Do you understand the goods and services tax and how it effects you?

The PwC team comprises: Standing (left to right): PricewaterhouseCoopers Taxation Services Sdn Bhd manager Quinnie Low, managing consultant Angie Ng, senior consultant Yvonne Har, senior consultant Lilia Edlina Azmi Seated (left to right): Executive director Yap Lai Han, executive director Benedict Francis

Q: Will I have to pay goods and services tax (GST) if I buy goods from a “kedai runcit”?

A: The Government has indicated that basic food and price control items will be zero rated and therefore no tax will be charged on these items. However, if the “kedai runcit” has a turnover in excess of RM500,000, it will charge GST at 6% on taxable items only.

I have heard that some things will be exempted from GST but I have also been told about some things being zero rated. What is the difference?

The Government has announced that essential goods such as basic foodstuff will be zero rated. This means that no tax will be charged on the sale of these goods. Any tax paid by the supplier of the goods will be fully recoverable ensuring that the tax will not become “embedded” in the final selling price to the consumer.

Exempted supplies will also not be subject to GST upon sale to the consumer, however, any GST incurred by the supplier will not be recoverable. This GST will become part of the supplier cost base and will form a part of the total cost to the consumer. However, the value add of the final supplier will not be subject to tax. Therefore, the price of exempted supplies may potentially increase due to the introduction of GST.

Exempted supplies are generally limited to services where the value added by the service provider is considerable compared with the cost of his purchases, for example healthcare and financial services. Therefore the additional cost of the embedded GST may not be significant.

I’m told that GST is good for business and consumers because of something called input tax credit. Can you explain what this means?

Under the existing sales tax system, businesses cannot recover tax paid on their purchases. The tax is treated as a cost to business. When the business applies a mark-up to that cost, the sales tax is also marked up.

Because sales tax is paid early in the supply chain, by the time the consumer pays the final price of the goods, sales tax has been “marked up” several times, increasing the cost to the consumer at each stage. This is known as tax cascading.

The input tax credit mechanism allows GST-registered businesses to claim the tax that they pay on their purchases as a credit. Therefore, GST does not form part of the cost base of the business and is not included in the mark-up. Businesses will impose GST based on the value added by them at each stage in the supply chain, resulting in the consumer paying a final 6% tax on the purchase price, rather.

For illustration purposes, please refer to the diagram which illustrates the difference between the existing sales and service tax, and the proposed GST tax, on the price of a carbonated drink sold at a hotel.

I am a foreigner and would like to know more about the real property gains tax (RPGT). I own a residential property in Shah Alam which I bought in May 2009. Recently I received requests from property agents who are keen to put my property up for sale. What is the RPGT rate that would be applicable on the gain that I make if I dispose of my property on or before Dec 31, 2013? Would the RPGT rate be lower if the property is disposed of in January 2014?

If the property is disposed of on or before Dec 31, 2013, the gain will be subject to RPGT at the rate of 10%. With effect from Jan 1, 2014, gain derived from the disposal of properties will be subject to a RPGT rate of 30% for disposal within five years.

My company disposed of a piece of land on Oct 10, 2013. The company has held the land since incorporation in 2000. Our lawyer advised that the sale and purchase agreement is a conditional contract (i.e. requires approval from the State Government). What is the tax impact if the State Government approval is obtained sometime in 2014?

Based on the current tax legislation, gain on the disposal of the company’s land is exempted from RPGT as the land has been held for more than five years. However, with effect from Jan 1, 2014, RPGT at the rate of 5% would be applicable for disposal after five years.

In view that the company’s sale and purchase agreement is subject to the State Government’s approval and the approval is obtained sometime in 2014, the date of disposal shall be the date when such condition is satisfied. Hence, any gain from the disposal of land will be subject to RPGT at the rate of 5%.

I keep on hearing that the introduction of GST in year of assessment 2015 will translate into short-term benefits for the rakyat and for the country as a whole in the longer run in terms of the fiscal position and economic condition. What about businesses? What is in store for me as an employer especially to ease the administrative burden?

To support the smooth implementation of GST by businesses during the transition period and to reduce the cost of doing business, the following incentives are available:

·Secretarial fee of up to RM5,000 and tax filing fee of up to RM10,000 are allowed as tax deductions from year of assessment 2015 onwards (previously these are non-deductible expenses)

·Accelerated capital allowance on expenses for the purchase of ICT equipment and software are extended for another three years of assessments i.e. years of assessment 2014 until 2016

·Expenses for GST-related training of employees in accounting and ICT will be given further deduction in years of assessment 2014 and 2015

·Training grant of RM100mil will be provided to businesses that send their employees for GST training in 2013 and 2014

·Financial assistance of RM150mil will be provided to small and medium enterprises for the purchase of accounting software in 2014 and 2015.

I am currently an employee in the private sector and taxes are deducted from my salary on a monthly basis and remitted to the Inland Revenue Board (IRB) by my employer. I do not earn any other source of income apart from my salary. I heard that taxpayers no longer need to submit tax returns. How will that apply to my circumstances?

Under the current legislation, employees with chargeable income are required to lodge a tax return by April 30 following the year of assessment. To simplify the process for employees whose annual tax liability is equivalent to the total monthly tax deductions remitted to the IRB, taxpayers no longer need to submit tax returns on the basis that the monthly tax deductions made is equivalent to the final tax paid.

However, this requirement is only waived for employees who receive employment income only and are currently paying taxes through the monthly tax deduction system and have served under the same employer for at least 12 months in a calendar year. Add that if you’ve under or overpaid, still need to file.

I’m the sole breadwinner in my family with two children under the age of 18. I currently earn RM7,000 per month. Are there any incentives for taxpayers like me?

As an immediate measure to alleviate the tax burden of lower middle-income taxpayers prior to the introduction of the new individual tax rates and GST in 2015, a special one-off tax relief of RM2,000 will be given to resident tax payers earning up to RM8,000 a month or an annual income of RM96,000 for the year 2013 only.

The measure is expected to provide a maximum tax saving of RM480 per annum (RM2,000 x 24%) depending on the amount of tax payable after taking into consideration all other allowable deductions and reliefs.