Post on 02-Jan-2017
FRAUD: GOODS AND SERVICES TAX (GST)
Bernard Yap
Partner
Ernst & Young
Tax Consultants Sdn Bhd
AGENDA
• GST update
• Overview of GST
• Proposed GST treatment of financial
services
• Common GST fraud practices
• Protecting against GST fraud
2011 GST UPDATE
• GST will be implemented in Malaysia to
replace the current sales tax (5% and 10%)
and service tax (6%).
• The GST Bill was tabled on 16 December
2009. The second reading scheduled for
March 2010 was deferred.
• Implementation date is expected to be in
2013/2014.
2011 GST UPDATE
• Price Control and Anti-Profiteering Act 2011
to prevent profiteering under GST regime
has been enforced since 1 April 2011.
• 13 September 2011: PM stated “….in the
near future, after the GE, we will introduce
GST.”
OVERVIEW OF GST
Basic features of GST:
• Broad-based consumption tax – Levied on all goods and services
• Certain goods and services to be exempted
• Imposed on money spent, not money earned
OVERVIEW OF GST
Basic features of GST:
• Transaction-based, multi-stage tax applying at each stage of the production and distribution process
• Threshold level to exclude small
enterprises - Expected to be RM500,000
• The applicable GST rate in Malaysia is
expected to be 4% (lower than the
current sales and service tax)
MULTI-STAGE TAX WITH CREDITS
• Output tax and input tax to be accounted
for, generally, on an invoice basis
• Generally, no requirement to match input
and output tax
• Output tax > input tax = Net GST payable
• Output tax < input tax = GST refund
MULTI-STAGE TAX WITH CREDITS
• Possible cash flow impact if customers
are provided with extended credit terms
• No tax cascading as GST is imposed only
on the value added at each stage of the
supply chain
• Potential lower cost of doing business;
need to analyse the impact on the price of
goods and services
TYPES OF SUPPLY
All supplies fall within 4 categories:
• Standard rated Taxable supplies
• Zero rated Taxable supplies
• Exempt No GST (Input tax not recoverable)
• Out-of-scope No GST
Input tax recoverable
FINANCIAL SERVICES AND GST
Financial services
• Exempt
‒ Margin-based products
‒ Return on investment transactions
• Standard rate
‒ Fee-based services
‒ Outsourced services
• Zero rate
‒ Exported financial services
FINANCIAL SERVICES AND GST
Islamic financial services
• To offer similar treatment as conventional
in order to ensure neutrality
• GST treatment on Shariah advisory
services:
‒ Supply of services by Shariah Advisory
Council / Committee is not subject to
GST
BANKING SECTOR AND GST
Fixed Input Tax Recovery (FITR)
• To use FITR rate of input tax (similar to Singapore)
• Confined to banking sector
• Bank Negara Malaysia to facilitate discussions between industry and authorities in determining the FITR rates
• Different rates for different banking sectors:
‒ Conventional
‒ Islamic
‒ Investment
‒ Development financial institutions
COMMON GST FRAUD PRACTICES
• Under-reporting of total sales, resulting in
lower GST output tax
• Fictitious supplier invoices created to
facilitate higher ITC claim
• Collusion between related parties –
undervaluing supplies where the recipient
cannot claim full ITCs
• Claiming of ITCs on expenses disallowed
under the law
COMMON GST FRAUD PRACTICES
• Underpayment of GST on “imported
services” (e.g. FS companies)
• Suppliers not registering for GST where
required
• Suppliers charging GST where not
registered
• Identification of direct expenses and
common expenses for ITC claim
PROTECTING AGAINST FRAUD AND ERRORS
• Ensure a robust internal system for
recording, processing and reporting GST
• Consider the potential for manipulation
(e.g. manual v automated actions)
• Separation of duties for GST (approving,
processing, reporting, payment)
• Develop comprehensive reconciliation
procedures for GST reporting
PROTECTING AGAINST FRAUD AND ERRORS
• Conduct periodic reviews
• Vendor verification – Confirm GST
registration status and details
• Education – Personnel to know
consequences of GST fraud and errors
• Training – Ensure personnel are GST-
knowledgeable and aware of risks
HOW TO MOVE FORWARD
• Singapore – Subsidy from Government for
appointing advisors to conduct GST
reviews (similar scheme could operate for
GST implementation in Malaysia)
• UK – Senior Accounting Officer (SAO)
certification to ensure reasonable steps
taken to monitor and maintain accounting
arrangements
HOW TO MOVE FORWARD
► Australia – Co-operative compliance
agreements between taxpayer and
authority, addressing key GST-risk areas
► China – Using pre-approved advisors to
undertake review of VAT returns to
minimise penalties / interest for late
payments
QUESTIONS
&
ANSWERS
THANK YOU
© 2011 Ernst & Young Tax Consultants Sdn Bhd All Rights Reserved. FEA no. 07000344 This presentation contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither Ernst & Young Tax Consultants Sdn Bhd nor any other member of the global Ernst & Young organisation can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this presentation. On any specific matter, reference should be made to the appropriate advisor.