Malaysia to Implement Goods and Services Tax on 1 April 2015

The Malaysian government has announced that on April 1, 2015 it will implement a Goods and Services Tax (GST) of six percent. The new GST will replace the current sales and service tax regime.

GST is defined as a multi-stage tax payable by all the intermediaries in the production and distribution chain, with the tax burden ultimately borne by the end consumer. GST is a much broader tax than a sales and service tax; it operates on a negative concept, and all goods and services are therefore subject to GST unless specifically exempted. 

Businesses should note that services provided by a foreign service provider to Malaysian entities will also be subject to GST. The Royal Malaysian Customs Department will be the agency in charge of administering the GST.

Businesses will have to shoulder increased responsibility for ensuring compliance with GST. Therefore, in order to prepare themselves for the implementation of GST, foreign businesses should take the following actions:

  • Review commercial contracts
  • Review internal supplies
  • Update accounting systems
  • Retrain employees so that they can deal with GST
  • Ensure a clear understanding of the relevant conditions for qualifying for a GST rebate

The new GST has proven to be a controversial issue in many areas of Malaysia. There has been criticism from government opposition and civil society groups, who believe that the GST will place too much stress on much of the population who are already struggling with high levels of debt and little or no savings.

The Malaysian government has admitted that the GST will result in a nominal increase in prices, but does not expect consumers to be too adversely affected since they are only required to pay tax on goods and services used. Additionally, the government hopes to offset any adverse reaction to the GST by imposing a lower income tax rate and a RM300 increase to the Bantuan Rakyat 1Malaysia (BR1M) financial aid to low income households.

The government is also warning businesses not to raise their prices in reaction to the GST. Businesses that do raise prices could find themselves subject to the Price Control and Profiteering Act.

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