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31/10/2013

GST AND SIMPLE ILLUSTRATIONS ON HOW TO ACCOUNT FOR IT!

by Donplaypuks® at http://donplaypuks.blogspot.com


Every now and then, when politicians, economists and their financial con-sultants, together with the Roti Jala's and their clueless laboratory driven and manufactured drivers run out of ideas on how to manage a sinking economy, they will pull out from their collective tattered hats what they will label as 'Our Saviour.'

If PM Najib, his Government of Thieves and cronies, sycophantic and desperate followers and supporters are to be believed, the proposed Goods and Services Tax (GST) will catapult Malaysia soon (it's just round the corner/over them there hills) into first world status.

Believe me, nothing of that kind will transpire. Not with this plan and this government.

In 1978 when I was in London, the GST (VAT or Value Added Tax) rate in UK was 15%. Today, it hovers close to 20%. Has it saved UK? The UK's budget deficit runs at some £120 billion. It's debt at £1.4 trillion represents a Debt:GDP ratio of about 90%, with unemployment at nearly at 8%. The figures for the USA, France, Japan and much of Europe are worse. Japan's Debt:GDP ratios is over 200%, while that of the USA ($17 Trillion debt) is 100% and France 93%. The gap between the rich and the poor has widened in all western economies, despite the introduction of GST and a plethora of taxes such as municipal, provincial and Federal taxes. By any reckoning, Fitch, Standard & Poor, the IMF and the World Bank should have declared these economies broke!

By contrast, Malaysia's Debt:GDP ratio is about 55%. We have virtually zero unemployment, while inflation is below 3%. Yet, Fitch gave a warning to Malaysia about the sustainability of its future income stream, thereby panicking Najib and BUMNO/SCUMNO/DUMBNO into prematurely introducing GST. You may well ask why the double standards practised by these so-called western "watchdogs." Suffice to say they have a clear,  suspicious agenda.

The real problem lies in the fact that despite democracy and "free and fair" elections, WE, THE PEOPLE, have NOT been able to force politicians and governments from over-borrowing, over-spending and keeping to a strict regime of a balanced budget. And when you keep giving more and more money to thieving governments, what else can you expect but an explosion of daylight robbery by Prime Ministers, Ministers and their cronies and supporters? It's not just a Malaysian problem, but a universal one. If we reduce it to a family problem, no matter how much the head of a family is able to increase his income by, can that person stop a financial disaster and eventual bankruptcy if he has an incurable drinking or drug abuse and addiction problem?

So, giving Najib the 6% GST and an additional RM24 billion a year will not save us from an economic slide that will parallel those faced by Greece, Portugal, Ireland and Spain. If anything, it will hasten it. In five short years, Najib has increased his office budget alone by over 300% or to nearly RM17 billion, with huge billion ringgit allocations under vaguely worded headings, suspected to be slush funds. This means that the Taxpayer is probably being fraudulently walloped for party political expenses passed off as legitimate government expenditure. Najib is asking you and me to tighten our belts, while he is spending like there's no tomorrow! Najib is the most profligate prime minister we have ever had, and he has an incurable addiction to wantonly spending the Rakyat's (citizen's) money. After every financial year, Najib has plundered our coffers to cover supplementary expenditure of billions of ringgit of overspending by Ministries and state governments.

130 countries have a GST tax regime? And how many of these are like USA, UK, Japan and Europe, kept afloat by printing, printing, printing money and floating and re-floating bonds and Debt, which even their grandchildren's generation will not be in a position to permanently retire, or even make a serious dent in reducing significantly? Now, that snake oil salesman Najib has embarked on this game too, as though floating Islamic bonds in Abu Dhabi or Samurai Bonds in Japan will miraculously save us. Who does he surround himself with? Why, it's that same posse of con-sultants from USA and UK who, having failed to halt the slide in their own countries, are offering us the same failed strategies and snake oil!

So, GST alone will not save us from looming financial disaster if continually fuelled by gross mismanagement by the Prime Minister and his office.

Be that as it may, let's prepare for what seems inevitable. Here are are some simple matters to note for GST:

1. Only GST registered businesses may charge and collect GST. Charities and government organisations will be exempt from GST. Inter-company transactions may be exempt from GST.
2. GST collection, enforcement and refunds are usually managed by the Customs & Excise Department (C&E) in most countries.
3. The Government will probably introduce a minimum turnover threshold for GST registration. e.g RM500,000.
 4. GST will replace sales and service tax. Exports are exempt from GST. All imports are subject to GST. The Government has not clarified if import duties will be revoked or revised downwards to take into account 6% GST.
5. GST on sales is called Output Tax.
6. GST on expenses is called Input Tax.
7. GST registered businesses are allowed to deduct the Input Tax from the Output Tax, and remit only the net to the C&E. This will probably be done via a GST return to be submitted to the C&E on a quarterly basis. Where Input Tax exceeds Output Tax, the business will be entitled to a refund.
8.Thus, contrary to silly claims made by some uninformed BUMNO bloggers, there is no compounding factor in GST resulting in 19% cumulative price increase to the final consumer. One GST registered business' Output Tax will become the Input and deductible/claimable Tax of another GST registered entity.
9. For non-GST registered businesses, GST will be treated as an expense in its Profit & Loss Account. (See example 2 below). So, smaller businesses are more likely to raise prices than bigger ones.
10. GST CANNOT be claimed as an expense from the C&E by the final consumer i.e. mostly, this refers to individuals like you and me.
11. For GST registered businesses, GST WILL NOT be an expenses. They will become mere collecting agents for the C&E, and the liability or refund will be reflected in the Balance Sheet of the business as a creditor or debtor. (See example 1 below).
12.  Therefore, for registered businesses, there is no compelling reason to raise prices, other than to pass on the increase in administration costs arising from GST compliance.
13. So, for businesses that have turnover below the RM500,000 threshold, it will still benefit them to register for GST. Otherwise, they will have to raise prices to cover the cost of Input Tax on its expenses.
14. Upon introduction of GST, there will be a one-off rise in inflation rate. When 3% GST was introduced in the early '90's in Singapore, inflation jumped to 6% and its took a few months to peter off.
15.  Remember, that regardless of collection, GST registered businesses will have to remit the Output Tax on their sales invoices (after netting off Input Tax). You may not be able to off-set GST on bad debts unless it follows the Income Tax rules for write-offs. So, there may be a cash flow problem. Businesses may have to postpone sales invoicing at the end of the last month of a quarter to the following month, for better cash management!
16. The Income Tax Department will be able to check your business turover disclosed in the P&L with that shown in the GST Returns.. So, it will be virtually impossible for a business to fiddle its turnover/sales.
17. In UK and Europe, GST is not charged for take-away from food outlets, since it is deemed that no service is rendered. GST is of course charged when you have a meal at any food outlet or restaurant. The situation in Malaysia is not clear as the government is still in the process of determining what expense will be exempted, zero-rated or be GST chargeable.

I am sure you will have many queries on the GST regime. Email me and I will see if  I can provide satisfactory answers.










EXAMPLE 1: GST for GST Registered Businesses









XYZ SALES INVOICE REGISTER




Date Invoice No. Customer
Sales GST @ 6% Total
15.07.14 SI156 ABC S/B
          500.00             30.00           530.00
15.08.14 SI157 EFG S/B
          700.00             42.00           742.00
15.09.14 SI158 HIJ S/B
          800.00             48.00           848.00
TOTAL


      2,000.00           120.00       2,120.00







XYZ EXPENSE INVOICE REGISTER



Date Invoice No. Supplier
 Cost  GST @ 6%  Total 
01.07.14 123 Mfg. S/B Stock Purchases           100.00               6.00           106.00
01.08.14 345 Mfg. S/B Stock Purchases           200.00             12.00           212.00
01.09.14 456 Mfg. S/B Stock Purchases           300.00             18.00           318.00




          600.00             36.00           636.00







01.07.14 789 FF S/B Office Furniture           200.00             12.00           212.00
02.07.14 145 Env S/B Stationery             50.00               3.00             53.00
15.09.14 333 Mom & Co Tea/Coffee             15.00                    -               15.00
22.09.14 667 Emv S/B Medicine             25.00                    -               25.00
25.09.14 269 Raja & Co. Legal Expenses           500.00             30.00           530.00




          790.00             45.00           835.00







TOTAL


      1,390.00             81.00       1,471.00







1. XYZ GST RETURN FOR THE QUARTER ENDED 30TH SEPTEMBER 2014

OUTPUT TAX



          120.00

INPUT TAX



          (81.00)

NET GST PAYABLE TO C&E


            39.00








SALES SUBJECT TO GST


      2,000.00








TOTAL NET EXPENSES


      1,390.00

LESS: EXEMPT/ZERO RATED EXPENSES

          (40.00)

EXPENSES SUBJECT TO GST


      1,350.00







2. XYZ P&L FOR THE QUARTER ENDED 30TH SEPTEMBER 2014









Sales



      2,000.00

Cost of Sales



       (600.00)

Gross Profit



      1,400.00

Administration Expenses




Legal



          500.00

Medical



            25.00

Office Refreshments


            15.00

Office Stationery



            50.00






          590.00








Net Profit Before Tax


          810.00







3. XYZ BALANCE SHEET FOR THE QUARTER ENDED 30TH SEPTEMBER 2014

Fixed Assets



          200.00

Current Assets: Bank a/c


          749.00

Current Liabilities: GST Payable

          (39.00)






          910.00








Share Capital 



          100.00

P&L Account



          810.00






          910.00



EXAMPLE 2: GST for Non- GST Registered Businesses









123 SALES INVOICE REGISTER



Date Invoice No. Customer
Sales GST @ 6% Total
15.07.14 SI156 ABC S/B
          500.00                    -             500.00
15.08.14 SI157 EFG S/B
          700.00                    -             700.00
15.09.14 SI158 HIJ S/B
          800.00                    -             800.00




      2,000.00                    -         2,000.00







XYZ EXPENSE INVOICE REGISTER



Date Invoice No. Supplier
Cost GST @ 6% Total
01.07.14 123 Mfg. S/B Stock Purchases           100.00               6.00           106.00
01.08.14 345 Mfg. S/B Stock Purchases           200.00             12.00           212.00
01.09.14 456 Mfg. S/B Stock Purchases           300.00             18.00           318.00




          600.00             36.00           636.00







01.07.14 789 FF S/B Office Furniture           200.00             12.00           212.00
02.07.14 145 Env S/B Stationery             50.00               3.00             53.00
15.09.14 333 Mom & Co Tea/Coffee             15.00                    -               15.00
22.09.14 667 Emv S/B Medicine             25.00                    -               25.00
25.09.14 269 Raja & Co. Legal Expenses           500.00             30.00           530.00




          790.00             45.00           835.00











      1,390.00             81.00       1,471.00

NB:  NO GST RETURN IS REQUIRED TO BE SUBMITTED TO C&E







1. XYZ P&L FOR THE QUARTER ENDED 30TH SEPTEMBER 2014

Sales



      2,000.00

Cost of Sales


       (600.00)

Gross Profit



      1,400.00

Administration Expenses



Legal



          500.00

Medical



            25.00

Office Refreshments


            15.00

Office Stationery


            50.00

GST



            81.00






          671.00








Net Profit Before Tax


          729.00







2. XYZ BALANCE SHEET FOR THE QUARTER ENDED 30TH SEPTEMBER 2014

Fixed Assets


          200.00

Current Assets: Bank a/c


          629.00






          829.00








Share Capital 


          100.00

P&L Account


          729.00






          829.00

1 comment:

Purple Haze said...

Mamak stalls will now be money-laundering centers.