Input Tax Credit
The Malaysian GST mechanism would be different as compared to the existing “service tax” imposed today. This is crucial because the cost of operation will change once GST kicks in on the 1st April 2014. As “others” have mentioned, there is an opportunity to claim back on the tax imposed on the goods or services acquired for business purposes. Here in this post, I will explain thoroughly how this will take place.
First and foremost, we need to know what does it mean by “Input Tax”? Input Tax is the GST incurred on any purchase or acquisition of goods and services by a taxable person for the purpose of making taxable supply in the course or furtherance of business.
The purchases or acquisitions would include goods or services purchased or acquired locally, imported goods and services and flat rate addition. Flat rate addition would be more for agriculture in this context. Examples are such as purchasing software by a local software company, the acquisition of paddy plants with intention to produce rice.
Relating to the statement “businesses can claim back on the input tax charged”, a person who is making taxable supply is entitle to claim for Input Tax when input tax has been incurred, input tax is allowable, he is a taxable person, goods & services acquired in the course of furtherance of business and the goods & services made in Malaysia or any supply made outside Malaysia which would be a taxable supply if made in Malaysia.
However, not every input tax is claimable. There are allowable input tax and non claimable input tax. Input tax is claimable if the goods or services are acquired for business purpose. If its for non business purposes, then it is not claimable.
How do we know if you fall into such categories? you are not allowed to claim input tax if you’re a non-registered person making taxable supplies or exempt supplies or making out of scope supplies. It is important to take note as this will affect your businesses seriously and it can be costly.
Blocked Input Tax
Quite sure that you must have heard about the blocked input tax on certain acquisition of goods. If not then it will be interesting for you folks. Blocked Input Tax are supplies that are excluded from any credit under GST. The following would be a list of “those” supplies:
- The supply or importation of a passenger motor
- The hiring of a passenger motor car
- Club subcription fee
- Medical and personal accident insurance premium or takaful contribution
- Family benefits
- Entertainment expenses to a person other than employees or existing customers*
* Exception are entertainment expenses incurred by a person who is in the business of providing entertainment.
Claimable “Blocked Input Tax”
If you plan to claim input tax in this categories, one example would be the passenger car. However, you must comply with certain conditions in order to claim the input tax. The basic rule would be the car is used exclusively for the purposes of business as may be approved by the DG subject to the following conditions:
- The motor car is registered in the name of the company;
- The motor car is not let on hire;
- There is no intention to make the motor car available for private use;
- The motor car is kept at business premises, used for business trips and must not be taken home overnight by any employee; and
- The motor car has the business’s name
Bad Debt Relief
In the event of your business could not get the payment to cover your supplies, you claim back the input tax charged on the supplied you make. This process is called bad debt relief. It can be claim in part or in full of a debt. However, you must satisfy the following conditions to do so:
- GST on the debt has already been paid
- Claimant has not received any payment or part payment 6 months from date of supply or the debtor has become insolvent before the 6 months has elapsed; and
- Sufficient efforts have been made to recover the debt.
* If the full or part of the debt is subsequently been paid by the customer, the GST portion would need to be paid as Output Tax
Documents require for claiming Input Tax Credit
I have laid out the mechanism of how input tax goes about in the GST mechanism. Now it is about how do we make a claim on the input tax. The following would be the documents:
- Tax invoice in the name of the claimant
- Simplified tax invoice is eligible for claim up to RM 30 in ITC
- Customs Form 1 or 9 together with Custom Official Receipt for importation of goods
- For import of services, GST is accounted by way of the reverse charge mechanism
This is it about the Input Tax Credit. There will be updates with pictures soon as some sub topics here only can be attainable after GST kick start. Feel free to comment and share it to your friends. It is noble deed to share knowledge around and make the rest a well informed citizen. If you have any questions, leave a comment below or you could email it to firstname.lastname@example.org or email@example.com