GST Tax Invoice and Record Keeping for Business

TAX INVOICE AND RECORD KEEPING

Every registered person who makes any taxable supply of goods or services in the course or furtherance of any business in Malaysia is required to issue a tax invoice. A tax invoice is a document containing certain information about the supply that has been made and is similar to a commercial invoice except for some additional details.

This document is important as it is an essential evidence to support a customer’s claim for deduction of input tax. A tax invoice must be issued within twenty one (21) days from the time of supply. The supplier must keep a copy and the original copy should be retained by the recipient. Only a GST registered person can issue tax invoices. Tax invoices can be issued in the following forms:-

(a) Tax invoice

(i) Full tax invoice

(ii) Simplified tax invoice

(b) Deemed tax invoice

(i) Self-billed invoice

(ii) Invoice or statement of sales by auctioneer

Example of a tax invoice is shown in followings diagram.

Source: Extrated from

General Guide -revised as at 27 October 2013

http://gst.customs.gov.my/en/rg/SiteAssets/general_guides/Revised/General%20Guide%20-revised%20as%20at%2027%20October%202013.pdf

Diagram: Simplified Tax Invoice

Source: Extrated from

General Guide -revised as at 27 October 2013

http://gst.customs.gov.my/en/rg/SiteAssets/general_guides/Revised/General%20Guide%20-revised%20as%20at%2027%20October%202013.pdf

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GST Malaysia progressive tax VS Regressive tax

Progressive tax is referring to a direct relationship between the percentage of income taxed and the size of the income, in short, higher income entities pay larger fraction of their income in taxed than those lower income entities.

Whereas, Regressive tax is referring to an inverse relationship between the percentage of income taxed and the size of the income, in short, taxes imposes greater burden on the lower income entities than those higher-income entities.

There are many arguments about whether the Malaysian GST is progressive tax or regressive tax and this is always a serious concern for policy markers. There are some factors to be considered whether the GST can be naturally progressive or regressive. First, it has to take into account the fact that how GST has different impact on well developed countries such as UK, Australia and developing countries such as Vietnam. This is because the different on expenditures pattern of various income groups between the well-developed countries and developing countries as GST is a consumption tax which mainly based on spending, higher spending will lead to higher tax charged. Secondly, the range of exemptions item from GST is one of the factor that has to take into consideration in deciding the nature of GST whether progressive or regressive.

Progressive Tax:

Malaysian GST is argue to be progressive tax because the lower-income entities will be protected by the exemptions of essential goods from GST such as sugar, flour and so on. GST is a consumption tax, therefore the more they consume, the more they will have to pay regardless of their income level. Thus, the rich people will have to pay more tax as long as they consume more due to their stronger purchasing power compare to the poor people. In order to lessen the GST impact on the poor, essential goods and other services such as health, housing, public transport and education are treated as GST exempt, therefore GST would be the progressive tax as the exemptions of basic needs do not have much impact on the rich people. Based on the data compiled about the expenditure pattern of different income level of Malaysians, lower-income household spend more on zero-rated item and lesser on items that subject to GST where else higher-income households spends lesser on zero-rated item and spend more on the items that are subject to GST. Therefore, tax burden as percentage to expenditure for rich is much more higher compare to the poor.

Besides, low and middle income household are unlikely to spend more on non basic items that are subject to GST and even if they did spend on its, the volume is not as high as wealthy people because of their limited purchasing power. Malaysian GST can be a progressive tax because it is usually the rich is the ones who spend more on luxuries which is subjected to the GST. In addition, low income households are tend to purchase basic goods and services from the small retail sector in the rural areas where the goods are either exempted from tax or lightly taxed. Whereas, high income households tend to purchase goods and services in retail outlets in the urban areas that are fully comply with the tax rules.

In addition, Government has designed various cash-aid schemes, such as BR1M (1Makaysia People's Aid) to help the poor by lessening the impact of GST on the poor. This compensation package is designed to offset any additional tax burden that might affect the low income citizen when GST is implemented and government is not taxing or taxing lightly on the goods and services which the poor spend most of their income in order to protect the life underprivileged and would not hurt by the GST.

Regressive Tax

This means that the poor will be paying higher percentage of their income in GST compare to the rich ones and increased prices of the goods will make the poor suffer further. The poor people would pay more in GST because they tend to spend 100% of their income on basic expenses, whereas the rich people pay GST in proportion of their income only because they spend much smaller proportion on living expenses in their income proportion and they tend to spend more on the investments or saving more.

The implementation of GST is to replace the existing Sales and Services tax (SST), however the poor will be affected by GST but not Sales and Service tax (SST). This is because Not many people paying for Sales and Service Tax (SST) on a regular basis as the Sales and Service Tax (SST) is implemented in upmarket restaurants & hotels only whereas the GST will tax on daily basis due to much more goods and services are failing under the jurisdiction of GST. Therefore the GST is the regressive tax form as the poor will be taxed under GST even they are excluded under the existing Sales and Service (SST) system and this certainly will burden the poor people as their daily purchases will be taxed.

Conclusion

In conclusion, although many people is arguing that the GST is regressive form, it can be progressive form in the total fiscal structure as the revenues raised from GST can be distributed to the poor and lower-income households receive more transfers than the taxes they pay. Besides, GST is regressive tax because the poor people will be taxed under GST even they are excluded under SST, however, there are many exemptions on the basic goods and compensation package in Malaysia, therefore the Malaysian GST could be progressive tax as low income households are exempted from the GST on the basic needs. There are many developed countries such as UK and Australia have experienced regressive nature of GST as the minimal zero-rated of essential goods and little exemptions that have been practised when implementing the GST. Therefore, Malaysian GST is progressive tax in the developing countries as the government has designed various of compensation packages and the exemptions of essential goods from GST to protect the low income households.

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GST malaysia Disadvantages (government, business, consumers)

The main issues concerning about the implementation of GST is the costs of the goods will increase which will burden the people in the country. Although the government claim that the implementation of GST will not hurt the businesses and people as the tax paid on the inputs at the previous stage is claimable or deductible, overall the the cost of goods will still increase as the producers-pass the full value added to the end consumers at the final stage. 

Consequently, there might have inflation effect since the GST is applied to the prices of all goods, at every stages which result in inflation as the general products prices may go up and the hyperinflation might occur from the continuously of inflation.

There might have continuously effect from the products prices go up. The demand of the market might substantially decrease due to the limited purchasing power of households. Many people argue against the GST is that the people would not have the ability to pay for it as the high cost of living can not be met by their current income needs and GST would unduly burden the low income working group. Due to the increased products prices and high cost of living, people may not willing to spend so much as their limited purchasing power and the market demand will substantially affected. 

Although the government claim that the GST would not hurt businesses due to GST claimable practice, in fact it will hurt the businesses too. This is because of the low demand in the market due to the high cost of product pass to the end consumers, the businesses have to decrease the supply to meet the current condition of lower demand, thus the businesses have to cut down the expenses such as labor cost due to the lower output needed and eventually there might occur high rate of unemployment. Besides, the businesses is not producing in the efficient conditions as they are not maximizing the usage of the machines, rental and etc and all these will lead them to downsize their businesses and eventually lead to the recessions in a country.

In addition, GST is a new form of broad-based tax that will impact the majority of Malaysians who are not the taxpayers now. Although the government claims that the implementation of GST would not burden the people because the income tax rate is not increasing, in fact the GST is increasing the burden of Malaysians who are not the taxpayers now. This is because some people is not eligible to pay for income tax where their income is under certain amounts, so the broad based tax system-GST will impact on those low income workers who are not the taxpayers now as they will have to pay for GST when they consume and make purchases.

Many people is worrying the rate of GST may possibly increase in the future in order to increase for the government revenue. This is because many countries have increased the rate of GST after its inception. People expectation and estimation on the increasing rate of GST in the future will lower the public consumptions as they are unwilling to spend more on the goods and instead they are making more saving. The starting rate of GST is lower than the sales and service tax, however people is worrying the GST rate may even higher than the current sales and services tax in the future.

Moreover, some people is arguing that the GST should not be implemented as the introduction of GST might lead to higher debt level of the country as other countries occurs such as Greece and Italy. Therefore, GST has not helped in the development of the country and its would not help in reducing the country's debt level. Besides, the proposed implementation GST is to enhance the efficiency and effectiveness of the existing tax system, however its might hard to comply with its as it involving complex accounting system and required proper audit systems too. Lastly, people is worrying that the redistribution of increased tax revenue might not be achieved or unfairly. Perhaps implementing GST will force consumers to spend less and more careful in the retail choices as people are fear of the unexpected inflation and consequences result from the implementation of GST.

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Malaysia GST advantages - government, business, consumers

There are a lot of feedback on Malaysian proposed implementation of the Goods and Services tax (GST) recently. There are various of arguments from different people that arguments for or against the GST.

Arguments For: advantages (government, business, consumers)

According to the government's, there are a lot of benefits and reasons to implement the GST which is good for the development of the country. Even though many people is worrying the implementation of the GST is increasing the burden for citizen, in fact will not hurt the citizen. This is because the proposed implementation of GST is the replace the existing sales and service tax which has the higher rate compare to the GST. Generally, there are two types of sales and services tax; 10% of tax and 6% of tax which amounted to 16% overall. Therefore, government is saying that the implementation of GST would not hurt the people as the GST rate is much more lower compare to the existing sales and services tax.

Besides, the implementation of GST did not burden the businesses even the GST is imposed at every level of the supply chain. The tax elements would not become the part of production costs as the GST paid on the inputs by the businesses is claimable. Hence, the cost of production of the businesses would not be affected as the input tax incurred at the previous stage is always be deducted by the businesses in the next step of supply chain, so it does not matter how many stages where a particular goods and services go through the supply chain. Moreover, the burden of taxpayer would not increase with the proposed implementation of GST as the income tax rate is not increasing thus tax burden of citizen will not increase when income level increased.

The introduction of the GST is proven to be better tax system as to enhance the effectiveness and efficiency of the existing taxation system in order to eliminate the existing Sales and Services tax (SST) inherent weaknesses such as compounding effects, transfer pricing and value shifting. This is because the GST will be administrated in a fully computerized environment, therefore speeding up the information delivery such as refund claims. In addition, GST could provide fairness and equality as the taxed are levied fairly on the businesses involved such as wholesaling, manufacturing, service sectors or retailing and provide better transparency to consumers as they will know exactly whether the goods or services they consume are subject to tax and the amount they pay for, unlike the present sales tax. Everyone is paying tax with the implementation of GST and the tax burden is spread over, instead of just relying on the income tax derived from the working population, thus GST could provide fairness and equality to everyone. All these benefits provided by the implementation of GST could stimulate the economic growth and increase the competitiveness in the global market.

One of the government's budget objectives is to reduce the fiscal deficit by the implementation of the GST as the government revenue will be increased from the collection of the GST. GST has advantages to certain degree because the revenue increased is not just from local people but from the foreigners too. The collection of the GST can increase the revenue from the tourism industry as some revenue is extracting directly from tourists where the tourists spend on goods and services that made in Malaysia and overall government revenue will be increased.

Moreover, the standard of living to Malaysian consumers and businesses can be improved as the government can have more fund to use for the country development purposes in social infrastructure such as health facilities and institutions, educations and public facilities due to the increment of revenue from the collection of GST. Government can provide for the needs of the public, better healthcare system and provide welfare services for the underprivileged and vulnerable communities with the increment of revenue from the collections of GST. Therefore, the introduced of GST can improve the Malaysian standard of living by the larger funding available to invest for existing improvement and better future development.

Lastly, some of them saying the proposed implementation of GST is good because many countries which over 160 countries have adopted GST and its implying the GST must be good for the country development. Besides, the effectiveness and efficiency provided by the GST system enable Malaysian to have better management of its finances and in order to cited the success of other country such as Singapore, Australia and New Zealand as benchmarks.

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Goods and Services Tax (GST) vs Sales and Services Tax (SST)

The proposed implementation of the Goods and Service Tax (GST) is to replace the existing tax system which known as Sales and Services Tax (SST). The government's intention to replace current SST with GST is to enhance the effectiveness and efficiency of the current tax system and in fact understand the differences between SST and GST will make public to know the country tax system better.

Sales and Services Tax (SST)

Both of the SST and GST are consumption tax, however SST is a single stage of consumption tax which tax paid at the level of final production or supply of services. There are two flat rate in SST which include 10% of sales tax and 6% of services tax that charge on the final production and service only. The range of exemptions and taxable items is lesser compare to the GST, under SST wherein everything is exempted unless taxable. This mean not much item is taxable under SST such as some basic needs is not taxable under SST because usually only the upmarket restaurants and hotels is charging the SST and many of low-middle income earners is not affected by this SST system. Besides, the imported and exported goods and services are not subject to the tax under the SST system as the existing tax rules do not deal with the imported and exported services or intangibles.

Goods and Services Tax (GST)

GST is a multi-stage of consumption tax on goods and services which charged at every stage of the supply chain. GST apply equally on every stage of supply chain which is 6% of GST rate on supplier, manufacturer, whole seller and retailer. This mean all materials or inputs are taxable under GST but with the claimable practised. The range of exemptions and taxable items are much more wider under GST system, under GST everything is taxable unless exempted. This mean that all the goods and services are subject to GST unless its exempted under GST regime such as essential goods, healthcare services, public transport in order to protect the low-middle income earners. In addition, all the imported goods and services that made in the course of business in Malaysia are subject to GST except specific goods and services that are exempted under GST regime. Under GST law there is no implication of GST on the classification and valuation of exported goods because all exported goods are zero rated. 

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