Exploring new avenues: A new tax on goods and services is set to be introduced

On October 25, 2013, Malaysian Prime Minister Najib Razak delivered his 2014 budget speech and made a bold announcement that a goods and services tax (GST) of 6% will be effective in Malaysia as of April 1, 2015. GST is considered necessary to tackle the country’s budget deficit and to provide a stable source of revenue to Malaysia and avoid its overdependence on oil and gas revenues. The idea of implementing GST in Malaysia is not new and has been debated several times in the past; however, it appears that this time there is no turning back. In order to meet the April 1, 2015 kick-off date, the GST Act was gazetted on June 19, 2014. Any business with a turnover of taxable supplies that exceed (under the historical method) or is expected to exceed (under the future method) RM500,000 ($156,050) over 12 months must register for GST.

Getting Into Gear

With less than eight months before GST is introduced, businesses need to consider how GST will impact their businesses, if they have not already. Some of the issues would include knowing when a business needs to be registered for GST, and preparing a project plan and budget for implementing GST which would involve changes to management throughout the business – from people and processes to the organisation’s information system. To mitigate the effect of GST on businesses, the government has proposed reducing the corporate tax rate by one percentage point to 25%, which will take effect in year of assessment 2016. The government has also announced the following tax incentives will be available:

• A tax deduction on a capped amount of secretarial and tax filing fees for year of assessment 2015 and subsequent years of assessment of RM5000 ($1560) and RM10,000 ($3121), respectively;
• An extension of accelerated capital allowances on purchases of ICT equipment and software up to the year of assessment 2016;
• A double deduction on GST-related training expenses for accounting and ICT departments for the years of assessment 2014 and 2015; and
• Grants for GST training of employees in 2013 and 2014 and financial assistance for the purchase of accounting software in 2014 and 2015 for small and medium-sized enterprises.

Other Major Changes

There is another notable tax change, which is the increase in the real property gains tax (RPGT) rates, which went into effect on January 1, 2014. For individuals (both Malaysian citizens and permanent residents), the nil rate of tax on gains from disposal of real property and shares in real property companies held for more than five years remains unchanged, but companies and individuals who are not Malaysian citizens will now be subject to a rate of 5% on the gains from such disposals.

The government has also banned the Developer Interest Bearing Scheme, whereby developers had incorporated the interest rates on loans into house prices during the construction period in order to encourage more sales, and increased the minimum price of property that can be purchased by foreign nationals from RM500,000 ($156,050) to RM1m ($312,100).