GST - Frequents Ask Questions (FAQ)
Q: What is GST?
A: Goods and Services Tax or GST is a consumption tax based on value-added concept. Unlike the present sales tax or service tax which is a single stage tax, GST is a multi-stage tax.
Q: How does GST works in Banking Industry?
A: There’s a mixture of GST treatment when it comes to services provided by the Banks. Although financial services are generally exempted from GST, charges imposed which are fee/commission in nature would be subject to GST at 6%. Certain fees which are penalty/punitive in nature will not be subject to GST.
For example, when customer obtains a loan from the bank, the profit (Islamic bank) / interest (conventional bank) charged by the bank on financing facility will be exempt from GST. However banks may also impose other fees for the service such as loan processing fee, admin fee, handling fee, documentation fee, legal fee, etc., of which will be subject to GST. Where there is late payment made by customer and late payment fees are imposed to the customer, such fees will not be subject to GST as they are penalty in nature.
Q: What is Value-added concept?
A: The meaning of payment of tax is made in stages by intermediaries in the production and distribution process. Although the tax would be paid throughout the production and distribution chain, only “value-added” at each stage os taxed, to avoid double taxation.
Q: What does it mean by standard rate, zero rated and exempt supply?
A: For the purpose of GST, Islamic banks normally make three types of supplies namely exempt, standard and zero rated supplies (Extract from Royal Malaysian Customs (RMC)’s GST Guide on Islamic Banking (revised as at 30 January 2014) as follows:
Under Islamic Finance a supply is an exempt supply if the consideration of the supply is in the form of a profit charge or spread. These supplies include the provision of financing, credit or advance, exchange of currency or travellers cheques and the trading of financial options or futures.
Standard Rated Supplies
A supply is a standard rated supply if there is a basic charge or a fixed fee being imposed on the supply. Fee based services are standard rated supplies. Examples of fee based services are:
i. processing fee for financing;
ii. standing instructions charges;
iii. rental services;
iv. counting services for coins and currency deposit;
v. prepaid and reload charges;
vi. maintenance services in relation to buying and selling of shares;
vii. supply of automatic teller machine (ATM) cards and savings account books;
viii. safe keeping or custodial services; and
ix. Intermediary services in which fees or commissions are being charged (e.g. services consisting of arranging, broking, underwriting and advising on any of the financial services).
However, certain fees or charges will not be subject to GST. These are fees and charges being imposed to compensate for loss, damages or to penalise the customer for not meeting certain requirements or conditions. Such penalty or fine will not be subject to GST and these penalty charges include:
i. late payment charges;
ii. commitment fee (for unutilized portion of overdraft);
iii. compensation charge for dishonoured cheque; and
iv. Overdraft excess fee. In the case of Shariah advisory fee, it is not subject to GST.
Zero Rated Supplies
Islamic banking services rendered for customers abroad will be zero rated if at the time the services are rendered, he is outside Malaysia. Similarly, any Islamic banking service rendered in connection with land and goods situated outside Malaysia is also zero rated.
Q: What are the other examples of banking fees/charges that will be subject to GST?
A: This would include Inter-Bank ATM withdrawal services fee, online interbank transfer fee, bill payment services (via online/ATM), brokerage services, trade services, IBG, mobile top up services, touch and go, etc.
Q : Would there be any differences if I obtain services from conventional vs Islamic Banks?
A: The GST law provide equal treatment between conventional and Islamic Banking product. For example, Islamic banking product may impose “management fee” on Islamic credit card which is equivalent to “interest” charge under conventional bank credit card. Since “interest” is exempt under conventional banking, the management fee for Islamic credit card will also be exempted.
Q: Is there a minimum value of fees for GST to be imposed?
A: No, all taxable fees and charges will be subject to GST, irrespective of the value.
Q: How will I know that I’ve been charged with GST?
A: Businesses are required to issue a document called a “tax invoice” for transactions of which GST is charged on. For banking services, the tax invoice can be in the form of bank statement, notice letter, receipt, payment advice, debit advice etc. The document will contain the term “tax invoice”.
Q: If I’ve been charged with GST, can I claim it back?
A: GST would be claimable for GST-registered business only. For individuals, no GST claim is available.
Q: When a customer deposits or withdraws money from his savings, fixed deposit or current account, is he subject to GST?
A: Deposits or withdrawals from the savings, fixed deposit or current account are not subject to GST.
Q: Is profit charge subject to GST?
A: No, profit charge is not subject to GST.
Q: I charge my customers certain fees such as half yearly service charge for current account and fifth cash ATM withdrawal charge. Are they subject to GST?
A: Yes, these charges are subject to GST. Any fee based charge in the form of explicit fees imposed by any bank or financial institution are subject to GST.
Q: Is the provision of financing subject to GST?
A: When a bank provides financing to its customer, the bank would enjoy profits. The profit charge with regards to the provision of financing is not subject to GST. However, any fees or charges in relation to it, for instance processing fee, advisory services fee or charges on making copies on the document are subject to GST.
Q: Are repayments of the principal amount subject to GST?
A: The repayment of financing, i.e. the instalment of the principal amount with or without profit charge is also not subject to GST.
Q: Is late payment penalty subject to GST?
A: No. Late payment penalty is not subject to GST.
Q: When I subscribe to insurance/takaful products together with my financing facility (e.g. MRTA, MLTA, motor vehicle insurance, fire insurance, etc.), will it be subject to GST?
A: The treatment of insurance would depend on whether it is categorised as life insurance/family takaful or general insurance/takaful. MRTA is regarded as life insurance product, therefore will be exempted from GST, while motor vehicle and fire insurance are general insurance and therefore subject to GST.
Q: Most banks waive the annual subscription fee on the credit card to make it competitive in the market. Is GST still be imposed on the waived annual subscription fee?
A: Since there is no consideration for the supply of service, the bank need not charge GST on the waived annual subscription fee.
Q: What is the GST treatment on safe keeping and custodial services?
A: Bank provides safe-keeping or custodial services to its customer by offering a safety deposit box and charges rental on the box. The rental charges are subject to GST at standard rate (6%).
Q: What is the GST treatment on the fee or commission charged on the issuance and encashment of traveller’s cheque within Malaysia ?
A: The fee or commission is subject to GST at standard rate