Input Tax Credit and Blocked Input Tax

What is "input tax"? “Input tax” means GST on any taxable supply of goods or services to a taxable person including GST paid or to be paid by a taxable person on any importation of goods. The goods or services are used or are to be used for the purposes of any business carried on or to be carried on by the taxable person.



A taxable person is entitled to credit the input tax from its output tax that is due from the taxable person.

“Output tax” means any tax on any taxable supply of goods or services made by a taxable person in the course or furtherance of his business in Malaysia.

“Business” includes any trade, commerce, profession, vocation or any other similar activity, whether or not it is for a pecuniary profit. The provision by a club, association, society, management corporation, joint management body or organisation (for a subscription or other consideration) of the facilities or advantages available to its members or parcel proprietors are deemed to be carrying on a business.

Example

Purchase of goods

Value of purchase            1,000

GST 6%                                60 (Input Tax)

Total payable to supplier 1,060 (Consideration)

Sale of goods

Value of sales                  1,500
GST 6%                                90 (Output Tax)
Total due from customer  1,590 (Consideration)

Output tax                             90
Input tax                              (60)
Balance due to Customs       30

The law provides that the taxable person must account the input tax credited as output tax if he fails to pay his supplier the consideration within 6 months from the date of supply.

All input tax credit MUST be supported by a Tax Invoice or Debit Note addressed to the claimant's name and address. Registered person can apply to the Director General to omit some information in the tax invoice for example name and address of the customer. This is also known as Simplified Tax Invoice. The maximum claim for input tax credit on a simplified tax is limited to RM30 per invoice.

Now, the bad news. GST input tax incurred on certain acquisitions cannot be claimed if classified as  blocked input tax:

1. supply or importation of a passenger motor car
2. repair, maintenance and refurbishment of a passenger motor car
3. the hiring of passenger motor car
4. club subscription fee includes joining fee, subscription fee, membership fee, transfer fee
5. medical and personal accident insurance premium or takaful contribution
6. medical expenses – provision of medical treatment to employees
7. family benefits; or
8. entertainment expenses to a person other than employees or existing customers except incurred by a person who is in business of providing entertainment

-end-
DH