GST TREATMENT ON MANUFACTURING AND RETAIL SECTOR Venue : KLSFEA Shah Alam Date : 26 February 2014 Organised by: KLSFEA Presenter: Sabariah Md Yusof ROYAL MALAYSIAN CUSTOMS
FIZ & LMW Concept Current treatments Under Customs and Sales Tax legislation, FIZs and LMWs are deemed to be a placed outside Malaysia Local sales made by FIZs and LMWs are as if importation into Malaysia GST Treatments For GST, it is treated as a place located in Malaysia. For GST, is considered as local supplies and subject to normal rules. For documentary control, LMWs are required to submit monthly records but not for FIZs. For GST, FIZs and LMWs who are approved under the special schemes (ATS/ATMS) are required to submit certain records. 2
FIZ & LMW Concept Current treatments Importations of raw materials and machineries directly used for manufacturing are eligible for customs duties / sales tax exemptions. Importations or acquisitions of goods indirect used for manufacturing purposes eg stationaries, tires and office equipments are subject to tax. Auditing by Customs will be done at random based on risk criteria. Records need to kept for 6 years GST Treatments GST is suspended on importations of raw materials and machineries directly/indirectly used for manufacturing. GST on importations of goods or locally acquisitions in the course or furtherance of businesses are subject to GST. GST on inputs are claimable. Auditing by Customs will be done at random based on Risk Management System (RMS) Records need to be kept for 7 years 3
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Approved Trader Scheme (ATS) a facility to relieve GST payment on importation of goods Under ATS ATS participants are allowed to suspend GST on the importation of goods Goods imported is used in the course or furtherance of business The amount of GST suspended needs to be declared in the GST return in the month which the importation takes place Proposed amendment 2013: Sec.72(2) Any taxable person granted an approval under the Approved Trader Scheme shall declare the suspended payment of tax in the return for the taxable period to which the suspension relates 5 5
Approved Trader Scheme Malaysia ATS approval AA Pte Ltd XX Sdn Bhd GST-03 (November 20XX) Total value of goods imported under ATS = RM106,000 Customs no.1 Port (November 20XX) Value of imported Goods (CIF + Duty Import )= RM106000 GST 6%= RM6000 overseas Total value of GST suspended= RM6000 GST is suspended Goods cannot be suspended under ATS Liquor, beer, wine and spirits Tobacco and tobacco products Blocked input tax goods Goods for personal/non- business 6
ATS Persons eligible for ATS Companies located within Free Industrial Zone (FIZ) Licence Manufacturing Warehouse (LMW) International Procurement Centre (IPC) Regional Distribution Centre (RDC) Toll manufacturers under ATMS Jewellery manufacturers under AJS Companies with turnover above RM25 million and at least 80% of their supplies made are zero-rated; or Any other person approved by the Minister 7 7
LMW COMPANIES SEC.65/65A CUSTOMS ACT 1967 IMPORT/EXPORT/LOCAL SALES PROCEDURES INPUT - Raw materials / components - Machines / equipments IMPORT EXEMPTION; Import Duty Excise Duty GST on importations (6%) suspended under ATS Local Supplier FIZ LMW Others LMW Company GST REGISTRANT / ATS OUTPUT EXPORT DA FCZ (outright export) Zero Rated GPB / FIZ /FCZ Subject to GST Standard rate LOCAL SALES Subject to GST; GST incurred for making taxable supplies Standard rate -Claimable Subject to - Import duty - GST at standard rate
ATS Approval subject to the following criteria: Must be registered under Sec. 20 of the GST Act 20XX Participant must make wholly taxable supply Must be a registered user of electronic service Must submit monthly GST return Must makes declaration on the importation of goods electronically Must have good compliance record as a GST payer Must have good accounting and internal control system Must furnish security if required; and Any other conditions as may be determined by DG 9
Approved Toll Manufacturer Scheme Purpose a facility to overcome the GST embedded when a person buys goods from an overseas person via a local toll manufacturer Sec. 73 (2) Approved Toll Manufacturer Scheme (proposed amendment 2013) Any taxable person (Toll Manufacturer) are allowed to disregard the supply of services which comprises the treatment or processing of goods to the overseas principal (who belongs to a country other than Malaysia) Any person (belongs to Malaysia) who receives the processed goods from the toll manufacturer shall account and pay tax as if he had himself supplied and acquired the goods in the course or furtherance of his business 10
Approved Toll Manufacturer Scheme (ATMS) Overseas principal invoices local customer on finished goods received Overseas Principal 3. 4. 1. TM imports consigned goods from the overseas principal (ATS) TM invoices overseas principal for valueadded services -disregarded Malaysia Local Customer Recipient accounting 2. TM drop-ships finished goods to local customer of overseas principal Toll Manufacturer Local supplier deliver goods on behalf of OP (ZR) Local supplier 11
ATMS Eligibility for approved under the ATMS Any toll manufacturer who has contract(s) with overseas principal who is not belong in Malaysia e.g he is not a taxable person He carries out value added activities with the overseas principal: worth RM2 million or more (excluding the cost of raw materials supplied or belonging to the overseas principal) per annum; and 80% of the processed goods must be exported; What types of value added activities are allowed under ATS? related to manufacturing, treatment, processing, finishing, assembling and other manufacturing-related works on consigned goods 12
ATMS GST tax treatment for ATMS Supply of services by toll manufacturer (TM) to overseas principal (processing charges/toll) to be disregarded TM deliver the processed goods on behalf of his overseas principal to the local customer Supply of processed goods by overseas principal to his local customer subject to GST Local customer has to account the GST by way of recipient accounting Need to account based on whichever is earlier: Invoice received from overseas principal; or Payment made to overseas principal Acquisition of goods by overseas principal Local supplies delivered to the toll manufacturer under the account of overseas principal is zero rate 13
ATMS Example: Recipient Accounting A Toll Manufacturer (A) approved under ATMS delivers processed goods on behalf of overseas principal to the local customer (B) on 29 April 2015. The Overseas principal issued an invoice to local Customer (B) with the amount of RM200,000.00 on 5 May 2015 How to account for the tax? Local Customer (registered person) Needs to account the tax amounting RM12,000 (6%XRM200,000.00) in his GST return. GST Return - May 2015(GST-03) Local customer (not a registered person) Needs to account the tax not later than the last day of the subsequent month from the month in which the supply is made *GST No.4 - May 2015 OUTPUT TAX = RM12,000 Value of supply RM200,000.00 INPUT TAX = RM12,000 GST amount payable RM12,000.00 *Return for non-registrant 14
ATMS Approval subject to the following criteria: Must be registered under Sec. 20 of the GST Act Must be a registered user of electronic service Must submit monthly GST return Must have good compliance record as a GST payer Must have good accounting and internal control system Must furnish security if required; and Any other conditions as may be determined by DG 15
Warehousing Scheme Types of warehouses license under Customs Act 1967: Customs warehouse Licensed warehouse Duty free shops Inland clearance depot A Inputs: Forklift charges, storage charges C Declares supply and pays GST B
WS - GST Treatment GST on goods deposited into the warehouse to be suspended GST on goods moved from one warehouse to another warehouse to be suspended Intermediate supplies within a warehouse to be disregarded The last supply is subject to GST (trigger the duty point) Goods released to local market to be subjected to GST Goods released to overseas market to be zero- rated All goods and services consumed in warehouse to be standard-rated 17
Example WS Daim Sdn Bhd keeps his imported goods in a warehouse approved under section 65 of the Customs Act. One of his customers has agreed to buy certain goods at RM10, 000.00 and the goods are to be taken out from the warehouse. How does his customer determine the value of the last supply? (Prevailing import duty rate = 10% and GST = 6%) 18
WS *Value of supply = RM 10,000.00 Rate of import duty = 10% Total duty import payable = RM1000.00 (10%X RM10,000.00) Daim Sdn Bhd s customer needs to declare the following amount: Value for customs purposes = RM 10,000.00 Import duty (10%) = RM 1,000.00 Total value for calculating GST = RM 11,000.00 GST Payable (6% x RM11,000) = RM 660.00 * 19
Designated Area Langkawi, Labuan & Tioman GST Treatment on DA: Supply DA to DA: Goods and Services Within the DA: Goods and Services World to DA: Goods and Services DA to World: Goods and Services GST Treatment * Not Subject to GST * Not Subject to GST * Not Subject to GST Zero rated * Except for petroleum and other goods as prescribed by the Minister of Finance 20
Designated Area Langkawi, Labuan & Tioman Supply PCA to DA: Goods Services GST Treatment Zero rated Standard rated DA to PCA: Goods Standard rated (as if importation) * Except for petroleum Services and other goods as prescribed by the Standard Minister of rated Finance 21
GST TREATMENT ON MANUFACTURING SECTOR Farming Out Drop shipment Employee benefit Loan on stock and equipment Discount Other transactions Gifts Samples Warranty Disposal of assets Goods lost/destroyed 22
Farming out within Malaysia No transfer of ownership of goods. it is not a supply of goods Sub-contractor to account for GST on value of services supplied ABC SDN. BHD. (GST registered person) Farmed out Finished goods and charged RM15,000 for labour Raw materials valued at RM 100,000 Returned XYZ SDN. BHD. (GST registered person) 23
Farming out outside Malaysia No GST on goods returned If new parts are added GST will be imposed (similar to item 51 of the Customs Duties (Exemption Order) Recipient to account GST on the supply of imported services Finished goods and charged RM15,000 for labour Returned ABC SDN. BHD. (GST registered person) Farmed out Raw materials valued at RM 100,000 ALLAN PTE LTD 24
Drop Shipment Overseas 4. Non-resident invoices local customer on finished goods received Non-Resident 1. Non resident makes order for finished goods from CM Sdn. Bhd. 2. CM Sdn.Bhd invoices finished goods supplied to the non-resident. Malaysia Local Customer 3. CM Sdn. Bhd. dropship finished goods to local customer of non-resident GST registered Contract manufacturer (CM Sdn.Bhd) 25
Drop Shipment (Contract Manufacturer) Non-Resident (non-registrant) Supply made by contract manufacturer to non-resident is subject to GST goods exported is zero rate Supply of goods by contract manufacturer (taxable person) to non-resident : subject to GST at standard rate GST needs to be charged value to the non-resident based on transaction Supply of goods (drop-ship) by non-resident to the local customers are not liable to GST 26
Employee Benefits Employee benefits include any right, privilege, service or facility provided free of charge to employees as stated in the contract of employment not subject to GST and input tax is claimable If not stated in the contract of employment all goods provided free to the employees is subject to GST (subject to gift rule of RM500) except those exempted, blocked input tax and zero rated goods input tax claimable output tax on gifts > RM500 value to be based on open market value Services supplied free no GST 27
Loan stock and equipment Raw materials on loan it is a supply of goods subject to GST Equipments on loan it is treated as a supply of services subject to GST 28
Discount GST on the value after discount includes : Cash discount Prompt payment discount Volume discount, etc Normally given in percentage or value Given when using discount card/coupon at the time of sale or after sale Sales to connected person based on open market value and not on discounted price 29
Gifts and samples Gift Gift of goods not more than RM500 made in the course or furtherance of business to the same person in the same year : not subject to GST Samples Imported trade sample given relief under GST Relief Order Trade samples given for promotion not subject to GST on conditions packed differently and labelled sample or not for sale samples not packed differently is subject to business gift rules of RM500 30
Warranty Manufacturer s warranty normally includes: after sale services and repairs any replacement of spare-parts free of charge during the warranty period not subject to GST 31
Disposal of Assets Sale of capital assets, other than TOGC subject to GST Sale of assets as TOGC not subject to GST (not a supply) Given free the value will be the open market value subject to GST (>RM500) Sell as scrap the value will be the sale value of scrap subject to GST 32
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Agenda Pricing Consignment Sales Trade in Goods Hire purchase Credit Sales 34
RETAILING PRICING GST charged on standard rated supplies Assuming the value of goods or services supplied is RM100.00 and GST chargeable is 6%. Value : RM 100.00 6% GST charged (output tax) : RM 6.00 (RM100.00 X 6%) Total (price inclusive of 6% GST) : RM 106.00 35
RETAILING PRICING GST incurred on standard rated supplies Assuming the price of goods supplied to the registered retailer is RM106.00 inclusive of 6% GST. Price (inclusive of 6% GST) : RM 106.00 The GST incurred (input tax) : RM6.00 (RM106.00 X 6% / 106%). 36
RETAILING PRICING Registered retailer sales price: Assuming the GST inclusive price of goods supplied to the registered retailer is RM106.00 and at the point of sale, the registered retailer marks up 20% on the cost of goods. Price of goods (inclusive of GST) : RM106.00 6% GST inclusive (Input tax incurred) : (RM 6.00) (RM106.00 X 6%/106%) Actual cost : RM100.00 20% Mark-up on Actual cost : RM 20.00 (RM20% X RM100.00) Value (cost) at the point of sale : RM120.00 6% GST Charged : RM 7.20 Price at the point of sale : RM127.20 37
RETAILING PRICING Registered retailer sales price: Incorrect method Price of goods (inclusive of GST) : RM106.00 20% Mark-up on Actual cost : RM 21.20 (RM20% X RM106.00) Value (cost) at the point of sale : RM127.20 6% GST Charged : RM 7.63 Price at the point of sale : RM134.83 6% Input tax claimed : (RM 6.00)? 38
RETAILING PRICING Non-registered retailer sales price: Assuming the GST inclusive price of goods supplied to the non-registered retailer is RM106.00 and at the point of sale, the registered retailer marks up 20% on the cost of goods. Price of goods (inclusive of GST) : RM106.00 No input tax : (RM 0.00) Actual cost : RM106.00 20% Mark-up on Actual cost : RM 21.20 (RM20% X RM106.00) Value (cost) at the point of sale : RM127.20 No GST Charged : RM 0.00 Price at the point of sale : RM127.20 39
RETAILING CONSIGNMENT GOODS Consigned Goods Goods sent by consignor to a consignee. the consignee has possession of goods and will attempt to sell them, but the consignee does not own the goods. 40
RETAILING CONSIGNMENT GOODS Features of consignment are: The consignor is entitled to receive all the expenses in connection with consignment. The consignee is not responsible for damage of goods during transport or any other procedure. Goods are sold at the risk of consignor. The profit or loss belongs to consignor only 41
Examples: Perfumes Clothes Household Furnitures accessories Shoes Shoes 42
RETAILING CONSIGNMENT GOODS GST Treatment on Supplies Made When consignor has to account for GST? Time of Supply (TOS) when it becomes certain that a supply has taken place, (i.e. goods has been sold by consignee) Basic TOS : Date of Statement of Sale Actual TOS : Date of tax invoice Provided that the tax invoice was issued within 21 days from the basic TOS 43
RETAILING CONSIGNMENT GOODS Example: Sales statement issued by consignee Company A Consignor 1 01.05.2015 Goods removed Shop B Consignee 2 Sales Statement 25.05.2015 Basic time of supply (Date of Sales Statement) 3 25.05.2015 Time Of Supply (If no Tax Invoice issued within 21 days) 21 days rule 05.06.2015 If Tax invoice issued 15.06.2015 (21 days) Actual Time Of Supply (Invoice Date) 44
RETAILING CONSIGNMENT GOODS GST Treatment on Supplies Made When consignor has to account for GST? Time of Supply (TOS) 12 months after the removal of the goods, Basic TOS : Date after 12 months the goods were sent Actual TOS: Date of tax invoice Provided that the tax invoice was issued within 21 days from the basic TOS 45
RETAILING CONSIGNMENT GOODS Example: No sales statement issued by consignee Company A Consignor 1 01.05.2015 Goods removed Shop B Consignee 2 No Sales Statement 01.05.2016 Basic time of supply (12 months after goods removed) 3 01.05.2016 Time Of Supply (If no Tax Invoice issued within 21 days) 21 days rule 05.05.2016 If Tax invoice issued 21.05.2016 (21 days) Actual Time Of Supply (Invoice Date) 46
RETAILING TRADE-IN GOODS Sec 15(4) When a transaction involves trade-in goods, the consideration for the supply is not wholly in money. In such a supply, the consideration of supply is the aggregate of:- (i) the amount in money as part of the consideration; and (ii) the open market value of the trade-in goods as part of the consideration. 47
RETAILING TRADE-IN GOODS Scenario 1: Customer is a non-registered person RETAILER supply : new goods G G T CUSTOMER Consideration : Trade-in goods + cash $ 48
RETAILING TRADE-IN GOODS Retailer Price (+6% GST) of new sofa : RM1,908.00 Consideration Cash : RM 848.00 Trade-in old sofa : RM1,060.00 Total Consideration : RM1,908.00 6% GST inclusive : RM 108.00 (RM1,908.00 X 6%/106%) The retailer accounts for output tax amounting to RM108.00. 49
RETAILING TRADE-IN GOODS Scenario 2: Customer is a registered person. supply : trade-in goods CUSTOMER (GST registered) G GT RETAILER (GST registered) Consideration : new goods Sec 15(3) Where the supply is for a consideration not in money, the value of the supply shall be taken to be an amount, with the addition of the tax chargeable, equal to the open market value of that consideration. 50
RETAILING TRADE-IN GOODS Supply = of old television Consideration = Open market value of consideration = price (+6% GST) of new television = RM1,908.00 Consideration for old television : RM1,908.00 6% GST inclusive : RM 108.00 (RM1,908.00 X 6%/106%) customer has to account for output tax amounting to RM108.00 51
Hire Purchase 52
RETAILING HIRE PURCHASE Treated as 2 supplies - Supply of goods and supply of credit SUPPLIER payment for goods supplied to buyer (no GST) Financial Institution Supply of goods (GST : Standard rated) Deposit for goods (GST : Standard rated - if a part of payment) BUYER Supply of credit (GST : exempt) Deferred payment Processing fee (GST : Standard Rated) 53
Credit Sales 54
RETAILING CREDIT SALES What is credit Sales? A sale in which the full amount will be made in one payment some time in the future or in smaller regular payments over a period of time. Purchases made by a consumer that do not require a payment made in full at the time of purchase. Example: Courts, Singer 55
RETAILING CREDIT SALES Treated as 2 supplies - Supply of goods and supply of credit SUPPLIER Supply of goods (GST : Standard rated) Supply of credit (GST : exempt) Processing fee (GST : Standard Rated) Deferred payment BUYER 56
RETAILING GST Implementation Day Matters to consider price display GST inclusive tax invoice to show GST chargeable 57
RETAILING GST Implementation Day Replace of price tag New price tag during GST regime shown is the amount plus GST chargeable. Amount inclusive of GST= RM1060.00 Tax fraction = 6%/106% x RM1060.00 = RM60.00 58 58
Thank You GST Unit Royal Malaysian Customs Department