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Industry Guide:

Manufacturing

 
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FREQUENTLY ASKED QUESTIONS 

Registration

1. Are all manufacturers liable to be registered as GST registered persons?

Only those manufacturers who make taxable supplies and have annual turnover that exceeds the prescribed threshold for GST registration are liable to be registered as registered persons. However, for those manufacturers whose annual turnover does not exceed the prescribed threshold, they can still apply for voluntary registration. 

2. If my company has a few subsidiaries, do I have to register all my companies separately or as a group?

You may register all the subsidiaries as a group or each company may apply to be registered separately. For further details, please refer to Guide on Registration. 


Inputs

3. Can a GST-registered manufacturer treat all the GST paid for his business acquisitions or purchases as his input tax credit?

All GST incurred by the manufacturer can be treated as his input tax credit, if he incurs the GST for his business purpose. The manufacturer can offset this input tax credit against any output tax that he is liable to pay to the Director General of Customs (DG). 

4. Is GST imposed on raw materials and components used in the manufacture of goods that are meant for export?

Yes, you will have to pay GST on all raw materials acquired by you from any GST-registered suppliers. If you choose to import the raw materials, GST is payable at the time of importation. However, if you are a GST registered person, you would be able to claim input tax credit on all input tax incurred by you. The goods subsequently exported by you will be zero-rated. 

5. I am a manufacturing company which categorizes as export oriented incurred a substantive GST on imported goods. Is there any facility to me not to pay GST upfront?

Under the mechanism of the GST, whatever GST incurred on your acquisition whether locally source or imported is subject to GST and allowed for input tax claim. However, some export oriented companies which hold status as Free Industrial Zone and Licensed Manufacturing Warehouse (LMW) are eligible to suspend the payment of GST on all their importation of goods at the time of importation under the Approved Trader Scheme (ATS). For further details, please refer to Guide on Approved Traders Scheme (ATS). 
 

6. Can I claim GST paid on administrative expenses?

All administrative expenses incurred in making taxable supplies are entitled to input tax claim whether directly or indirectly used in the manufacturing process. The input tax can be claimed in full by offsetting it against your output tax in your GST return. 

7. How about GST incurred on capital items, for example a computer system or an office building? Can I claim them as my input tax credit?

As a GST registered person, you can claim the GST incurred on capital items that were to be used in your business to make taxable supplies. The input tax is claimable in the taxable period in which the capital items are acquired. 

8. Are there any purchases in which input tax is not claimable?

Basically, input tax is claimable on all purchases, except for the following: 

(a) on goods and services which are not used for your business. 

(b) on goods (other than those on hand at the time of registration) and services obtained before GST registration.

(c) all supplies that fall under the blocked input tax which is stipulated under the GST Regulations 20XX. Examples of such supplies include passenger cars. 

9. If capital assets are used for making exempt supply, can I claim full input tax credit?

No, input tax claim on exempt supplies is not allowed. 

10. If capital assets are used for making mixed supply, can I claim full input tax credit?

If you are making mixed supplies (taxable and exempt supplies) you will have to apportion the input tax based on the proportion of taxable supplies made. Besides that, if the assets are used for making mixed supplies and the value of the assets is more than RM100, 000.00 (excluding tax), the GST incurred on the cost of the capital goods may be subject to adjustments under the Capital Goods Adjustment. Adjustment becomes necessary when there is a change in the proportional taxable use of the capital goods. For further details, please refer to Guide on Capital Goods Adjustment. 

11. If for some reasons, like defective or inferior goods, I have to return some of the goods to my supplier, can I claim the GST paid on the returned goods?

When you returned the goods, your supplier should refund you the payment for the goods and the GST you paid by way of a credit note. If you have already claimed the input tax credit on the returned goods, then you will have to reduce the said input tax in the taxable period in which you received the credit note. 

12. I am a GST-registered manufacturer and acquire certain services from overseas. What is my GST liability?

When you acquire the services from overseas, you are treated as making the supply of imported services. Therefore, you need to account for tax on such services acquired where the time of supply is when the supply is paid by you. However, if you are making wholly taxable supplies, there will be no net GST implication because the amount of output tax that need to be accounted would be the same as the amount of input tax that you claim. But, if you are making both taxable and exempt supplies you have to account for output tax in full but you can only claim your input tax proportionally.

13. Can I claim input tax on the whole value (purchase price) of the machinery acquired under a hire purchase agreement?

Under hire purchase agreement, goods are paid by way of installments to the vendor or a finance company that provides loan for the purchase. You can claim input tax based on the whole value of purchase price. However if the interest charged is separately identified or shown and disclosed to you, the interest charge under the hire purchase agreement will not be subjected to GST as it relates to exempt supply. 

14. What is the GST implication on property or machinery that I acquire under lease?

GST liabilities on leasing would depend on the type of lease whether it is operating lease or financial lease. Under the financial lease where the lease allows for an option to purchase or transfer of asset at the end of the lease, then the leasing company or the financial institution will impose GST on the whole value of the property or machinery similar to the treatment under the hire purchase agreement in answer for question Q13 above. If it is an operating lease, GST will be imposed on the value of each lease payment. If the interest charge is disclosed or separately shown under the leasing agreement, the interest element would not be subjected GST. 

15. If at the end of the financial lease, I decide not to exercise the option to buy a machine, must I still have to pay GST on the whole value of the machine?

It doesn’t matter whether you exercise the option to purchase or not. As long as the leasing agreement includes a clause for an option to buy the leased item, it is considered as a supply of goods and the whole value of the item is subject to GST. 

16. I am a plastic article manufacturer. Normally, I acquire a machine from a machine manufacturer by advance payment similar to progress payment until the machine is ready for collection. How do I claim input tax credit?

Your machine supplier would charge output tax on the value for each payment he received. The machine manufacturer would account for GST to the Director General at the earlier of the following event:

• When you make payment to him; or

• When a tax invoice is issued to you.

You can claim input tax according to your taxable period, based on the tax invoices that you received. 

17. Normally in the manufacturing industry, we do not make cash payment for our purchase of raw materials. We are usually given credit terms by our suppliers. So would I be able to claim the input tax before I make the payment to my supplier? 

Yes, provided you hold the tax invoices from your supplier. 

18. For importation of goods, how is the value computed for GST payment?

At the point of importation, value for GST purpose is based on transaction value including insurance and freight, plus all duties payable and other incidental charges as shown in the example below: 

Transaction value                                  RM 50,000.00

Insurance and freight                            RM 2,000.00

Import duty                                             *RM 5,200.00

Value of import:                                      RM 57,200.00

GST payable =RM57,200.00 x 6% = RM3,432.00 

     (*Assuming Import Duty 10%) 

19. My overseas suppliers would bill me for my imports in foreign currencies. Can I declare the value of my imports in foreign currencies?

Your supplier may bill you in foreign currencies, but for GST purposes, the value of imports must be converted into Ringgit Malaysia (RM) using the exchange rate published by the Royal Malaysian Customs. 

20. Is there any reprieve of GST for goods imported into a Free Commercial Zone?

No GST is charged on goods imported into Free Commercial Zone (FCZ). However, the goods will be subjected to GST when it is removed from the FCZ for home consumption. 

21. Since I am re-exporting my finished goods which are zero-rated, can I be exempted from paying GST when I import the raw materials?

We have a suspension scheme for export-oriented companies known as the Approved Trader Scheme (ATS). You may apply to join the ATS, subject to conditions imposed under the said scheme. For further details, please refer to Guide on Approved Trader Scheme. 

22. What is the GST treatment on imported trade samples?

Trade samples will be given GST relief under the GST Relief Order 20XX at the point of importation. You must comply with the conditions that the trade samples are not to be sold, consumed, put to normal use or in any way put for hire or reward while in Malaysia.

23. I send my semi-finished goods to my sub-contractors, who are located overseas, for value-added activities. When my sub-contractors send back the value-added goods to me, do I have to pay GST? 

When you send the semi-finished goods to your sub-contractors overseas, you should treat the goods as your exports and zero-rate the supplies. When the goods are subsequently brought back into Malaysia from your overseas sub-contractors, you are entitled to get relief from payment of GST. However, GST is chargeable on the parts or components added on the processed goods. If you are a registered person, you can claim the GST paid on the finished goods as your input tax credit. Any value added services performed on that goods does not attract customs duty or GST.

24. If I export my product to overseas, can I claim input tax credit on zerorated supplies?  

Zero-rated supplies are taxed at zero percentage, for example goods exported to overseas. For zero-rated supplies, a taxable person is eligible to claim input tax credit on his business inputs in making taxable supplies.


Outputs  

25. In the case of goods being returned by my customers, can I claim the GST paid?

Yes, you can claim the GST paid on the goods returned by issuing a credit note to your customers. You need to make adjustments to your accounts and declare it in your return in the taxable period in which you issued the credit note.

26. I had wrongly undercharged the price of goods sold. How do I account for GST on the supply?  

You need to issue a debit note and make adjustments to your account and declare it in your return in the taxable period when you issued the debit note.

27. If I give a trade discount to my customers, can I only charge GST on the discounted price? 

Yes, GST should be computed on the discounted price.

28. When a certain quantity of goods are given free as incentive for bulk buying, for example for every 20 units of a product purchased at a price of RM5, 000.00 I offered my customer 2 units free, must I also account GST on the 2 units given free?  

GST will only be based on RM5, 000.00 since the 2 units given free is considered as a discount.

29. Every year I will give certain quantity of my manufacturing products as a business gift to my customers. Do I have to account GST on the gifts?  

In principle, gifts to your customers are deemed to be taxable supplies because it is made in the course or furtherance of your business. However under the GST law, a gift is not a supply and no GST due, if the cost of gift is worth not more than RM500.00 and given to the same customer in the same year. In such a case, you do not have to account for output tax.You are allowed to claim input tax incurred.

30. I plan to hold promotions to improve the sale of my products by giving away goods through a retailer. Do I have to account for output tax on the products that are given free within the promotional period? 

It depends on how you offered the product for the promotion. If the promotion is such as ‘buy 1 free 1’ or ‘buy a sofa and free foot stool’, it is considered as one supply, normally total amount paid by the buyer will usually cover all the goods offered. Therefore, you do not have to account output tax on the goods given free because it is considered as a discount.

31. I am a GST registered person and process toasted groundnuts for sale to the local market on credit term. Expiry date for my goods is 6 months and many of my retailers would return to me the expired goods and I will refund their money accordingly. Can I claim the GST that refunded to my customers? 

Yes, you are eligible to claim the GST paid on returned goods through adjustment in the period where you issued the credit note.

32. Is GST chargeable on after-sales services provided to customers for goods sold under warranty?  

When goods are sold under warranty, the assumption is that the price, which is inclusive of GST, usually includes the charge for the after-sales services and repairs during the warranty period. Any replacement of spare-parts free of charge during the warranty period will not attract GST.

33. Do I have to pay GST on goods (sold under warranty) that are temporarily imported into Malaysia from my overseas customers for repairs?  

When these goods are temporarily imported into Malaysia for repairs before they are re-exported, you can apply for temporary import tax relief with the RMC where GST can be temporarily suspended at the point of importation. For further detail, refer to Guide on Import.

34. What is the value for charging GST if the selling price of my manufactured products includes transport charges and insurance coverage on the goods?

The value for GST purposes includes your transportation charges and insurance coverage fees. If you are merely arranging the transport and the transport fee directly charged to your customer then your customer will have to pay GST on the transport charges to the transport company.

35. Are sales of capital items subjected to GST?   

Sales of capital items, except for Transfer of Business as a Going Concern (TOGC), are regarded as making taxable supplies. Therefore, sales of capital items are also subjected to GST at standard rate.


Exports  

36. My local customer ordered some goods from me but he requested me to send the said goods to his overseas customer. Do I have to charge GST when I invoice my local customer?

If you export the goods yourself you can zero rate that supply even though you have billed your local customer.

37. I built a machine for an overseas client. The sale invoice was issued to him, but at his request I supplied the machine to his local customer. Can I zero-rate the sale of the machine? 

No, you cannot zero-rate the sale of the machine. Although the sale was made to a foreign person, the machine was not exported since it still remained in Malaysia. Thus, you will need to charge GST on the sale even though you bill your overseas client.

38. I made a sale of goods to an overseas client. Upon his request, the goods were delivered to a local forwarding agent, who arranges them to be exported to my overseas client. Do I have to charge GST to my overseas client? 

No GST is charged to your overseas client, if the export is done in your name. In other words, the sale of goods can be zero-rated if it is exported by you. However, you need to keep proof of export such as Custom No.2 (Export declaration) address of consignee, bills of lading/airway bills, packing lists/delivery notes, other shipping documents and insurance documents.

39. My local customer claim the goods he purchased from me will be exported and requested me to zero-rate the goods. Can I zero rate the goods sold to my local customer? 

You should treat the supply as a local sale and you have to charge GST. Your customer can zero-rate his supply to his foreign customer if he exports the goods.

40. What is the treatment for goods temporary exported for repair and subsequently re-imported?

Goods exported temporarily for repair and subsequently imported will be given relief. However, any replacement of parts and components added on the goods are subject to GST at the time of importation. Please refer to GST (Relief) Order 20XX.


Farming In/Out (Sub-Contract Works) 

41. If I am a manufacturer doing sub-contract work, can I claim input tax incurred for my purchases?

Yes, you are allowed to claim input tax on GST paid on your purchases even though you are not producing your own goods. As long as you are a registered person making taxable supplies like providing workmanship and some value added work, you can claim input tax incurred on your purchases. You must keep original tax invoices from your suppliers to support your claim for input tax credit. 

42. How is the GST treatment if I as a sub-contractor engaged in contract manufacturing with overseas principals for local delivery and export purpose? 

There is a scheme known as “Approved Toll Manufacturer Scheme (ATMS)” to relieve local toll manufacturers who engaged in substantial business with overseas principals. Under this scheme you as a toll manufacturer are eligible to suspend the payment of GST on imported goods which were supplied by your overseas principal, subject to certain conditions to be fulfilled under the Approved Traders Scheme (ATS).

43. I did not meet the requirement under the ATMS where the percentage of drop-shipment is more than 20%, what is the GST implication on the processed goods which I delivered locally?  

In the case where you are not eligible to apply for ATMS, the processed goods delivered locally is treated as a supply and hence is subjected to GST. It is because the possession of goods is transferred (under an agreement for the sale of the goods) from the toll manufacturer to the local customer.


Other related matters 

44. If I loan some materials to another manufacturer for his urgent use, do I have to account for GST output tax?

Yes, It is a supply because the business asset is transferred to another manufacturer.

45. If I loan a machine to another manufacturer for his use, do I have to account for GST output tax?  

Yes, GST is due because it is treated as a supply of services even though the loan is not for a consideration. You have to account for GST based on the open market value of such supply of services.

46. My goods were lost in the course of delivery to my customer. Do I have to account the GST? 

This depends on the contract between you and your customer. If the contract makes either party liable (the sale has taken place), then you must account for GST even if the goods are lost on delivery. However, if you wish to cancel the sale you may do so and if invoice has been issued then you must issue a credit note to contra the GST payable. On the other hand, if the contract does not make either party liable, then there is no GST liability on the loss of the goods on the delivery.  

47. What happen if my customers fail to make payment on goods previously supplied where output tax has been accounted?

You can claim bad debt relief for your debts or any doubtful debts on the whole or any part of the GST output tax paid in respect of taxable supplies subject to the following conditions:-

(a) you have already accounted for and paid the tax on the supply,

(b) you have not received any payment or part payment six months from the time of supply or the debtor has become insolvent before the period of six months has lapsed,  and

(c) you have taken sufficient efforts to recover the debt.

48. What is the GST treatment on disposal of manufacturing waste?

If the waste is destroyed, no GST is due as there is no supply made. However, if you decide to sell the waste, GST must be imposed on such sales.

49. I receive my goods in carton boxes and wooden pallets. These packaging materials will be taken by appointed person who cleans the unloading area. What is the GST treatment?   

Since the packaging materials are not recorded as your assets, you need not account for GST. 
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