Contributed by our partner, Cheng & Co | Website
Written by Bryan Lew, Corporate Development & GST Director of Cheng & Co & Jack Wong, Senior Tax Manager
More than a year has passed since the implementation of Goods and Services Tax in Malaysia; however with numerous ops conducted by the Royal Malaysian Customs (RMC) still seems to get all businesses worried whether their understanding on GST and its methodology use in their daily operations are accurate or otherwise. Every business operators are hoping that they will not be getting a surprise visit by the RMC as news on penalties seems to be looming around lately.
But that is not the only worries faced by the business owners. It is understandably that every business owners need to survive from any crisis, thus SMEs may want to expand their business either locally, overseas or franchise their businesses. Thus dealings with financial institutions will be much frequent than usual. However, what should the business owners know about the GST impact from the Financial Institution and Commercial Banking on them?
Cheng & Co believes that by now every business owners should know that financial institution and banks make three types of supplies; Exempt supply, Standard-rated supply, and Zero-rated supply.
A supply is exempted if the consideration of the supply is in the form of an interest or a spread. Exempt supply covers:
To elaborate further most financial services provided to the business owners are not subjected to GST however, banks and financial institutions also provide fee-based services which are subjected to GST at a standard rate. Thus the standard rated supply covers:
It is quite straight forward for Zero-rated supply, as any services supplied to business owners will be charged at zero-rate if the business owner is outside of Malaysia at the time the services rendered as this is considered as an export service. Some examples for exported (Zero-rated) financial services are:
To have an opportunity to expand one’s businesses either locally, overseas or franchising their business is definitely every-successful SME would want. In some cases, business owners need to get a loan facility from financial institutions or banks in order to expand their business be it for cash flow purposes or to cover the cost of setting up new offices.
Business owners need to remember that loans, its interest and stamp duty are exempted from GST. On the other hand, loan processing fee imposed on the loan to the SME is subjected to GST at a standard rate. The same applies to any fees or charges imposed on advisory, consultancy, placement, admin and handling, and annual fees. Unless the provision of loan is to finance a project outside of Malaysia, then the provision of loan is considered a zero-rated supply together with the processing fee in respect of the loan is also a zero-rated supply.
Do take note that even third party ATM withdrawal is subjected to GST. For instance, if you are Bank ABC customers and decided to withdraw money via Bank XYZ’s ATM machine. Bank XYZ will charge you a RM1.00 service fee (MEPS) plus GST which will be RM1.06.
However, there are certain fees or charges which will not be subjected to GST. These are fees and charges being imposed to compensate for loss, damages, or to penalize the business owners for not meeting certain requirements or conditions. Such fines or penalties which are punitive in nature include:
As business owners, you may recover the GST expenses incurred as your input tax during the closing of GST accounts by offsetting your output tax on the GST-03 before submitting to the RMC.