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Customs Guide to GST for Forestry

gstlogoCustoms Guide to GST for Forestry


INTRODUCTION

1. This Guide is designed to create a better understanding of the GST treatment on forestry sector. You are advised to read this Guide together with the GST Act 2014 and the subsidiary legislation; GST General Guide, GST Specific Guides and other GST Industry Guides as mentioned throughout this Guide.

Overview of Goods and Services Tax (GST)

2. Goods and Services Tax (GST) is a multi-stage tax on domestic consumption. GST is charged on all taxable supplies of goods and services in Malaysia except those specifically exempted. GST is also charged on importation of goods and services into Malaysia.

3. Payment of tax is made in stages by the intermediaries in the production and distribution process. Although the tax would be paid throughout the production and distribution chain, only the value added at each stage is taxed thus avoiding double taxation.

4. In Malaysia, a person who is registered under the Goods and Services Tax Act 2014 is known as a "registered person". A registered person is required to charge GST (output tax) on his taxable supply of goods and services made to his customers. He is allowed to claim back any GST incurred on his purchases (input tax) which are inputs to his business. Therefore, the tax itself is not a cost to the intermediaries and does not appear as an expense item in their financial statements.

BACKGROUND

5. Land matters came under the jurisdiction of the respective State Governments which are also empowered to enact laws and regulations for forest management of each state. Thus, the upstream activities within the forestry sector in the three regions of Malaysia is under the administration of (i) Forestry Department Peninsular Malaysia (FDPM) which is under the Ministry of Natural Resources and Environment for the forests of Peninsular Malaysia, (ii) Sabah Forestry Department under the Chief Minister's Department Sabah for Sabah's forests and (iii) Sarawak Forest Department under its State Ministry of Resource Planning and Environment for Sarawak forests.

6. In Sarawak, two other additional agencies are involved in the upstream activities; (i) the Sarawak Forestry Corporation, established by the Sarawak State Government, ensures the forests are logged sustainably and as well as assesses cess and royalty for timber and timber products harvested from the forests and (ii) Harwood Timber Sdn. Bhd., a wholly-owned subsidiary of Sarawak Timber Industry Development Corporation under the ambit of its State Ministry of Resource Planning and Environment, performs inspection of consignments of logs to ensure logs extracted are legal.

7. Downstream activities comprise value-adding activities such as (i) primary processing, converting logs to sawn timber, logs to veneer, woodchips to particleboard and medium density fibreboard; and (ii) secondary processing, utilizing the sawn timber to fabricate engineered timber products such as glulam, laminated truck flooring; veneer, plywood, particle board and medium density fibreboard for furniture production and other timber products such as laminated veneer lumber.

8. In Peninsular Malaysia and Sabah, downstream activities are under the administration of Malaysian Timber Industry Board under the ambit of Ministry of Plantation Industries and Commodities, whereas in Sarawak, it is under the administration of the Sarawak Timber Industry Development Corporation.

SCOPE

9. This Guide covers upstream activities, downstream activities and other activities in the forestry industry. Upstream activities in the forestry sector, among others, include logging activities, reforestations and forest plantations. Downstream activities in forestry sector include the manufacturing of value-added activities for the conversion and manufacturing of timber products into semi-finished and finished products. GST treatment on manufacturing activities is covered in a specific industry guide. Please refer to GST industry guide on manufacturing for further details.

GST TREATMENT ON UPSTREAM AND DOWNSTREAM ACTIVITIES


GST Treatment on Supply Under The Upstream Activity

10. Generally upstream activities involve in a supply of logs are treated as taxable supplies and subject to GST at standard rate. Reforestation and forestation as well as forest husbandry are also part of the upstream activities. GST treatments for these activities are in accordance to the normal provision as prescribed in the GST Act, Regulations and Orders.

GST Treatment on Supply Under The Downstream Activity
11. Generally downstream activities involve in the conversion and manufacturing of logs in primary and secondary processes and subsequently supplied are treated as taxable supplies of goods and subject to GST at standard rate.

GST Treatment on Secondary Activities
12. Besides the upstream and downstream activities secondary activities are also carried out in the forestry industry i.e. incidental activities involving in the supply of goods and services such as, research and development, animal husbandry, agriculture, community project and other activities which are not the principal activity of the forestry industry. GST treatments for these activities are in accordance to the normal provision as prescribed in the GST Act, Regulations and Orders.

OUTPUT TAX AND INPUT TAX
13. The general concept is, GST will be charged on all taxable supplies of goods and services by any GST registered person. The GST incurred on the acquisitions from another registered person is known as input tax.

14. On the other hand, GST is charged and collected by the GST registered supplier. The GST charged is called an output tax. The GST registered supplier accounts both input tax and output tax in a tax return where the input tax is deducted from the output tax. If the aggregate of output tax is greater than the aggregate of input tax in a taxable period, the net tax is payable to the Customs. If the aggregate of input tax is greater than the aggregate of output tax, then the difference will be refunded to the supplier. Please refer to GST specific guide on input tax for further details.

REGISTRATION
15. For GST purposes, any taxable person who make a taxable supply of goods or services in Malaysia with an annual turnover exceeding the prescribed threshold in the past 12 months, or expected to exceed the prescribed threshold within the future of 12 months, are liable to register for GST.

Group Registration
16. Group registration is a facility that allows two or more related companies to register as a group. The conditions for group registration are:
  1. Each company must be making wholly taxable supplies;
  2. Each company must be registered individually before they register as a group;
  3. companies have controlling power over other companies and are holding more than 50% of the shares;
  4. Members of the group shall be jointly and severally responsible for the payment of GST;
  5. The associate or affiliate companies, partnerships or individuals are not eligible to be members of a group.
  6. Foreign companies which are not established in Malaysia cannot become members of a group. However, for the purpose of eligibility for group registration, their subsidiaries or registered branches in Malaysia
  7. can be considered as members of a group. Companies incorporated in Malaysia are allowed to be members of a group even though they make taxable supplies outside Malaysia.

Treatment of Supplies Between Companies Under Group Registration

17. Inter-company charges on supplies between members of a group will be disregarded. However, supplies from any member of a group to companies which are not members of the group are considered supplies for GST purposes and subject to GST. Please refer to GST specific guide, Guide on Registration for further details.

Responsibilities of a GST-registered Person
18. As a GST registered person, you are required to:-
(a) keep your business records for 7 years. These records include:
  • business and accounting records;
  • copies of serially printed receipts, tax invoices and simplified tax invoices issued by you;
  • tax invoices, simplified tax invoices and receipts received by you;
  • import/export declarations, if any;
  • all credit and debit notes issued; and
  • any other documents that may be prescribed by the Director General.
(b) issue a tax invoice to taxable person for provision of taxable supply;
(c) complete and submit the GST returns and pay the Director General the amount of tax not later than the last working day of the month following the end of the specified taxable period;
(d) provide all information and reasonable assistance as requested by the Director General in the event of an inspection;
(e) notify the Director General in writing when you cease making taxable supplies or when you transfer your business;
(f) If you are a voluntary registrant you must remain registered for at least two years;
(g) show the price as GST inclusive when you issue a receipt.

Please refer to GST specific guide, Guide on Tax Invoice & Records Keeping for further details.


Related Documents/Topics:
Fusion-Tables Customs Guide to GST for Forestry