Khong Siong Sie and Kailash Kalaiarasu highlight the legal nuances behind the “abolishment of GST”.
On 16 May 2018, the government announced that the Goods and Services Tax (“GST”) is to be set at 0%, effective 1 June 2018 (see Goods and Services Tax (Rate of Tax) (Amendment) Order 2018 dated 16 May 2018)
This announcement was followed by a swift execution of the necessary revocation and amendment orders to remove, among others, the now redundant zero-rated supply and relief orders since no GST will be levied.
At first glance, the rakyat may be quick to describe this as the abolishment of GST. From a strictly legal perspective, however, there are greater nuances at play. Whilst economists and political analysts may have their respective takes on this measure, here are 5 points about GST at 0% viewed through a legal lens.
#1: 0% vs Zero-rated
There is a distinction between zero-rated supply and 0% GST. Under the current standard rate of 6%, zero-rated supply refers to a basket of goods and services shielded from the standard rate. These include staple foods like fresh vegetables and seafood. Whereas, the standard rate applies across the board to all supply of goods and services that attracts GST unless specifically exempted, zero-rated or if GST relief is granted. Therefore, the zero-rated supply acts as a shield against the standard rate. However, now zero-rated supply has now been repealed effective 1 June 2018 (see Goods and Services Tax (Zero-Rated) Supply (Revocation) Order 2018 dated 16 May 2018).
Unless the GST Act 2014 (“the Act”) is eventually repealed, GST can easily be awakened from its slumber through the issue of a statutory order replacing the 0% rate with another rate. At that point in time, there should also be a consideration of reinstating some form of zero-rated supply.
#2: Filing Requirement
Under the Act, the filing of GST returns is mandatory and must be filed on a monthly or quarterly basis.
Currently, there is no section in the Act to allow the Director General of Customs (“DG”) to waive the requirement of filing GST returns. Nonetheless, the DG has the power to revise the taxable period from the existing monthly or quarterly period to a longer period such as a half-yearly or yearly period. This can be a measure to reduce the administrative burden on businesses.
Registration is mandatory if the turnover of the business is more than RM500,000 per annum. By way of a gazette, the Minister may increase this threshold such that only the ‘bigger fish’ are caught by the proverbial GST net. Registered businesses with turnover below the new threshold can then apply for deregistration (except for those who have registered voluntarily as they must remain registered for at least 2 years). This would again help to reduce the administrative burden on certain smaller businesses.
#4: Issuance of Tax Invoice
Upon request in writing by the registered businesses, the DG may approve a tax invoice not to be issued if he is satisfied that it is inappropriate for them to issue a tax invoice – subject to any further conditions imposed.
The DG also has the power to waive the requirement for registered businesses to mandatorily issue a full tax invoice for transactions above a certain threshold. This can be done either by increasing the current threshold triggering a full tax invoice to be issued or replacing such requirement with a blanket rule to issue simplified tax invoices (i.e. akin to receipts). This issuance of a simplified tax invoice is to a large extent in line with the requirement under the Income Tax Act 1967 to give receipts.
#5: Is GST here to stay?
We are of the view that there are obvious reasons for the current government to continue using the GST system.
Firstly, the GST system can be used to replicate the old sales and services tax (“SST”) regime by placing selected items inside a basket subject to higher rate(s) of GST while other supplies remain at 0%.
Secondly, the current GST system functions as an effective data-collection tool for the revenue authority. There are numerous benefits here, including:
(i) the data can feed into the revenue authority’s decision to widen the basket of goods and services subject to the new SST (when implemented);
(ii) similarly, such data can be used to impose targeted and variable GST rates to different baskets of goods and services (e.g. the GST regime in India); and
(iii) it enables a future simulation of re-implementation of GST (if any).
Thirdly, the GST reporting requirement ensures compliance by businesses because it is extremely difficult for them to ‘window dress’ multiple sets of books for the purposes of income tax and GST separately.
Last but not least, the compliance cost for implementing GST is already a sunk cost. Considering that the current government’s ethos is to reduce wastage in spending, the revenue authority should make use of the GST system in place to cater for a newer version of SST. We view that the system is robust and flexible enough to this end. The capabilities of the GST system will provide a much-needed reboot to the outdated SST system used in the past.
Siong Sie is a Partner in the Tax Practice Group of Skrine. He acts for taxpayers on all aspects of tax and revenue law including advisory and planning, audit and investigation, dispute resolution and litigation. Prior to joining Skrine, he was in one of the biggest retailers in Malaysia working as a treasury manager–cum–in-house counsel. He also has 4 years of experience with one of the Big Four accounting firms and had 2 years of tax practice with a local tax firm.
Kailash is a pupil with Skrine, currently reading in the chambers of Preetha Pillai who is currently heading the Tax Practice Group of Skrine.