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
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.
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.
• 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 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
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