Malaysia introduced a goods and services tax (GST) in April of 2015. The GST replaces the previous sales and service tax system used in Malaysia for many years. The new GST system introduced in Malaysia is similar to that of other countries already employing a GST system. However, some difference exists in the tax rate as well as the types of taxable supplies and purchases.
Who Is This For
This article is aimed at businesses based in Malaysia who are registered or planning to register for GST and wanting to get their business or invoicing software GST ready. Bear in mind that after you register for GST, you will be required to file quarterly returns with the relevant authority. So it is best to get it right from day one. By the end of this article, you will know what is needed to adapt your business software so it will create GST Malaysia compliant tax invoices, credit, debit notes and quotations/ estimates. You will also be able to generate the necessary reports that provide you with the necessary information that will help you file your quarterly GST returns.
Recommended Tax Codes/ Types For Supply and Purchase
The table below shows the full tax codes and tax types for supply and purchase as recommended by the Royal Malaysian Customs Department (RMCD) website (Jabatan Kastam Diraja Malaysia or JKDM).
|Tax Code||Description||Tax Rate %|
|GST Tax Code For Supply/ Sales|
|SR||Standard-rated supplies with GST|
|ZRL||Local supply of goods or services which|
are subject to zero rated supplies.
|ZRE||Exportation of goods or services which|
are subject to zero rated supplies.
|ES43||Incidental Exempt supplies.||0|
|DS||Deemed supplies (e.g. transfer or|
disposal of business assets without
|ES||Exempt supplies under GST||0|
|RS||Relief supply under GST.||0|
|AJS||Any adjustment made to Output Tax e.g :|
Longer period adjustment, Bad Debt
recover, outstanding invoice > 6
months& other output tax adjustments
|GST Tax Code For Purchase|
|TX||Purchases with GST incurred at 6% and directly|
attributable to taxable supplies.
|IM||Import of goods with GST incurred.||6|
|IS||Imports under special scheme with no GST|
incurred (e.g. Approved Trader Scheme, ATMS
|BL||Purchases with GST incurred but not claimable|
(Disallowance of Input Tax) (e.g. medical
expenses for staff)
|NR||Purchase from non GST-registered supplier with|
no GST incurred.
|ZP||Purchase from GST-registered supplier with no|
GST incurred. (e.g. supplier provides
transportation of goods that qualify as
|EP||Purchases exempted from GST. E.g. purchase of|
residential property or financial services.
|OP||Purchase transactions which is out of the scope|
of GST legislation (e.g. purchase of goods
|TXE43||Purchase with GST incurred directly attributable|
to incidental exempt supplies.
|TXN43||Purchase with GST incurred directly attributable|
to non-incidental exempt supplies.
|TX-RE||Purchase with GST incurred that is not directly|
attributable to taxable or exempt supplies.
|GP||Purchase transactions which disregarded under|
GST legislation (e.g. purchase within GST group
|AJP||Any adjustment made to Input Tax e.g.: Bad|
Debt Relief & other input tax adjustment
The list above is comprehensive but some of the tax types listed above may not be commonly used or not applicable at all for your business. Hence you should identify the tax types that are most applicable to your business. It is important that you know and understand when to apply the above tax types. If in doubt, you should seek assistance from your accountant or a qualified tax consultant. Or refer to the official RMCD Website.
Defining Your Tax Types In Your Invoice Software
Next, you need to define your applicable tax types and tax codes in your own invoice or business software so the software can track it and report on the individual items separately when it is time to file your returns. As mentioned, it may not be necessary to define all tax types as they may not be relevant to you.
For this illustration, we will demonstrate using our business software Ezy Invoice 13. With Ezy Invoice, when you create a new database and select “Malaysia” as the country that you are based in, Ezy Invoice will automatically define these tax types for you. Below is a screenshot of the default tax set up for a GST registered company in Malaysia. Note that it does not contain the entire list as shown in the previous table. Instead, it just contains the mostly commonly needed tax types for most businesses. You can add additional tax types as needed for your own business.
Screen shot showing set-up of tax codes for Supply (Sales)
Screen shot showing set-up of tax codes for Purchases
Note in the example above, we prefixed all the tax codes with an “S-” for supplies (sales) and a “P-” for purchases. This is just a suggestion that you can consider. It allows you to identify at glance if the code is a supply (sales) code or a purchase code.
Set-up Your Default Tax Codes and Business Logic
Next, you need to define the default tax codes and some business logic that tells the software when to use a specific tax code. This is so you can minimize human data entry error and shift more of the business logic to the software. In Ezy Invoice, you can specify default tax codes for global default tax code, inventory or product default tax code and customer default tax code.
(i) Global Default Tax Codes
At the time you set up your tax codes, in Ezy Invoice you can define the global default tax codes for sales and for purchases. The global default is applied whenever the tax code for the product or customer is not specified.
(ii) Inventory Or Product Default Tax Code
If you sell products/ goods or provide a service, note that some items are taxed at the standard rate at 6% while others may be “zero rated”, “exempt” or “out of scope”. You must be aware what these items are. In the product inventory in Ezy Invoice, you can define the default tax code for these items. Doing this allows the software to apply the appropriate tax code automatically whenever the item is inserted to your invoice or quotation. In Ezy Invoice, this is set in the “Details” page of the inventory form. See below :
(iii) Customer Default Tax Code
Next you can specify default tax codes for customers. For example, if your customer is based overseas and you are exporting goods and services to them, you may need to “zero rate” all items invoiced to this customer. In Ezy Invoice you can set this up in the “Accounts” page of the customer form as shown below :
Note that the “Tax Overrides Inventory” is checked. This means for this customer, the customer tax code takes precedence over the inventory item tax code.
Tax Invoice Set-up For GST Malaysia
The business invoice is a legal document. If you sell to another business who is registered for GST, that business may use your invoice to claim input tax. The Royal Malaysian Customs Department (RMCD) has listed some guidelines on what you are required to put on your invoices, credit and debit notes. So for the next step, you need to ensure that your business invoice and documents complies with these guidelines. Here are the essential items from these guidelines :
(i) the word ‘tax invoice” in a prominent place
(ii) the invoice serial number
(iii) the date of issuance of the invoice
(iv) the name, address, GST identification number of the supplier
(v) the name and address of the buyer
(vi) the description sufficient to identify the goods or services supplied
(vii) for each description, the quantity of the goods or the extent of the services and the amount payable, excluding tax
(viii) any discount offered
(ix) the total amount payable excluding tax, the rate of the tax and the total tax chargeable to be shown separately
(x) the total amount payable including the total tax chargeable; and
(xi) any amount in para (ix) and (x) must be converted into Malaysian currency (MYR) if they expressed in a foreign currency.
(xii) state separately the gross total amount payable in respect of each supply and rate (i.e. separate amount of exempt, zero, standard or other supplies).
Below is a screenshot of a sample invoice created with Ezy Invoice. Note that it complies with all the important requirements listed above. Note also that GST is applied at the row level rather than at the invoice total. With this set-up, you may be able to supply items that are standard rated, exempt or out of scope within the same invoice. If your software does not allow you to apply GST at the row or item level, you can still apply GST to the total. However if GST was applied at the total only, then the entire invoice as to be standard rated, zero rated, exempt or out of scope. You cannot have items of different tax types within the same invoice.
Tax Reports For GST Malaysia
Just as with GST in other countries like Australia, New Zealand and Singapore, you will need to file periodic GST returns to the relevant Government body in Malaysia as well (GST-03 return). You must ensure that the software can provide you with the sub total of each tax code as you will need this to fill out your GST return. Your business software not only must provide you with a total for each tax code for the GST report period, it must also provide a breakdown of the detailed transactions under the various tax codes to support your returns. With Ezy Invoice you can get these reports under Reports | Tax | Tax Detailed – Sales & Tax Detailed – Purchases.
So there you go. You are now ready to create GST ready Tax Invoices and get the information necessary to file your quarterly GST returns. For more information of GST Malaysia and how to get your software ready, please refer to the official guide from the RCMD here. The illustrations shown here were done with Ezy Invoice .