST on their taxable supplies.
Pre-paid mobile phone services
The second is on pre-paid mobile phone services. The telecommunications companies will be required to rebate an amount equivalent to the GST paid, directly to the users’ prepay accounts. Presumably these rebates are to be funded by the telecommunications companies themselves. This looks rather like a penalty imposed on those companies for failing to take into court decisions in other parts of the world, where it has been held that prepaid telephone services are inclusive of GST. Instead GST was added by some suppliers in Malaysia. Customers will no doubt be happy with their refunds.
For further information please contact:
Lorraine Parkin, Senior Executive Director of GST, T +603 2692 4022