Introduction to GST – Part 7

• Accounting for GST (continued)

Bad Debt

Bad Debt is defined as the outstanding amount of the payment in respect of the taxable supplies including GST which is due to the person but has not been paid to and is irrecoverable by the person.

The following are the conditions to apply for refund:

• GST has been paid to the government
• The taxable person has not received any payment six (6) months from the date of supply or
• The debtor has become insolvent before the period of six months has elapsed
• Sufficient efforts have been made to recover the debt

Goods Lost / Destroyed

Goods lost while under the control of the Customs authorities:

• Goods lost are subject to GST
• The taxable person may apply for remission from the Director-General of the Customs authorities

Goods lost during delivery:

• Generally not subject to GST if supply has not taken place
• However, if the contract makes either parties (buyer or seller) liable for the loss, the GST liability would depend on the contract between the buyer and the seller.

Out of Scope Transactions

The following transactions are considered Out of Scope:

• Issuance of licences
• Security deposit
• Royalty
• Premium
• CESS

So are collection services and enforcement functions:

• Penalty / surcharges or fines paid
• Royalty marking and assessment

Outsourced services

Outsourced services are considered taxable supplies and are standard-rated supplies.

Exports by Marketing Agents

It depends on the contractual agreement between the principal and agency relationship. If the contract involves the transfer of ownership (there is a sale) from trader to agent, then it is a standard-rated supply which:

• The trader must account for GST
• Subsequent export by agent is considered a zero-rated supply

If there is no transfer of ownership (there is no sale) that is agency merely acts on behalf of the trader, then only the agency fee is considered a standard-rated supply.

Sub-contractors

There are basically two types of sub-contractors:

• Domestic / Internal sub-contractors
  If it does not involve  transfer of ownership of goods to the sub-contractor, (that is, it is not a supply of goods), the taxable person does not have to account for GST (output tax) on the new materials.
  If the sub-contractor is a GST registrant, he has to account for GST (output tax) on the value of the service supplied to the owner.

• International / External sub-contractors (Outside Malaysia)
  If the goods are returned after the value added activities (labour charges only), then no GST is due.
  If the value added activities involve the addition of new parts, then GST will be imposed only on the additional parts.
  (Item 51 of the Customs Duties – Exemption Order)

Related posts:

1. Introduction to GST – Part 2
2. Introduction to GST – Part 6
3. Introduction to GST – Part 3
4. Introduction to GST- Part 1
5. Introduction to GST – Part 5