KUCHING: Companies based within Free Industrial Zones (FIZ) are warned to check on their eligibility for Goods and Services Tax (GST) registration with effect from the proposed amendments to sections 161 and 162 of the GST Act 2014.
During a KPMG Tax Seminar regarding the 2017 Budget proposals, the proposed amendments to sections 161 and 162 of the GST Act 2014 and its resulting effects to companies within FIZ and Free Commercial Zones (FCZ) were discussed by Yap Choon Ling, associate director of KPMG Malaysia’s indirect tax division.
“In the past, for custom purposes, free commercial zones (FCZ) and free industrial zones (FIZ) were treated to be not part of Malaysia. However, the introduction of the GST resulted in a difference between how FCZ and FIZ were treated,” Yap stated during the talk on Monday.
“Currently, the supply of goods from FCZ to FIZ is suspended under Approved Trader Scheme (ATS), while the supply of goods from FIZ to FCS is zero rated.
“The proposed amendment with effect from January 1, 2017, and will result in FCZ’s and FIZ’s to be collectively known as Free Zones, its GST treatment to be the same, and GST to be applicable in for supply of goods into Principal Customs Area (PCA).”
The supply of goods into designated areas (DA), warehouses, and free zones are suspended while supply of goods into overseas and free zones are not subjected to GST.
This change has little effect to the supply of goods from FCZ to FIZ, as Yap explained that often, GST is claimable anyway in these scenarios as such the amendment “is really just to streamline the whole process.”
Looking at a supply of goods from FIZ to FCZ, it is suggested that there is a loss of revenue for customs and a reduction of cost for suppliers as suppliers no longer have to be charged for GST anymore.
However, as these supplies may no longer be chargeable come January 1, 2017, it will also mean that the amount of taxable supplies that FIZ companies make will reduce.
As many FIZ companies are suppling within their zone or doing export, Yap advised, “You have to ask yourself if you are still meeting the required threshold of over RM500,000 to register for GST.”
“For suppliers supplying within (FIZ) it is already not chargeable but for suppliers that they export, it will be zero rate which is still countable under the RM500,000 threshold.
“But if they are making a purely zero rated supply, they can apply to be exempted from the GST registration. So GST registration is probably what that they need to look into but it does bring them significantly below the threshold.
Yap continued on to explain that while not needing to register for GST can be convenient due to a lesser amount of compliance work required, the key downside to not being registered is the inability to claim input tax for these companies.
What this means is that any GST unregistered companies incur will be a cost to their business; this seems to be mainly an issue for smaller companies.
“If the FZI companies are big enough then this change in the GST will probably not affected much as they have other customer supplies that they should be eligible to be GST registered,” Yap added.
Another worrying issue that the proposed amendments raises is the ability for Customs to meet their increased estimated Tax revenue in GST to RM40 billion (22 per cent) from this year’s RM38.5 billion (23 per cent).
The proposed amendments will affect Customs revenue stream as companies operating within an FIZ and selling to an entity not registered within a free zone will no longer incur a charge, resulting in Customs basically losing out on that portion of revenue.
While Yap notes that this loss may not be very significant, she still believes that Customs will need to acknowledge that it is going to be a tough year come January 1, 2017.