This is the first of a two-part Q&A provided by PwC on various aspects of Budget 2014. Part two will appear tomorrow.
Will I have to pay goods and services tax (GST) if I buy goods from a “kedai runcit”?
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:
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.
This is the second part of a two-part question-and-answer series by PwC Malaysia on the Budget 2014 provisions. The first part was published yesterday.
The Prime Minister announced in his budget speech that the goods and services tax (GST) will be implemented at a rate of 6%. Does this mean that everything I buy will become 6% more expensive?
In a word, no. In announcing the introduction of GST, the Prime Minister also announced the repeal of the current sales and service tax. Currently many of the goods we buy are subject to a sales tax of 10% while several services are subject to service tax at a rate of 6%.
Undoubtedly some items will become more expensive as not everything is currently subject to sales or service tax. However, the comparatively low GST rate means that some goods may remain at present prices and those services upon which we currently pay service tax may not become any more expensive.
In addition, the Prime Minister also stated that essentials such as basic foodstuff, domestic water and electricity, and residential accommodation will not be subjected to GST. Essential services such as healthcare, education and financial services will all be exempted.
I read an article which showed that private healthcare may become more expensive under GST. I thought healthcare was exempted from GST. How does it become more expensive?
Healthcare will indeed be exempted from GST. The Government has made a policy decision to exempt certain essential services from GST to ensure that the rakyat are not burdened by GST unnecessarily. However, part of the conditions of an exempted service is that the service provider cannot recover the GST paid on purchases.
Because of this, the service provider’s costs will increase due to the irrecoverable GST. Proposed exempted services include private healthcare, private education and financial services. Because of the nature of these services, the cost of purchases made by the service provider is generally significantly less than the price of the service. Although the price of exempted supplies may increase, it will do so by a minimal amount.
I have heard that some goods and services could become cheaper under GST. Won’t businesses use GST as an excuse to raise prices by 6% and increase their profits?
The Price Control and Anti Profiteering Act 2011 makes it illegal for businesses to profiteer from the introduction of the tax. The Prime Minister made it clear in his budget speech that prices of goods and services will be monitored by the Government to ensure compliance. In addition, the Government will publish consumer guidance so the rakyat will be able to compare prices charged.
If you think a business is overcharging or is charging the tax illegally, you will be able to report them to the Domestic Trade, Cooperative and Consumerism Ministry.
I am a Malaysian citizen and have been residing in Singapore since 1995. I own a property in Malaysia jointly with my sister, also a Malaysian citizen for more than five years. Do I need to pay RPGT if I dispose of the property based on the Budget 2014 proposal?
As long as you and your sister are Malaysian citizens and the holding period of the property is more than five years, any gain on the disposal of the property is not subjected to RPGT.
I am a foreign investor looking for an opportunity to invest in Malaysian properties. Are there any restrictions on the price of property that a foreigner like me can invest in?
Based on Budget 2014 announcement, the minimum price of property that can be purchased by foreigners has been increased from RM500,000 to RM1mil. However, the effective date is not mentioned in the announcement.
Would there be any changes to the corporate income tax since GST will be implemented in 2015?
Yes, the corporate tax rate will be reduced by 1% to 24% from current tax rate of 25% with effect from the year of assessment 2016. For companies with paid-up capital of up to RM2.5mil, the rates will be reduced by 1 percentage point as follows:
I am currently the sole breadwinner in my family with two children under the age of 18 and earning a monthly employment income of RM10,000. I heard that the GST will be introduced on April 1, 2015 at the rate of 6%. In tandem with this, will there be a reduction in the individual tax rates?
It has been proposed that, with effect from 2015, the tax rates for resident individuals be reduced by 1% to 3% and the chargeable income bands will be expanded by adding two income bands for the chargeable income exceeding RM100,000. Hence, the new schedule of tax rates for resident individuals is as in the table.
In addition, the tax rate for non-resident individuals is reduced by 1 percentage point, from 26% to 25%.
With the above reduction in tax rates and increase of chargeable income band, your estimated tax payable in 2015 based on your annual income of RM120,000 (RM10,000 x 12 months) after taking into account the relevant personal tax reliefs, will be about RM11,900 compared with RM13,850 under the existing individual tax rates.
Hence, you will have a tax saving of RM1,950 (RM13,850 – RM11,900) per annum under the new tax rates.
Retaining employees have been one of the major challenges faced by companies these days. In view of this, I would like to introduce a flexible working arrangement (FWA) in my organisation. Are there any incentives for me as an employer in planning and designing staff management and retention programmes in relation to the FWA?
Yes, expenses incurred by employers in training of employees, supervisors and managers as well as consultancy fees to design an appropriate FWA to be implemented will be given further deduction. The eligible expenses include costs for training in optimising a work-life balance, technology orientation, managing a flexible workforce and helping managers embrace flexible work alternatives.