Goods and Services Tax

GST or Goods and Services Tax is indeed one of the hottest topic in Malaysia. Many MNCs and GLCs Companies as well as Business Owners from SMEs sectors are scrambling and perhaps some are fretting on its implications and effects it has on their day to day business and its operations. For HR Practitioners in Malaysia, please note that there is a section covered under GST on Employees Benefits. In this blog, we are privileged to have Mr. Danny Lim of Brexson Advisory PLT to share with us about GST on Employee Benefits.

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Many people will think that GST implementation is a task solely for the Accounts Department of a company to do and put in place and then attend to.
But in actual fact it impacts all aspect of a business spanning Accounting, IT, Legal, Sales & Marketing, Purchasing, HR – and indeed impacts on Employee Benefits (via Human Resource).
Unless a business and its Directorate want to fall foul of the laws (and the penalties under the Malaysian GST Act are CRIMES) every department’s personnel and especially Heads of Departments will need to get involved in the GST implementation process.
So, what are Employee Benefits? Employee Benefits are any goods or services provided free to employees, given or provided by an employer to an employee, or by another person on behalf of the employer to the employees. Goods or services acquired and given as Employee Benefits are considered as used for the purpose of business.
The GST impact on Employee Benefits is particularly interesting as it may change the way in which employees are rewarded by their employer after 1 April 2015. Fringe Benefit packaging and salary packaging WILL change. This is due to the fact that different type of supply will lead to different tax treatment depending on the GST rules and hence both the Directors and the Human Resource department of a company will need to understand how the GST rules and regulations apply to Employee Benefits and amend the company policy on Employee Benefits where deemed fit.
Put simply, a company needs to know whether certain supply of Employee Benefits is subject to output tax and if yes, at what rate and whether the purchase of supply from their suppliers is input tax claimable.
The general rule is that a company is required to charge output tax on any Employee Benefits supplied to the employees and all input tax is claimable as they are regarded as used for business purpose.
However, if the Employee Benefits given are stated in the employment contract, then these benefits are not a supply and will not be subject to output tax but input tax is still claimable. One thing worth noting is that monetary rewards are not subject to GST as money is not a supply under GST Act.
On the other hand, if however a company acquires certain supplies which are subject to “Blocked Input Tax”, then the input tax incurred for these purchase will be disallowed / not claimable and therefore become a cost to the company. Subsequently when the same supplies are being disposed of and given as Employee Benefits, the company need not charge the output tax on it.
For those goods or services given free to employees as Employee Benefits not stated in the employment contract, whether or not the supply is to be accounted for output tax will then subject to “Gift Rule”. If the total value of the supply to the same person in the same year is more than RM500, the supply is subject to output tax.
In the case of services provided free to employees, it is not regarded as a supply and therefore not subject to output tax with the exception of business assets used for non-business purposes.
Another consideration is what the GST Act terms “deemed” supplies in which GST is levied on top of the value of the goods or gift. This is a vital area when considering Employee Remuneration.
Given different sets of treatments apply to different types of supply of Employee Benefits as explained above, a proper review of the GST impact of every aspect of a business is required to be carried out on a timely manner, the business must seek professional tax advice as soon as possible to ensure a smooth transition to GST and implementation by 1 April 2015.