Are you using the right tax code for your transactions?
In the planning stages of the goods and service tax in Malaysia, the Royal Custom of Malaysia has come out with codes to link with the supply. From standard rated supplies to exempt supplies. There are 23 tax codes in the Malaysian GST system. It is split into half whereas 11 codes are used for acquisition and 11 codes for supply. Looks simple isn’t it? Since it is only 11 codes for each, but do you really know how to apply them? This boggles many as which codes to use for each transaction.
However, people will ask “so what if we don’t get it right? I suppose it’s okay“. Well, it’s not going to be okay. Reasons would be your company will have a huge problem filling up the return at the end of your taxable period. Not filling up accurate information will lead to a penalty. Not to mention, this small problem will lead to bigger problems especially if the customs are suspecting and an investigation comes by. Hence, it is important to note of this matter even though this might seem like small matters. Nevertheless, the objective of this post would be to explain each tax codes and some application in which we believe would assist your company in this matter.
Acquisition Tax Codes
Tax Code : TX 6%
This refer to goods and/or services purchased from GST registered suppliers. The prevailing GST rate is 6% well effective from 1st April 2015. As it is a tax on final consumption, a GST registered trader will be able to claim credits for GST paid on goods or services supplied to them. The recoverable credits are called input tax. Examples include goods or services purchased for business purposes from GST registered traders.
Tax Code : IM 6%
All goods imported into Malaysia are subjected to duties and/or GST. GST is calculated on the value which includes cost, insurance and freight plus the customs duty payable (if any), unless the imported goods are for storage in a licensed warehouse or Free Trade Zone, or imported under Warehouse Scheme, or under the Approved Trader Scheme. If you are a GST registered trader and have paid GSt to Malaysia Customs on your imports, you can claim input tax deduction in your GST returns submitted to the Director General of Customs.
Tax Code : IS 0%
This refers to goods imported under the Approved Trader Scheme (ATS) and Approved Toll Manufacturer Scheme (ATMS), where GST is suspended when the trader imports the non-dutiable goods into Malaysia. These two schemes are designed to ease the cash flow of Trader Scheme (ATS) and Approved Toll Manufacturer Scheme (ATMS), who has significant imports.
Tax Code : NR
This refers to goods and services purchased from non-GST registered supplier/trader. A supplier/trader who is not registered for GST is not allowed to charge and collect GST. Under the GST model, any unauthorized collection of GST is an offence.
Tax Code : BL 6%
This refers to GST incurred by a business but GST registered trader is not allowed to claim input tax incurred. The expenses are as following:
- The supply to or importation of a passenger car;
- Medical expenses incurred by your staff. Excluding those covered under the provision of the employee’s Social Security Act 1969, Workmen’s Compensation Act 1952 or under any collective agreement under the Industrial Relations Act 1967
- Entertainment expenses to a person other than employee and existing customer except entertainment expenses incurred by a person who is in the business of providing entertainment.
Tax Code : ZP 0%
This refers to goods & services purchased from GST registered suppliers where GST is charged at 0%. This is also commonly known as zero-rated purchases.
Tax Code : EP 0%
This refers to purchases in relation to residential properties or certain financial services where there’s no GST was charged (i.e. exempt from GST). Consequently, there is no input tax would be incurred on these supplies.
Tax Code : OP 0%
This refers to purchase of goods outside the scope of GST. An example is purchase of goods overseas and the goods did not come into Malaysia, the purchase of a business transferred as a going concern. For purchase of goods overseas, there may be instances where tax is imposed by a foreign jurisdiction that is similar to GST (e.g VAT). Nonetheless, the GST registered trader is not allowed to claim input tax for GST / VAT incurred for such purchases. This is because the input tax is paid to a party outside Malaysia.
Tax Code : TX-E43 6%
This is only applicable to GST registered trader )group & ATS only) that makes both taxavle and exempt supplies (or commonly known as partially exempt trader). TX-E43 should be used for transactions involving the payment of input tax that is directly attributable to the making Incidental Exempt Supplies. Incidental Exempt Supplies include interest income from deposits placed with a financial institution in Malaysia, realized foreign exchange gains or lossses, first issue of bonds, first issue of shares through an Initial Public Offering & interest received from loans provided to employees, factoring receivables, money received from unit holders for units received by a unit trust etc.
Tax Code : TX-N43 6%
This is only applicable to GST registered trader that makes both taxable & exempt supplies (or commonly known as partially exempt trader). TX-N43 should be used for transactions involving the payment of input tax that is directly attributable to the making Non-Incidental Exempt Supplies. Example for this tax code are your company bought wall paper for your residential apartment rented to others & purchase costs are already included 6% GST, but you are not eligible to claim the amount of input tax as it would be applied directly to make exempt supply (rental of residential apartment.)
Tax Code: TX-RE 6%
This is only applicable to GST registered trader that makes both taxable and exempt supplies (or commonly known as partially exempt trader). This refers to GST incurred that is not directly attributable to the making of taxable or exempt supplies (or commonly known as residual input tax). Example includes operation over-head for a development of mixed property (properties comprise of redidential & commercial).
Tax Code: GP 0%
Purchase within GST group registration, purhcase made within a Warehouse Scheme etc.
Tax Code: AJP 6%
Any adjustment made to Input Tax such as bad debt relief & other input tax adjustments.
Supply Tax Codes
Tax Code: SR 6%
A GST registered supplier must charge and account GST at 6% for all sales of goods & services made in Malaysia unless the supply qualifies for zero rating, exemption or falls outside the scope of the proposed GST model. The GST collected from customer is called output tax. The value of sale and corresponding output tax must be reported in the GST returns.
Tax Code: ZRL 0%
A GST registered supplier can zero-rate (i.e. charging GST at 0%) certain local supply of goods & services if such goods or services are included in the Goods & Services Tax (Zero Rate Supplies) Order 2014. Examples includes sale of fish, cooking oil.
Tax Code: ZRE 0%
A GST registered supplier can zero-rate (i.e. charging GST at 0%) the supply of goods & services if they export the goods out of Malaysia or the services fall within the description of international services. Examples includes sale of air tickets and international freight charges.
Tax Code: ES43 0%
This is applicable to GST registered trader that makes both taxable & exempt supplies (or commonly known as partially exempt trader). This refers to exempt supplies made under incidental exempt supplies. Incidental Exempt Supplies include interest income from deposits placed with a financial institution in Malaysia, realized foreign exchange gains or losses, first issue of bonds, first issue of shares through an IPO and interest received from loans provided to employees also include factoring receivables, money receive from unit holders for units received by a unit trust etc.
Tax Code: DS 6%
GST is chargeable on supplies of goods and services. For GSt to be applicable there must be goods or services provided and a consideration paid in return. However, there are situations where a supply has taken place even though no goods or services are provided or no consideration is paid. These are known as deemed supplies. Examples include free gifts (more than RM500) and disposal of business assets without consideration.
Tax Code: OS 0%
This refers to supplies (commonly known as out-of-scope supply) which are outside the scope and GST is therefore not chargeable. In general, they are transfer of business as a going concern, private transactions, third country sales (i.e. sale of goods from a place outside Malaysia to another place outside Malaysia).
Tax Code: ES 0%
This refers to supplies which are exempt under GST. These supply include residential property, public transportation
Tax Code: RS 0%
This refers to supplies which are supply given relief from GST
Tax Code: GS 0%
This refers to supplies which are disregarded under GST. These supplies include supply within GST group registration, sales made within Warehouse Scheme etc.
Tax Code: AJS 6%
Any adjustment made to Output Tax, example such as longer period adjustment, bad debt recovered, outstanding invoices more than 6 months & other output tax adjustments.
At this point, pretty sure you have a rough idea what all these codes does. Study them properly and think of how to apply them into your business. It may seem like a daunting task but it is definitely worth while especially in comparison with the consequences of the penalty. However, this is textbook stuff. What happens in reality is subjective therefore, the best solution in implementing the codes would be to speak to your consultant and programmer. You can also drop us an email if you’re interested in our opinion, we would not mind at all. Email us at firstname.lastname@example.org