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To Be or Not to Be (Registered), That is the Question

Harold and Sarah Kate consider the GST registration dilemma of small businesses in Malaysia

We have all heard about the Goods and Services Tax (“GST”) that was announced by the Prime Minister during the reading of the 2014 Budget on 25 October 2013. GST will be implemented at a rate of 6% effective from 1 April 2015 to replace sales tax and service tax. With this announcement, the GST countdown to 1 April 2015 has begun, rendering it necessary for all businesses to consider the impact of GST and prepare for its implementation. This includes the critical issue of registration under the GST regime.



The Goods and Services Tax Bill 2009 (“GST Bill”) provides for two kinds of registration under the GST regime: mandatory and voluntary. According to the Ministry of Finance, only about 22% of businesses in Malaysia will be subject to mandatory registration under the proposed GST model. The remaining 78% may choose to voluntarily register for GST or be excluded altogether from the GST regime.

This article provides an overview of the key concepts of supply and registration for GST under the GST Bill and discusses the issues that need to be considered by the majority of small and medium enterprises in order to make an informed decision on whether to register or not to register for GST. 



It has been proposed by the Government that any person who makes a taxable supply for business purposes where the taxable turnover of that supply exceeds the threshold of RM500,000 must register under the GST regime. So, what is a taxable supply and how is the taxable turnover to be calculated? 



In general, supply for GST purposes covers all forms of supply of goods and services in return for consideration, whether monetary or in kind. A taxable supply may either be standard rated or zero-rated.

Standard rated supply : A standard rated supply is a taxable supply of goods or services that is subject to a positive GST rate (currently proposed at 6%). Examples of standard rated supply are the sale of cars and computers, as well as advertising and consultancy services.

Zero-rated supply : A zero-rated supply is a taxable supply that is subject to a GST rate of zero per cent. Some examples of zero-rated supply are agricultural products, sugar, salt, plain flour, cooking oil, poultry, eggs, fish, prawn, livestock supplies (cattle, goat, sheep and swine), international services and exports of goods and services.

Deemed supply : Any supply of goods and services without consideration may nevertheless be subject to GST if it is deemed by legislation to be a taxable supply. Some examples of deemed supplies are: (i) business gifts with a value of more than RM500; (ii) disposal of business assets without consideration; (iii) private use of business assets; and (iv) supply of services to connected persons.

Disregarded supply : In certain circumstances, a taxable supply although made with consideration may be disregarded for the purposes of GST. Some examples of disregarded supplies which are found in the GST Bill are: (i) supply of goods or services between members of a GST group; (ii) supply of goods within or between warehouses under the Warehousing Scheme; (iii) supply of finished goods by an approved toll manufacturer to his overseas principal or to a local buyer on behalf of his overseas principal under the Approved Toll Manufacturer Scheme; and (iv) supply of goods within and between designated areas (Langkawi, Labuan and Tioman). 

Exempt supply : An exempt supply is a supply of any goods or services that may from time to time be exempted by way of a ministerial order published in the Gazette from being chargeable to GST. Some examples of exempt supply of services that have been identified are the provision of public transportation (except airport and limousine taxis), toll highways, private health services and private education. Examples of exempt supplies of goods are the sale of residential properties, land for agricultural purpose and land for general use (government building and burial ground).



Taxable turnover is defined in the GST Bill as the total value of taxable supplies for a period of 12 months, excluding the amount of GST.

Taxable turnover for GST registration purposes is to be derived by adding up all taxable supplies (standard rated, zero rated and deemed supply) made by any person for a period of 12 months, excluding the value of -

  1. capital assets disposed;
  2. imported services; and
  3. disregarded supplies made (a) under the Warehousing Scheme; or (b) under the Approved Toll Manufacturing Scheme; or (c) within or between designated areas (i.e. Langkawi, Labuan and Tioman).

Save for the above three categories of disregarded supplies mentioned above, all the other disregarded supplies provided for under the GST Bill are required to be taken into account when calculating the taxable turnover of a business.

Below are some examples dealing with the taxable turnover for GST registration purposes.

Example 1

Ferry Journey Sdn Bhd provides ferry services to members of the public travelling between the mainland and an island. Stalls are set up by the company on the ferry to sell cooked food and souvenirs. The determination of the taxable turnover for Ferry Journey Sdn Bhd will only include the supply of cooked food and souvenirs (standard rated supplies) as the ferry services falls under exempt supplies.

Example 2

Mixco Sdn Bhd makes the following supplies during a period of 12 months -

  1. Supply of advertising services (standard rated supply) – RM250,000;
  2. Disregarded supplies made within Labuan – RM150,000;
  3. Disregarded supplies made to members of the same group – RM100,000;
  4. Supply of imported services – RM100,000;
  5. Business gifts with a total value of RM20,000; and
  6. Disposal of capital assets – RM50,000.

In this example, Mixco Sdn Bhd is not subject to mandatory registration under the GST regime because its total taxable turnover has not exceeded the threshold of RM500,000 as only the supplies amounting to RM370,000 under items (i), (iii) and (v) are to be included in determining its total taxable turnover.



There are two ways of determining the taxable turnover for a period of 12 months: the historical method and the future method.

Historical method : This method is based on the total value of all the taxable supplies in any month plus the value of the taxable supplies for the 11 months immediately preceding that month.

Future method : Under this method, taxable turnover is determined by looking at whether there are reasonable grounds to believe that the value of taxable supplies in any month plus the projected value of taxable supplies for the following 11 months after that month will exceed the threshold of RM500,000.

If a person applies the historical method and finds that he does not exceed the threshold, the person must then apply the future method to see if the threshold would be exceeded. This is illustrated in Table 1.

May 2015 – March 2016 (11 months)

April 2016

May 2016 - March 2017 (11 months)




The business has signed written contracts for taxable supplies for this amount

Historical method

RM350,000+RM50,000 = RM400,000

Threshold not exceeded, need not register




Future method

RM50,000+RM550,000 = RM600,000

Threshold exceeded, must register

 Table 1



It is not mandatory for a business to be registered for GST where the taxable turnover for its taxable supply does not exceed the threshold of RM500,000. However the business may choose to voluntarily apply to register for GST. A business which registers voluntarily must however remain registered for a minimum period of two years. As such, it is advisable for a business to weigh the benefits and difficulties that will flow as consequences of registering for GST. Issues that a business should consider are set out below.

Suppliers and customers of the business

A business should consider whether its current or foreseen suppliers will be GST registered or not.

If its suppliers are GST registered and charge standard rated GST, the business would benefit from GST registration as it will be able to claim back the GST incurred on the purchases from the GST registered supplier. On the other hand, if the business is not GST registered, it would be precluded from passing the GST charges onward to its customers. In this situation, the business may then have to either absorb the GST that it has paid to its suppliers, or increase the price of its goods and services and risk losing customers. 

If a business supplies products which are zero rated supplies, it would benefit from GST registration as it would be able to claim back the GST that it had incurred in the production of the zero rated supplies.

Likelihood of triggering mandatory registration

Another salient point that a business should consider is the likelihood of there being an increase in its taxable supply in the future which will trigger mandatory registration. Based on the example in Table 1 above, the business will be required to be GST registered when the value of the taxable supplies under the contracts that it signed during the 11 months after April 2016 causes its taxable turnover to exceed the RM500,000 threshold. In this scenario, the business has slightly more than 28 days to register itself for GST. Such a situation will likely see the business scrambling to prepare, register and implement GST within the short time frame.

Costs and responsibilities of being GST registered

The responsibilities a GST registered business attracts which would inevitably increase operational costs should also be considered by businesses. Examples of this include –

  1. keeping proper business and accounting records;
  2. training of staff to ensure correct charging and claiming of GST;
  3. changing of price displays and invoices to reflect GST-inclusive prices;
  4. setting up electronic payment infrastructure to enable sales to be captured accurately; and
  5. filing of GST returns.



The time is now for businesses to make preparations for the advent of the GST which will come into force in approximately 16 months. Businesses which are subject to mandatory registration will have to take steps to ensure that the implementation of GST is carried out across the fabric and fibre of the business. As for the remaining 78% of businesses in Malaysia, this is the time to assess if it is ultimately beneficial for the business to join or stay out of the GST regime. Since voluntary registration requires staying in the system for at least two years, businesses with the option should carefully consider the matter before coming to a decision.


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