Welcome GST – Part 3 GST in Singapore and Malaysia

GST was implemented at a single rate of 3% on 1st April 1994, with an assurance that it would not be raised for at least five years. To cushion the impact of GST on Singaporean households, an offset package was also introduced. Simultaneously, corporate tax rate was cut by 3% to 27%, and the top marginal personal income tax rate was cut by 3%. The initial GST rate of 3% was among the lowest in the world. The GST rate was increased from 3% to 4% in 2003 and to 5% in 2004. Each increase was accompanied by an offset package that was designed to make the average Singaporean household overall better off. The rate was further increased to 7% with effect from 1st July 2007. At present, the rate of GST is 7% applicable to all taxable (standard rated) goods and services.

The threshold for registration is S$ 1million (one million Singapore dollars). Businesses having turnover of taxable supplies during a period of 12 months (four quarters) less than 1 million may opt for voluntary registration.

It may be noted that in Singapore, GST is a tax imposed on the importation of goods (collected by Singapore Customs) and the supplies of nearly all goods and services made in Singapore by a taxable person in the course or furtherance of any business carried on by him. The tax is administered by the Inland Revenue Authority of Singapore (IRAS). The Tax Department has issued GST guides for various industries which provide specific information on how GST affects each sector.

‘Taxable person’ is defined as a person who is registered or is required to be registered under the GST Act. The term ‘business’ includes any: (a) Trade (for example, manufacturing, wholesale, service, retail, mechanics, carpentry); (b) Profession (for example, doctors, lawyers, accountants with their own business practice); or (c) Vocation (for example, taxi drivers, hawkers, freelance fitness instructors, freelance book-keepers, insurance agents, multi-level marketing agents). In addition, the following activities are also deemed to constitute business: (a) The provision by a club, association, society, management corporation or organisation of the facilities or advantages available to its members or subsidiary proprietors, as the case may be; and (b) The admission, for a consideration, of persons to any premises.

Taxable Turnover, for the purposes of registration, refers to the total value (excluding GST) of all taxable supplies made in Singapore. It includes the value of all standardrated and zero-rated supplies but excludes exempt supplies, out-of-scope supplies and sale of capital assets.

Zero-rated supply: Zero-rated supply refers to an export of goods from Singapore by a taxable person to a country outside Singapore or a supply of international services. GST is charged at 0% for theses supplies. However full input tax credit is available to the supplier.

Exempt Supply: Exempt supply refers to the following three broad categories of supplies, where no GST is chargeable: (a) the sale and lease of residential properties; (b) the provision of financial services; and (c) the supply of investment precious metals. A supplier of exempt supplies is not eligible for input tax credit.

Out-of-scope Supply: An out-of-scope supply is a supply which is not made in Singapore and no GST needs to be charged. For example the sale of goods from China to India, where the goods do not enter Singapore.

A registered tax payer is required to e-file quarterly returns within one month from the end of each quarter. (Facility of monthly and six monthly returns is also available to certain classes of tax payers subject to approval from the Comptroller). Extension of due date, up to one month, is granted on application in genuine cases. The tax due, as per return, is required to be deposited within the same due date as for filing of returns. Payments can be made either online or through money orders or telegraphic transfers or through A/c payee cheques drawn in favour of “Comptroller of Goods & Services Tax”. Refund due, if any, as per periodic return is granted automatically within one month/three months/six months as the case may be (unless withheld for specified reasons).

GST in Malaysia: Malaysia has adopted GST from 1st April 2015. Before that there was a system of sales tax on sale of goods (introduced from 29th February 1972) and Service Tax on supply of services (introduced from 1st March 1975). It may be noted that Excise Duty, in Malaysia, is levied on certain luxury and sin products only such as automobiles, liquor, beer and tobacco products. Sales Tax was levied under the system of single point first stage taxation at four different rates of 5, 10. 20 and 25 %0, and, Service Tax was levied at a flat rate of 5% on certain specified services. The GST has replaced both these taxes i.e. Sales Tax and Service Tax. The rate of GST is 6% on all taxable (standard rated) goods and services.

GST, in Malaysia is administered by Royal Malaysian Customs Department (RMCD) – Goods and Services Tax Division. Persons having businesses with annual turnover of taxable supplies exceeding RM 5,00,000 (Five lakh Malaysian Ringgit) are liable to be registered under GST. ‘Persons’ include an individual, sole proprietor, partnership, company, trust, estate, society, union, club, association or any other organization including a government department or a local authority which is involved in the business of making taxable supplies in Malaysia. Application for registration has to be made in prescribed form within 30 days from the date of liability. There is a facility of voluntary registration for businesses having annual turnover less than the prescribed limit, and, there is also a facility of Group Registration whereby more than one business organisation, within the same group, can have one single registration.

Annual Turnover of ‘Taxable Supplies’, for the purposes of registration, includes all taxable supplies whether standard rated or zero rated. But excludes the value of (a) supplies outside the GST scope, (b) disposal of capital assets, (c) imported services, (d) disregarded supplies made in relation to Approved Toll Manufacturer Scheme, Warehousing Scheme and supplies made within or between the designated areas.

The GST registered person is liable to pay tax on all taxable supplies (standard rated) and can claim input tax credit of whatever amount of GST paid on the business inputs by offsetting against the output tax. Suppliers of zero rated goods and services are also entitled to claim full input tax credit. However, ITC (input Tax Credit) can be claimed only on the basis of ‘Tax Invoice’ issued by the supplier. The supplier has to issue Tax Invoice within 21 days of supply. There are provisions for Simplified Tax Iinvoice as well as self made Tax Invoice in certain circumstances.

GST returns are generally required to be filed quarterly by all GST registered persons within one month from the end of each quarter. However, there are provisions to grant permission to file returns on monthly or six monthly basis subject to certain conditions. The returns can be filed either online through internet or manual through paper returns.

Payment of taxes, as per return, has to be made within the same time limit as for filing return. Payment can be made either online or through money order or a/c payee cheques or bank drafts drawn in the name of specified authority.

Refunds, if any, as per periodic returns are granted automatically within 14 days from the date of submitting return (in case of electronic return) and within 28 days (in case of manual return).

Some Important Aspects:

There are few important aspects of GST that one needs to study, they include,

• Transitional provisions: from existing indirect tax laws to one integrated tax without loss of input credits that is lying unutilised and also embedded in stock in trade or work – in – progress.
• M eaning of ‘supply’ as a most important term replacing the terms, ‘sale of goods’ and ‘provision of service’.
• Place of Supply Rules
• Seamless flow of credit till the supply reaches to the destination
• Point of Taxation
• Uniform revenue neutral rate for different kind of goods and servicesExempt goods and services
• Special kind of supplies
• Procedural issues like registration, payment of tax, filing of returns, assessments, dispute resolution mechanism and robust network infrastructure 

In this article, attempt is made to evaluate the meaning of term supply, transitional provisions, time of supply and input tax credit mechanism in the context of Singapore and Malaysian GST law.

I. Meaning of term “Supply”:

Under Malaysian law:

• ‘Supply’ means all forms of supply, sale, barter or exchange including import, for a consideration. Land and transfer of any right in land including tenancy rights and immovable properties are covered in GST as goods. Further, supply of goods includes any activity or transaction under hire purchase or finance lease agreement.
• Anything which is not a supply of goods but is done for a consideration is a supply of services. “Services” mean anything done or to be done including the granting, assignment or surrender of any right or making available any facility or advantage for a consideration. This would include, license, rental, lease and right to use of the immovable properties and transfer of possession of goods without transferring the ownership.

However, the following are not regarded as supply:

• Transfer of business undertaking as a going concern.
• Supplies not in the course of furtherance of business.
• Supply by any society or similar registered organisation to its members in conformity of the aims and objectives, without any payment other than subscription and where the value of supply is nominal.
• Contribution to pension, provident or social security fund.
• Supply of services between an insurer and insured
• Supply of money or investment article

Under Singapore law:

‘Supply’ includes anything done for a consideration. The following shall be treated as ‘supply’ for the purposes of GST:

• Possession transferred under an agreement
• Treatment of process
• Supply of utility
• Grant assignment or surrender of any interest or right over land
• Transfer or disposal of business assets.

The following shall not be treated as supply of goods:

• Financial services including financial products like equity, debts equity, derivative, life insurance, annuities, commodity features, mutual fund units, exchange of currency
• I mport of precious metal
• Grant assignment or surrender of any interest or right over land, license to occupy such land, residential properties, land used for residential purpose or for condominium development, vacant land supplied for public or statutory authority of residential or condominium residence
• Land or building or part thereof used principally for residential purpose.

II. Transitional provisions

A. In case of supply of goods under Malaysian/ Singapore law:

1. I f the dealer has supplied the goods (under Malaysian law) or removal of goods or made available to the purchaser (under Singapore law) before the effective date and invoice is issued or payment is received for that supply on or after effective date, the supply of goods would be covered under the existing law prior to implementation of GST and the invoice issued or payment received on or after the appointed day for those supplies shall be regarded as inclusive of Sales Tax. However, if the invoice is issued for the supply made after the appointed day, the dealer would not be required to charge GST to the extent the supply is covered by Sales Tax.

2. I f supplies are made before the appointed day and ends on or after the appointed day where the invoice is issued or the payment is received before the appointed day, the consideration for supply shall be deemed to be inclusive of GST, appointed day or effective date is the date when GST comes into force for the portion of supplies made on or after the appointed day.

3. For all goods held in stock on effective date, including the exempted goods or service, are liable to be taxed under the old law.

4. The dealer is required to file his return under the old law covering all the supplies prior to effective date and discharge the liability thereon.

5. I n a case where tax is required to be paid under GST on above supplies, refund can be claimed of the tax paid under existing law.

6. Credit notes issued for return of goods after the appointed day shall be dealt with under the existing law and refund of sales tax paid can be claimed.

7. T he person registered under the GST and in the old law will have no further liability under GST to account for tax on such goods in respect of which the last return under the old law is submitted.

8. A window of five years of zero rating is provided in case a non-taxable supply under the existing law when it becomes taxable under GST and the contract is not renewed to effectuate the tax element in the price. (This means that the existing contracts can be reworked to include GST in the price till five years and would be zero rated till such period, imposing no tax liability and still allowing imput tax credit. Really a very wholesome measure for long term infrastructure projects and government contracts which are normally of “all inclusive” nature.)

B. Exempt supplies under Singapore law –

GST would not be chargeable if the person making the supply, made after appointed day, receives a payment in respect of the supply of goods or services before the appointed day, and the supply of goods or services shall be treated as taking place before that date. However, if no such payment is received before the appointed day but the invoice for a taxable supply of goods or services is issued before that date, that supply made in post GST regime shall be treated as taking place after the appointed day and accordingly tax shall be chargeable on the supply.

C. In case of Services under Malaysian/ Singapore law:

In case of supply of services when the service is performed or payment received prior to introduction of GST, the provisions of old law would apply. In case supply is made on or after the appointed day, the service provider is not required to charge GST on supplies to the extent covered by the invoice before the appointed day or payment received.

D. In case of goods or services not subject to sales tax or service tax but subject to GST Malaysia:

In such a case, the GST liability would be as follows:

• If such supplies are made before 1st April 2015 where the invoice is issued or payment is received on or after 1st April 2015, the consideration for the supplies is not subject to GST.
• If such supplies are made before 1st April 2015 and ends on or after 1st April 2015 (spanning 1st April 2015) where the invoice is issued or payment is received on or after 1st April 2015, the portion of supplies made on or after 1st April 2015 is subject to GST.
• If such supplies are made on or after 1st April 2015 where the invoice is issued or payment is made before 1st April 2015, the consideration for the supplies is deemed as inclusive of GST.
• If such supplies are made before 1st April 2015 and ends on or after 1st April 2015 (spanning 1st April 2015) where the invoice is issued or payment is received before 1st April 2015, the consideration for the supplies is deemed as inclusive of GST for the portion of supplies made on or after 1st April 2015.

E. Transitional provision as regards to input tax credit Singapore:

In case of dealer having accumulated credit prior to GST regime, the same is allowed to be carried forward to the extent the credit attributable to the taxable supplies made in post GST regime. Special relief is granted to allow businesses to claim GST incurred before GST regime in first return form. This would also apply to a dealer who is partially exempt if he makes both exempt and taxable supplies. In case where input tax cannot be directly indentified with income in the making of either taxable or exempt supplies, the input tax known as residual input tax is required to be apportioned. Taxable supplies would include zero-rated supplies. In case of capital goods, the same is allowed subject to certain exceptions on period based proportions.

Malaysia: A registered person is entitled to a special refund of sales tax of taxable goods (subject to certain percentage of the value of goods) held on hand on (stock) appointed day for making a taxable supply provided the goods were taxable under the sales tax law and the sales tax has been charged and paid by the claimant dealer. A special refund shall not be granted when,

a) goods have been capitalised
b) have been used partially or incorporated into some other goods
c) held for hire d) good held for use other than in business
e) goods not held for sale or exchange
f) where a claim of drawback of sales tax paid is made on subsequent export after the appointed day
g) on such goods on which the claimant is allowed to claim the deduction of service tax under the relevant rules

Where the claim for special refund is made, the goods shall be deemed to have been given credit for the input tax the unpaid taxes be off-setted against the special refund.

(No such provision exists in Singapore)

III. I nput Tax Credit Mechanism :
A. Singapore/Malaysia (conditions for grant of input credit)

• The business has to be GST registered
• The goods or services must have been supplied or imported by the business which must be supported by import permits which show the business as importer of goods
• For local purchase the input tax claim must be supported by tax invoices addressed to the business
• The goods or services are used or will be used for the furtherance of the business within the country or export which would be regarded as taxable supplies if made in the exporting country
• The input tax claim is not otherwise disallowable as per specific exclusions.

 It is not necessary to match the input tax claim with output tax charged in the same accounting period, meaning that input tax can be claimed even before supply of goods or service is actually made.

Supply of goods without consideration for a community project may be treated as a supply made in the course or furtherance of the business. Any asset acquired which is taxable may be treated as attributable to the business’s taxable supply and any input tax incurred for any supply made for a community project by the business is claimable. (Above provision exists only in Malaysia)

B. Input tax claim on tripartite arrangement

• When a taxable person makes taxable supplies of goods or services to a recipient who is a registered person, the recipient is able to claim input tax for an acquisition he makes in the course of his business. However, in a tripartite arrangement, the recipient is not the person who makes the payment for the supply.
• For a supply made to a third party, there must be a binding agreement or a link between the supplier and the person who makes payment for the supply. Any agreement which does not bind the parties does not amount to a supply unless there is a supply of goods or services between the parties. The person who has an agreement with a supplier for a supply is the recipient of that supply (even if that supply is provided to a third party). The documentation (terms of the contract) is the logical starting point in determining the supplies that have been made.
• In this regard, the person who makes payment will be entitled to claim input tax on the acquisition of the goods since it is a taxable supply made by the supplier to the person who makes the payment of the supply. (Above provision exists only in Malaysia)

C. Time Limit to claim input tax credit

If input tax is not claimed in the taxable period in which he is supposed to claim, then such input tax can be claimed within six years after the date of the supply to or importation by the taxable person.

D. Refund of Input Tax

A refund will be made to the claimant if the amount of input tax is more than the amount of output tax. Any refund of input tax credit may be offset against unpaid GST, excise duty, import and export duties.

Time When Refund is Made

A registered person can claim refund of input tax in the GST return furnished to the concerned authority. If the amount of input tax exceeds the amount of output tax, the balance will be refunded. The refund of input tax will be made within 14 working days after the return to which the refund relates is received for online submission and 28 working days after the return to which the refund relates is received for manual submission. (Malaysia)

E. Bad Debt relief

Bad debt is amount owed that cannot be collected and all reasonable efforts to collect it have been done. A person is entitled for a bad debt relief subject to the following conditions:
(a) GST is already paid;
(b) The person has not received any payment or part payment within 6 months (12 months in case of Singapore GST) from date of supply or debtor has become insolvent (bankrupt, wound up or receivership) before that period has elapsed; and
(c) Sufficient efforts have been made to recover the debt.

If the person has not received any payment in respect of the taxable supply, he can make a deduction or claim for the whole of the tax paid. However, if he has received part of the payment he can deduct or claim on pro-rata basis of the receipt. In the event where the bad debt relief is granted but subsequently the payment is received by the claimant he is required to repay the amount.

F. Input Tax credit in relation to registration

Credit pertaining to pre-incorporation is not allowed. Input credit on services prior to registration is also not eligible. However, in case of capital goods, the registered person is entitled to claim input tax credit on the goods he holds at the time of registration. Input tax on any asset held on hand (stock) can be claimed on book value within 6 years from the date of registration irrespective of date when the asset is acquired. In case of land and building, input tax can be claimed in on open market value of the asset or the book value whichever is lower. Where a person registers on a date later than the date he becomes liable to be registered, he is entitled to claim input tax incurred on, a) goods held on hand at the time he is liable to be registered; and b) goods or services used in making taxable supplies during the period he became liable to be registered.

IV. Time of supply:

Malaysia:

For goods:
a) when the goods are removed; or
b) when the goods are made available to the person to whom the goods are supplied if the goods are not to be removed.
c) I n the case of supply of goods sent, taken on approval, sale or returned, the time of supply is when it becomes certain that a taxable supply has taken place or twelve months after the removal whichever is the earlier.

For Services:

For services, the time of supply is treated as taken place at the time when the services are performed.

Singapore

The time of supply is based on the earliest of the events:
a) Issuance of invoice
b) Receipt of payment
c) Removal of goods or making it available to the customer.

In case of services, the time of performance In any case, the business is required to issue a tax invoice within 30 days from the time of supply. If the supply is before GST registration date, GST cannot be charged to the customers.

Conclusion: It can be seen that the Malaysian GST, being the latest one, has been carefully crafted, as the law which is lucid with examples and appropriate guidance notes, leaves almost no room for ambiguity and litigation. It even has the provisions for refund of excess claim of input credit if not utilised within six years which is seamlessly granted within a short time of Fourteen days as provided in the law. The term ‘supply’ invokes the liability only in case of consideration. The transitional provisions ushering from exempt to taxable regime are also drafted in a fair manner. In case of exempt product or services becoming taxable under GST, a window of five years for re-working of contract is granted and zero rating is provided for intervening period allowing input tax credits. Provisions are made for allowance of tax credit when the supply results into a bad debt. Input credit is allowed in case of asset acquired for a community project which is regarded in the course of furtherance of business. Tax on import of goods and service is available as input tax credit. The Malaysian GST has more or less adopted the Singaporean model which is taxpayer friendly. The rate of tax in both the countries is minimum in the world, however still GST is blamed in Malaysia as inflationary. India should take a clue from the GST regime in both these countries in drafting its GST legislation.