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Industry Guide:

Utility Industry (Electricity)

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1. TGH Power System Manufacturer Bhd. (TGH) is supplying electrical components as well as providing consultancy for construction and maintainance of a power plant to a power generating company which is an independent power provider (IPP), does TGH has to charge GST on such a supply? 

Yes, supply of goods and services for the purposes of construction, or maintainance of a power generating plant is subject to GST at standard rate. TGH, if it is GST registered, has to charge and account for GST for the supply of goods and services to IPP. GST on the acquistion incurred as Input tax to the IPP is claimable. 

2. ABC Power Provider Bhd. (ABCPP) loans its electronic components to HAD Power Provider Bhd. (HPP). Does ABCPP has to charge and account GST on the loaned goods?

The general rule for goods on loan are: 

 (i) If the same goods will be returned to the supplier who loaned the goods, then the supply of goods is not subject to GST.

 (ii) If the borrowed goods are being used and is subsequently replaced by a similar goods for example in the process of electricity swapping by IPPs, will be subject to GST.  An IPP who lends electricity must charge and account for GST to the other IPP following the time of supply rule i.e when the tax invoive (bill) is issued or payment has been  made which ever is the earlier. 

3. Pemaju Untung Sdn. Bhd. (PUS) acquires supply of electricity from Tenaga National Bhd. (TNB) as a single tenant premise to be supplied to 10 units of newly built residential terrace houses at Taman Untung. Is the supply to be zero rated for the first 300 units under GST (Zero Rated Supply) Order? Can it be devided by 10?

The supply of electricity under the name of PUS is considered as supply made for commercial purpose. However, if PUS appllies for connection as multi tenanted premise, separate meters and individual bills for each resident of the 10 units terrace houses are installed, the supply for the first 300 units will be entitled for zero rating.

4. Is a domestic user of electricity supply who is subject to a minimum monthly charge for minimum usage or non-consumption be entitled for zero rating?  

Yes, a domestic consumer who is subject to a minimum monthly charge per billing cycle of a minimum period of twenty-eight days is entitled for zero rating.

5. Besides the prevailing tariffs, commercial customers are imposed a maximum demand charge normally for usage exceeds 6.6kv. Is the extra charge subject to GST?

Yes, maximum demand charge is subject to GST at standard-rate since it is an additional charge on the supply of electricity to commercial customers.

6. Besides supplying electricty, a power company also performs services. Are the following services subject to GST?

New connection or connection for increase of supply: 

 (a) Disconnection and reconnection of supply.

 (b) Installation of new meters.

 (c) Installation of additional meters and related metering facilities.

 (d) Replacement of mechanical meters to electronic meters or reprograming of eletronic meters or repair of meters.

 (e) Services in connection with test carried out to meters, upon request from the customers.

 (f) Providing street lighting to the customer.

 (g) Providing neon, floodlighting, emergency or decorative lighting.

 (h) Providing electricity for mining works, etc. 

Services as above are considered as supplies for GST purposes and will be subjected to GST at standard rate.

7. TNB Energy Services, a subsidiary to TNB has implemented and commissioned solar hybrid generating stations on the islands off Mersing in Johor. What is the GST treatment on supply of electricity derived from this new energy resource?

For GST purposes, the supply of electricity produced from new energy resource by TNB when it is disposed to the consumers with or without consideration is a taxable supply. Input tax incurred for the acquisition of goods and services to build the generating plant is claimable. For further details, please refer to Guide on Supply. 

8. ASEAN member countries exchange electricity to resolve problems of power shortage and enhance cooperation and development among ASEAN countries. What is the GST treatment on the exchange of electricity?

Treatment of GST on electricity exchange program between ASEAN countries is considered as a supply outside the scope of the GST Act (out of scope supply). 

9. What is the GST treatment on compensation paid to consumer in the case of major interruption of supply, such as power outage?

The payment of compensation which is in the form of money is not a supply and therefore is not subject to GST.

10. Power factor measures is the ratio between real power (i.e. output) and apparent power (i.e. input). It provides a reading of overall electricity use efficiency. Improvement in the power factor would increase the system reliability. If the power factor in any month falls short of the minimum power factor set (currently at 0.90 for high voltage customers and 0.85 for other customers), the loss in providing the supply by TNB is very high. To compensate this loss by the customer. 

Connected Load Charge “When a consumer initially requests for a supply at a high maximum demand. TNB has to install adequate electrical infrastructure to ensure that electricity can be provided to that consumer at that maximum demand. Connected Load Charge (CLC) is the penalty charged by TNB when there is a significant load burden reduction from the original burden declared by a consumer. The charge was introduced to avoid cases of under-utilization of load burden where consumers initially requested for high maximum demand”. Are these charges subject to GST?

The surcharges are not subject to GST since they are punitive in nature, and are not considered as part of the payment. 

11. Backbilling is done in situation where the amount billed was lesser than the actual amount consumed for a particular period. Backbilling adjustment is made through the issuance of a debit note. Does the adjustment subject to GST?

Yes, the issuance of debit note for the purpose of backbilling adjustment is subject to GST at standard rate and must be added to the ouput tax during the taxable period in which the debit note is issued.For further details, please refer to the General Guide. 

12. TNB and a developer share the cost of the capital asset on a 50-50 basis. The land for distribution substation is to be provided by the developer. It will be leased or purchased by TNB after completion. If TNB defaults on the agreement, and TNB was not able to provide the infrastructure, there will be a compensation paid by TNB to the developer. What is the GST treatment for such activity?

When the developer pays upfront 50% of the total cost, it is not making any payment in consideration because the infrastructure belongs to TNB. TNB as a registered person needs to pay GST incurred on the acquisition of goods and services for the construction of the infrastructure.

TNB is eligible to claim input tax credit on all taxable supply of goods including capital goods acquired in the course or furtherance of business. Input tax can be claimed in full if TNB is making wholly taxable supplies.

For GST purposes, if a taxable person is a mixed supplier, he can only claim the input tax which is attributable to his taxable supplies. In this situation, Capital Goods Adjustment (CGA) must be used to make adjustments to his initial input tax claim on a capital item when the capital item is used for making both taxable and exempt supplies. Please refer to Guide on Capital Goods Adjustment for further details.

In the case of TNB making a compensation to the developer is not a supply and therefore is not subject to GST.

13. What is the status of supply to religious building? Can the supply to religious building be considered as supply for domestic consumption and be entitled for the zero rating?

The supply to religious building is considered as supply for commercial purpose, therefore it is subject to GST at standard rate.

14. Can the provision accommodation to workers with nominal payment be considered as incidental supply, thus will not put the power provider under a mixed supplier situation?   

The supply of accommodation to workers may be considered as for furtherance of business and input tax incurred is claimable. With nominal payment to the workers will put the power provider in a mixed supplier situation. However, if the amount is less than RM5,000 per month and the taxable accumulated amount is less than 5% of the total supply, it will be considered as “de minimis” and the power provider can claim the input tax incurred.

15. It is common for a power provider to receive excess payment from the customers. It will tedious to issue credit notes in order to make the necessary adjustments in the GST return. Can the excess amount be treated as deposit instead of payment?

Yes, excess payment by virtue of Regulations 15, GST Regulations 2014 is not subject to GST. Tax on that supply shall be chargeable only to the extent covered by the invoice or payment.

16. Power provider sometimes received fund from the Government for example, shifting of road poles, building of solar hybrid system and etc. Does the fund be considered as consideration for a supply of services?  

Yes, the provision of fund from the Government is considered as consideration and thus the power provider must account the GST included in the fund received.

17. In the case damage by a third party to asset of the power provider, for example a road accident whereby a road pole was run over, power provider will seek damage compensation from the person. Is the compensation subject to GST?

No, the compensation seeked is not a consideration for a supply, i.e it is out of scope, thus there is no GST implication on the compensation received.
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