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GST TREATMENT ON MANUFACTURING AND RETAIL SECTOR Venue : KLSFEA Shah Alam

GST TREATMENT ON MANUFACTURING AND RETAIL SECTOR Venue : KLSFEA Shah Alam Date : 26 February 2014 Organised by: KLSFEA Presenter: Sabariah Md Yusof. ROYAL MALAYSIAN CUSTOMS. FIZ & LMW Concept. FIZ & LMW Concept. 1. Facilities under GST. Approved Trader Scheme (ATS).

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GST TREATMENT ON MANUFACTURING AND RETAIL SECTOR Venue : KLSFEA Shah Alam

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  1. GST TREATMENT ON MANUFACTURING AND RETAIL SECTOR Venue : KLSFEA Shah Alam Date : 26 February 2014 Organised by: KLSFEA Presenter: Sabariah Md Yusof ROYAL MALAYSIAN CUSTOMS

  2. FIZ & LMW Concept

  3. FIZ & LMW Concept

  4. 1 Facilities under GST

  5. Approved Trader Scheme (ATS) • a facility to relieve GST payment on importation of goods • Under ATS • ATS participants are allowed to suspend GST on the importation of goods • Goods imported is used in the course or furtherance of business • The amount of GST suspended needs to be declared in the GSTreturn in the month which the importation takes place • Proposed amendment 2013: • “Sec.72(2) Any taxable person granted an approval under the Approved Trader Scheme shall declare the suspended payment of tax in the return for the taxable period to which the suspension relates” 5

  6. Approved Trader Scheme Malaysia AA Pte Ltd ATS approval XX Sdn Bhd Port (November 20XX) Value of imported Goods (CIF + Duty Import )= RM106000 GST 6%= RM6000 Total value of goods imported under ATS = RM106,000 Total value of GST suspended= RM6000 GST-03 (November 20XX) overseas Customs no.1 Goods cannot be suspended under ATS • Liquor, beer, wine and spirits • Tobacco and tobacco products • Blocked input tax goods • Goods for personal/non- business GST is suspended

  7. ATS Persons eligible for ATS • Companies located within Free Industrial Zone (FIZ) • Licence Manufacturing Warehouse (LMW) • International Procurement Centre (IPC) • Regional Distribution Centre (RDC) • Toll manufacturers under ATMS • Jewellery manufacturers under AJS • Companies with turnover above RM25 million and at least 80% of their supplies made are zero-rated; or • Any other person approved by the Minister 7

  8. LMW COMPANIES SEC.65/65A CUSTOMS ACT 1967 –IMPORT/EXPORT/LOCAL SALES PROCEDURES INPUT - Raw materials / components - Machines / equipments OUTPUT EXPORT DA FCZ (outright export) IMPORT • Zero Rated • EXEMPTION; • Import Duty • Excise Duty • GST on importations (6%) • suspended under • ATS LMW Company GPB / FIZ /FCZ • Subject to GST • Standard rate GST REGISTRANT / ATS Local Supplier FIZ LMW Others LOCAL SALES • Subject to GST; • Standard rate GST incurred for making taxable supplies -Claimable Subject to - Import duty - GST at standard rate

  9. ATS Approval subject to the following criteria: • Must be registered under Sec. 20 of the GST Act 20XX • Participant must make wholly taxable supply • Must be a registered user of electronic service • Must submit monthly GST return • Must makes declaration on the importation of goods electronically • Must have good compliance record as a GST payer • Must have good accounting and internal control system • Must furnish security if required; and • Any other conditions as may be determined by DG

  10. Approved Toll Manufacturer Scheme • Purpose • a facility to overcome the GST embedded when a person buys goods from an overseas person via a local toll manufacturer • Sec. 73 (2) – Approved Toll Manufacturer Scheme (proposed amendment 2013) • Any taxable person (Toll Manufacturer) are allowed to disregard the supply of services which comprises the treatment or processing of goods to the overseas principal (who belongs to a country other than Malaysia) • Any person (belongs to Malaysia) who receives the processed goods from the toll manufacturer shall account and pay tax as if he had himself supplied and acquired the goods in the course or furtherance of his business

  11. Approved Toll Manufacturer Scheme (ATMS) Recipient accounting TM invoices overseas principal for value-added services -disregarded Overseas principal invoices local customer on finished goods received 4. 3. TM imports consigned goods from the overseas principal (ATS) 1. Malaysia TM drop-ships finished goods to local customer of overseas principal Local supplier deliver goods on behalf of OP (ZR) 2.

  12. ATMS Eligibility for approved under the ATMS • Any toll manufacturer who has contract(s) with overseas principal who is not belong in Malaysia e.g he is not a taxable person • He carries out value added activities with the overseas principal: • worth RM2 million or more (excluding the cost of raw materials supplied or belonging to the overseas principal) per annum; and • 80% of the processed goods must be exported; What types of value added activities are allowed under ATS? • related to manufacturing, treatment, processing, finishing, assembling and other manufacturing-related works on consigned goods

  13. ATMS • GST tax treatment for ATMS • Supply of services by toll manufacturer (TM) to overseas principal (processing charges/toll) to be disregarded • TM deliver the processed goods on behalf of his overseas principal to the local customer • Supply of processed goods by overseas principal to his local customer subject to GST • Local customer has to account the GST by way of recipient accounting • Need to account based on whichever is earlier: • Invoice received from overseas principal; or • Payment made to overseas principal • Acquisition of goods by overseas principal • Local supplies delivered to the toll manufacturer under the account of overseas principal is zero rate

  14. ATMS Example: “Recipient Accounting” A Toll Manufacturer (A) approved under ATMS delivers processed goods on behalf of overseas principal to the local customer (B) on 29 April 2015. The Overseas principal issued an invoice to local Customer (B) with the amount of RM200,000.00 on 5 May 2015 How to account for the tax? • Local Customer (registered person) • Needs to account the tax amounting RM12,000 (6%XRM200,000.00) in his GST return. • Local customer (not a registered person) • Needs to account the tax not later than the last day of the subsequent month from the month in which the supply is made OUTPUT TAX = RM12,000 INPUT TAX = RM12,000 GST Return - May 2015(GST-03) *GST No.4 - May 2015 Value of supply RM200,000.00 GST amount payable RM12,000.00 *Return for non-registrant

  15. ATMS Approval subject to the following criteria: • Must be registered under Sec. 20 of the GST Act • Must be a registered user of electronic service • Must submit monthly GST return • Must have good compliance record as a GST payer • Must have good accounting and internal control system • Must furnish security if required; and • Any other conditions as may be determined by DG

  16. Warehousing Scheme • Types of warehouses license under Customs Act 1967: • Customs warehouse • Licensed warehouse • Duty free shops • Inland clearance depot Inputs: Forklift charges, storage charges C Declares supply and pays GST A Supply made in warehouse: Disregarded supply Supply made in warehouse: Disregarded supply B

  17. WS - GST Treatment • GST on goods deposited into the warehouse to be suspended • GST on goods moved from one warehouse to another warehouse to be suspended • Intermediate supplies within a warehouse to be disregarded • The last supply is subject to GST (trigger the duty point) • Goods released to local market to be subjected to GST • Goods released to overseas market to be zero- rated • All goods and services consumed in warehouse to be standard-rated

  18. WS Example Daim Sdn Bhd keeps his imported goods in a warehouse approved under section 65 of the Customs Act. One of his customers has agreed to buy certain goods at RM10, 000.00 and the goods are to be taken out from the warehouse. How does his customer determine the value of the last supply? (Prevailing import duty rate = 10% and GST = 6%)

  19. WS *Value of supply = RM 10,000.00 Rate of import duty = 10% Total duty import payable = RM1000.00 (10%X RM10,000.00) Daim Sdn Bhd’s customer needs to declare the following amount: Value for customs purposes = RM 10,000.00 Import duty (10%) = RM 1,000.00 Total value for calculating GST = RM 11,000.00 GST Payable (6% x RM11,000) = RM 660.00 *

  20. Designated Area – Langkawi, Labuan & Tioman GST Treatment on DA: * Except for petroleum and other goods as prescribed by the Minister of Finance

  21. Designated Area – Langkawi, Labuan & Tioman * Except for petroleum and other goods as prescribed by the Minister of Finance

  22. GST TREATMENT ON MANUFACTURING SECTOR • Farming Out • Drop shipment • Employee benefit • Loan on stock and equipment • Discount • Other transactions • Gifts • Samples • Warranty • Disposal of assets • Goods lost/destroyed 22

  23. Farming out within Malaysia • No transfer of ownership of goods. • it is not a supply of goods • Sub-contractor to account for GST on value of services supplied Finished goods and charged RM15,000 for labour Returned XYZ SDN. BHD. (GST registered person) ABC SDN. BHD. (GST registered person) Farmed out Raw materials valued at RM 100,000 23

  24. Farming out outside Malaysia • No GST on goods returned • If new parts are added GST will be imposed (similar to item 51 of the Customs Duties (Exemption Order) • Recipient to account GST on the supply of imported services Returned Finished goods and charged RM15,000 for labour ALLAN PTE LTD ABC SDN. BHD. (GST registered person) Farmed out Raw materials valued at RM 100,000 24

  25. Drop Shipment Non-resident invoices local customer on finished goods received CM Sdn.Bhd invoices finished goods supplied to the non-resident. 4. Non resident makes order for finished goods from CM Sdn. Bhd. 2. 1. Malaysia CM Sdn. Bhd. drop-ship finished goods to local customer of non-resident 3.

  26. Drop Shipment (Contract Manufacturer) • Non-Resident (non-registrant) • Supply made by contract manufacturer to non-resident is subject to GST • goods exported is zero rate • Supply of goods by contract manufacturer (taxable person) to non-resident : • subject to GST at standard rate • GST needs to be charged to the non-resident based on transaction value • Supply of goods (drop-ship) by non-resident to the local customers are not liable to GST

  27. Employee Benefits • Employee benefits include any right, privilege, service or facility provided free of charge to employees as stated in the contract of employment • not subject to GST and input tax is claimable • If not stated in the contract of employment • all goods provided free to the employees is subject to GST (subject to gift rule of RM500) except those exempted, blocked input tax and zero rated goods • input tax claimable • output tax on gifts > RM500 • value to be based on open market value • Services supplied free • no GST 27

  28. Loan stock and equipment • Raw materials on loan • it is a supply of goods • subject to GST • Equipments on loan • it is treated as a supply of services • subject to GST 28

  29. Discount • GST on the value after discount includes : • Cash discount • Prompt payment discount • Volume discount, etc • Normally given in percentage or value • Given when using discount card/coupon at the time of sale or after sale • Sales to connected person based on open market value and not on discounted price

  30. Gifts and samples • Gift • Gift of goods not more than RM500 made in the course or furtherance of business to the same person in the same year : • not subject to GST • Samples • Imported trade sample given relief under GST Relief Order • Trade samples given for promotion not subject to GST on conditions • packed differently and labelled ‘sample’ or ‘not for sale’ • samples not packed differently is subject to business gift rules of RM500

  31. Warranty • Manufacturer’s warranty normally includes: • after–sale services and repairs • any replacement of spare-parts free of charge during the warranty period • not subject to GST 31

  32. Disposal of Assets • Sale of capital assets, other than TOGC • subject to GST • Sale of assets as TOGC • not subject to GST (not a supply) • Given free • the value will be the open market value • subject to GST (>RM500) • Sell as scrap • the value will be the sale value of scrap • subject to GST

  33. 2 RETAILING

  34. Agenda • Pricing • Consignment Sales • Trade in Goods • Hire purchase • Credit Sales

  35. RETAILING – PRICING GST charged on standard rated supplies Assuming the value of goods or services supplied is RM100.00 and GST chargeable is 6%. Value : RM 100.00 6% GST charged (output tax) : RM 6.00 (RM100.00 X 6%) Total (price inclusive of 6% GST) : RM 106.00

  36. RETAILING – PRICING GST incurred on standard rated supplies Assuming the price of goods supplied to the registered retailer is RM106.00 inclusive of 6% GST. Price (inclusive of 6% GST) : RM 106.00 The GST incurred (input tax) : RM6.00 (RM106.00 X 6% / 106%).

  37. RETAILING – PRICING Registered retailer sales price: Assuming the GST inclusive price of goods supplied to the registered retailer is RM106.00 and at the point of sale, the registered retailer marks up 20% on the cost of goods. Price of goods (inclusive of GST) : RM106.00 6% GST inclusive (Input tax incurred) : (RM 6.00) (RM106.00 X 6%/106%) Actual cost : RM100.00 20% Mark-up on Actual cost : RM 20.00 (RM20% X RM100.00) Value (cost) at the point of sale : RM120.00 6% GST Charged : RM 7.20 Price at the point of sale : RM127.20

  38. RETAILING – PRICING Registered retailer sales price: Incorrect method Price of goods (inclusive of GST) : RM106.00 20% Mark-up on Actual cost : RM 21.20 (RM20% X RM106.00) Value (cost) at the point of sale : RM127.20 6% GST Charged : RM 7.63 Price at the point of sale : RM134.83 6% Input tax claimed : (RM 6.00) ?

  39. RETAILING – PRICING Non-registered retailer sales price: Assuming the GST inclusive price of goods supplied to the non-registered retailer is RM106.00 and at the point of sale, the registered retailer marks up 20% on the cost of goods. Price of goods (inclusive of GST) : RM106.00 No input tax : (RM 0.00) Actual cost : RM106.00 20% Mark-up on Actual cost : RM 21.20 (RM20% X RM106.00) Value (cost) at the point of sale : RM127.20 No GST Charged : RM 0.00 Price at the point of sale : RM127.20

  40. RETAILING – CONSIGNMENT GOODS • Consigned Goods • Goods sent by consignor to a consignee. • the consignee has possession of goods and will attempt to sell them, but the consignee does not own the goods.

  41. RETAILING – CONSIGNMENT GOODS • Features of consignment are: • The consignor is entitled to receive all the expenses in connection with consignment. • The consignee is not responsible for damage of goods during transport or any other procedure. • Goods are sold at the risk of consignor. • The profit or loss belongs to consignor only

  42. Examples: Household accessories Shoes Perfumes Clothes Furnitures Shoes

  43. RETAILING – CONSIGNMENT GOODS GST Treatment on Supplies Made • When consignor has to account for GST? • Time of Supply (TOS) • when it becomes certain that a supply has taken place, • (i.e. goods has been sold by consignee) • Basic TOS : Date of Statement of Sale • Actual TOS : Date of tax invoice • Provided that the tax invoice was issued within 21 days from the basic TOS

  44. RETAILING – CONSIGNMENT GOODS Sales statement issued by consignee Example: 1 Shop B Company A 01.05.2015 Goods removed Consignee Consignor 2 25.05.2015 Sales Statement Basic time of supply (Date of Sales Statement) 21 days rule 3 05.06.2015 15.06.2015 (21 days) 25.05.2015 If Tax invoice issued Time Of Supply (If no Tax Invoice issued within 21 days) Actual Time Of Supply (Invoice Date)

  45. RETAILING – CONSIGNMENT GOODS GST Treatment on Supplies Made • When consignor has to account for GST? • Time of Supply (TOS) • 12 months after the removal of the goods, • Basic TOS : Date after 12 months the goods were sent • Actual TOS: Date of tax invoice • Provided that the tax invoice was issued within 21 days from the basic TOS

  46. RETAILING – CONSIGNMENT GOODS Example: No sales statement issued by consignee 1 Shop B Company A 01.05.2015 Goods removed Consignee Consignor 2 01.05.2016 No Sales Statement Basic time of supply (12 months after goods removed) 21 days rule 3 05.05.2016 21.05.2016 (21 days) 01.05.2016 If Tax invoice issued Time Of Supply (If no Tax Invoice issued within 21 days) Actual Time Of Supply (Invoice Date)

  47. RETAILING – TRADE-IN GOODS Sec 15(4) When a transaction involves trade-in goods, the consideration for the supply is not wholly in money. In such a supply, the consideration of supply is the aggregate of:- the amount in money as part of the consideration; and the open market value of the trade-in goods as part of the consideration.

  48. RETAILING – TRADE-IN GOODS Scenario 1: Customer is a non-registered person

  49. RETAILING – TRADE-IN GOODS Retailer Price (+6% GST) of new sofa : RM1,908.00 Consideration Cash : RM 848.00 Trade-in old sofa : RM1,060.00 Total Consideration : RM1,908.00 6% GST inclusive : RM 108.00 (RM1,908.00 X 6%/106%) The retailer accounts for output tax amounting to RM108.00.

  50. RETAILING – TRADE-IN GOODS Scenario 2: Customer is a registered person. Sec 15(3) Where the supply is for a consideration not in money, the value of the supply shall be taken to be an amount, with the addition of the tax chargeable, equal to the open market value of that consideration.

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