WITH the implementation date for GST just around the corner,
many are frantically searching for clarity, especially those running their own
businesses, entrepreneurs and investors. The government recently announced that
targeted consumers will not have to pay GST on the purchase of RON95 petrol,
diesel and LPG. It also confirmed that the following items will not be subject
to GST:
(i) all types of fruits whether local or imported;
(ii) white bread and wholemeal bread;
(iii) coffee powder, tea dust and cocoa powder;
(iv) yellow mee, kuey teow, laksa and meehoon;
(v) The National Essential Medicine list covering almost
2,900 medicine brands. These medicines are used to treat 30 types of diseases
including heart failure, diabetes, hypertension, cancer and infertility;
(vi) reading materials such as children's colouring books,
exercise and reference books, textbooks, dictionaries and religious books; and
(vii) newspapers.
The information above is retrieved from the NBC Group
website (www.nbc.com.my). What about property? Agnes Wong, who delivered a talk
on GST at the recent Property Outlook Conference 2015 in KL, urges those with
more burning questions to refer to gst.customs. gov.my under the Royal
Malaysian Customs Department (RMCD). Nevertheless, she shares her knowledge and
expertise on GST and helps clear the air on some GST-related issues pertaining
to the industry.
PROFESSIONAL INSIGHTS
Wong, a managing partner of Syarikat Ong Group of Companies,
chartered accountant and a licensed tax agent and more, shares her thoughts on
how this Goods and Services Tax will affect those of us who in some way "have
some business" in the property industry - as house purchasers/
investors/landlords et cetera. First and foremost, she refers to GST as a "consumer tax", it being borne by the end consumer. She also makes this "negatively perceived levy" sound positive and simple. "The higher one's
spending, the more GST has to be paid by the consumer, which is being collected
by the customs department," she says. "Personally, I see GST as a fairer tax.. payable when you consume. So, if you do have the money to consume, then tax
will be collected by the government accordingly," she explains.
In Malaysia, much of one's basic needs has been categorised
as "zero-rated items" under GST. Hence, Wong reminds, if consumption is planned
properly, GST payments can be managed. Nevertheless, she urges consumers to
find out what are the zero-rated, GSTexempted and GST-levied goods.
A list of these can be downloaded from www.gst. customs.gov.my
Exempt supply means goods and services sold by businesses
that are exempted from GST. For such businesses, GST paid on their inputs
cannot be claimed as credits. Examples of goods and services exempted from GST
are as follows:
1. Land used for residential or agricultural purposes or
general use;
2. Building used for residential purposes;
3. Financial services;
4. Private education services;
5. Childcare services;
6. Private healthcare services;
7. Transport services;
8. Tolled highways or bridges;
9. Funeral, burial and cremation services; and
10. Supplies made by societies and similar organisations.
[Information retrieved from NBC Group]
Wong also states that technically, the price of cars should
come down "as GST, which stands at 6%, will replace the current sales tax (for
motor vehicles), which is 10%".
"For businesses with proper GST planning, this tax is really
not categorised as part of a business cost; except for those items which are
restricted by the GST Act, such as items under 'Block Input Tax' and those
businesses dealing in exempt supply items where their GST payable is non
claimable," says Wong.
IMPACT ON THE WHOLE
With the property developer and construction company
affected, the price of property is expected to go up ... "between 2.6% and 3%".
"The inflation of 2.6% is calculated by REHDA. I got the
information from their recent presentation at the GST conference organised by
the CTIM (Chartered Tax Institute of Malaysia)," shares Wong.
Below, Wong spells out how various parties will be affected
by the GST.
Contractor
• Currently, contractors may incur costs on professional services
such as engineers, architects, lawyers, surveyors and consultants. These are
chargeable under the 6% services tax, as well as a 10% sales tax on certain
equipment. Currently, those taxes cannot be claimed back.
• With the implementation of GST, the sales and services tax
will be replaced with the 6% GST which is claimable. However, contractors will
need to manage their cashflow properly as output tax needs to be accounted and
paid for, regardless of whether payment has been received from the
developer/client.
Developers
• Developers of both residential and non-residential land in
a project are being classified as "mixed supplier" under GST. Their main
challenge includes the apportioning of the input tax incurred. They will need a
good and knowledgeable accounting team to handle such work.
• IT issues - upgrading software to be GST-ready is an
important part of getting a developer GSTprepared. This carries extra costs to
the business.
• Price increase on major input costs from components that
are currently free of Sales & Services Tax, but will be charged GST now.
Home
investor & purchaser
• GST financeable? As GST is claimable by registrant, GST
will not be financeable. Hence, as a non-GST registrant investors, you will be
expected to fork out more money to acquire a nonresidential property. Hence,
the margin of financing will drop as GST is not financeable. What is your
margin of financing?
• Hike in property price? I think when it comes to property
price, it will be interesting to see how each developer deals with his own GST
interpretation, as this will affect the developer's pricing strategy on his
products to his customers.
• Who is your next buyer? If you are a GST registrant
seller, will your selling price remain competitive if your buyer is a non-GST
registrant? I think there is no right or wrong answer to this question. If you
still want to transact a deal with a non-registrant, will the non- registrant
buyer negotiate that the price sold is GST inclusive or GST exclusive? We can
only wait and see how the market drives itself in the GST era.
• RPGT vs income tax? This is an upcoming topic to look at
by investors and purchasers.
COME APRIL 1, 2015
For those who have purchased properties and are waiting for
delivery (if they do not receive their properties by April 1, 2015), Wong
advises to check with the developer as to who will take up the GST cost. She
highly recommends one to query their developers now due to the many different
scenarios and impacts as spelled out below.
i. If the property is under an agreement with progressive
payments and the key or vacant possession will only be handed over after April
1, 2015:
a) The progressive payment that is made after April 1, 2015
will be subject to GST;
b) If the agreement states that the last payment should be
made after April 1, 2015, even though one has made the full payment before April
1, 2015, the last payment will still be subject to GST because according to the
agreement, the full payment should be made before April 1, 2015.
ii. If the property is under an agreement with no
progressive payment and the key or vacant possession will only be handed over
after April 1, 2015:
a) The invoice or payment which was issued or received
before April 1, 2015 is deemed GST chargeable, as if it took place on April 1,
2015.
Wong's advice: "Basically, whenever you transact a property,
whether you are a registrant or non-registrant, your knowledge in understanding
your GST impact is important when making your decision to buy or sell. So, arm
yourself with knowledge, sign up for some of the many courses and programmes to
familiarise yourself about GST."
Follow our column in the next few weeks to learn further how
GST will impact the property and secondary house market.
DID YOU KNOW?
• The current sales tax and service tax will be abolished
and be replaced by a consumption tax based on the value-added concept known as
Goods and Services Tax (GST).
• Supplies made by the federal and state government
departments are not within the scope of GST except for some services prescribed
by the fi nance minister. Supplies made by local authorities and statutory
bodies in relation to regulatory and enforcement functions are not within the
scope of GST.
• GST charged on all business inputs such as capital assets
and raw materials is known as input tax whilst GST charged on all supplies made
(sales) is known as output tax. For eligible businesses, the input tax incurred
is fully recoverable from the government through the input tax credit mechanism.
• The standard GST rate is 6%. The threshold for purposes of
registration under GST is the annual sales value of RM500,000. Businesses below
the threshold are not required to register but may do so on a voluntary basis.
[Information retrieved from NBC Group]
PROPERTY PRICES
ADVERSELY IMPACTED
• 2014 Budget Residential - Exempt Non-residential - Standard.
• Escalating house prices poses a major challenge for house
buyers.
• Higher prices of goods and services will be incorporated
into the sale price of residential properties.
• Prices of residential properties will be affected by the
implementation of GST especially the affordable housing category - home
ownership by target groups will be a bigger challenge.
• Based on consultation with industry experts and member
developers, REHDA's calculation shows that GST imposition will result in an
increase of house prices by about 2.6%.
• Currently, some input materials are levied with Sales and
Service Tax at 5% and 10%. However, these are not major building materials/
construction components incurred by developers.
• In actual fact, major components of construction namely
cement and concrete, steel, bricks, sand, etc currently do not attract Sales
and Service Tax.
• Therefore, implementation of GST will inevitably
contribute to the increase of property prices.
[Information from REHDA presentation
