QUS 3203 PROJECT REPORT1.0 IntroductionOur project report comprises of a group assignment of five (5) members. The assignment topic that we had chosen and cover is about Effect of Goods & Services Tax (GST) on property market in MalaysiaThrough our discussion and opinion, this topic will be so interesting instead of the other assignment topics, because GST is a new born in Malaysia, and implementing GST at 1th April 2015. There will be many and varies of judgment, agree & disagreement, appraisal or complaint etc. on the Malaysia government. When going detail of our project report, will explain briefly about whole research of the GST in introduction. Firstly, we will explain the GST in very detail, which is throughout our research. The definition of GST, the background of GST, what is the purpose of GST, why is GST implemented in Malaysia, where GST applied in several categories, how GST applied on them, etc. this research will be lead the reader to more understand about what is GST and so do us. In addition, our main topics Effect of Goods & Services Tax (GST) on property market in Malaysia, will be explain in detail furthermore too. Property can be divided into different categories, which is residential, commercial, industrials and special-purposes. In the property market classified under 4 categories, which are residential properties, commercial properties, industrial properties and special purpose properties. Residential properties are developed for living such as townhouses, single-family homes. Commercial properties are a type of property, which used for business activities. Industrial property includes all land and facilities used for heavy and light manufacturing, for storage and for the distribution of goods. Special purpose properties are for special business or organizational such as Hotels, motels, club, resorts, and nursing homes, etc.

There will be different effect on the different property after the implemented of GST. Besides, there will be also no any effect on some type of property when GST implemented. Next, will also provide the table analysis how is the way GST applied in property, and the result of before & after when GST implemented.

2.0 Background of study

The introduction of the Goods and Service Tax (GST) is a delicate issue (Iskandar Property Malaysia, 2015). It is often a subject that brings about debates as it affects almost everyone from the business community to the general public. This is a broad based consumption tax covering all sectors of the economy for all goods and services made in Malaysia including imports with some exceptions determined by the Government.According to the governement, the intorduction of GST is part of the reformed tax system to enhance the efficiency and effectiveness of the existing taxation system and to generate a more stable source of revenue to the nation which should brings more benefits to everyone.Goods and Services Tax (GST) is not a new thing in the world, actually it is known as VAT, or Value-Added Tax in other countries. In Malaysia, GST was implemented on 1st April 2015 and GST rate is fixed at 6%. Currently, the sales tax and service tax rates are 10% and 6% and the purpose of GST is used to replace sale and service tax.

When the GST implemented, it will effect on our life such as effect on vehicles, household goods, food and drink, and in property. The prices between before and after the GST will different because the levied tax rate and tax imposed at where is different. Sales tax only imposed at the manufacturer stage and service tax is imposed on specific services at the time when the services are provided to the consumer. But the GST was imposed at each stage of supply chain.

2.1 General concept of Goods and Services Tax (GST)GST is a broad-based consumption tax (input tax) applied at each stage of supply chain where GST registered business can offset the GST incurred when making supplies against GST charged (output tax) to supplies made. Under the standard rated supplies, the burden of the GST falls onto the final consumers. Thus, it can be neutral effect for business on their tax payment as the input tax can be offset with output tax.The concept of GST was originated from a French tax official in the 1950s. At other countries, the GST is known as VAT, or Value-Added Tax. (Royal Malaysia Customs Department Background of GST, 2014). Today, more than 160 nations including the European Union and Asian countries such as Sri Lanka, Singapore and china are practice this form of taxation. Roughly 90 percent of the worlds population lives in countries with VAT or GST.

Here some of the tax rates of countries around the world who have implemented GST or VAT.

Table 1: Tax rate of the countries (sources: Royal Malaysian Customs Department, 2014)Actually, the GST was scheduled to implement by the government during the third quarter of 2011, but the implementation was delayed. Thus, this time round the Government has shown its seriousness by making at 1 April 2015. A 6% GST is imposed on most goods and services supplied.2.2 Malaysia Tax historyIn Malaysia, it has several different indirect taxes involved:2.2.1 Import duty on goods brought into the country2.2.2 Export duty on goods produced for sale outside the country2.2.3 Government sales tax on a wide range of goods at the point of import or at the manufacturers level, with four tax rates at 5%, 10%, 20% and 25%2.2.4 Service tax on services provided by restaurants, hotels, telecommunications services, etc.2.2.5 Excise duty on luxury such as automobiles, liquor, and beer.GST is charge on the supply of goods and services at each stage of the supply chain from the supplier up to the retail stage of the distribution and at the end is the consumer bear the tax. Even though GST is imposed at each level of the supply chain from manufacturer to wholesaler, wholesaler to retailer, and retailer to consumer, the tax element does not become part of the cost of the product because GST paid on the business inputs is claimable.2.3 The three type of supply on GST2.3.1 Standard rated supplies Standard rated supplies are taxable supplies of goods and services, which are subject to the standard rate of 6%.How GST is charged at each level of supply chain standard rated supply:

Figure1: GST chatged at supply chain (Source: Royal Malaysia Customs Department, 2014)

How GST is charged and collected at the wholesale level for standard rated supply:

Figure 2: GST charged and collect at wholesale (Source: Royal Malaysia Customs Department, 2014)

2.3.2 Zero-rated suppliesZero-rated supplies are taxable supplies, which are subject to a zero rate that is not liable to GST at the output or input stage.How GST works on a zero rated supply:

Figure 3: GST works on zero rated supply (Source: Royal Malaysia Customs Department, 2014)

How GST works on a zero rated supply at the wholesaler level:

Figure 4: GST works on zero rated supply at wholesaler (Source: Royal Malaysia Customs Department, 2014)

2.3.3 Exempt suppliesExempt supplies are non-taxable supplies, which are not subject to GST at the output stage when supplied to the consumer. However, the GST paid on input by the businesses cannot be claimed as tax credit.How GST works on an exemplt supply:

Figure 5: GST woks on exempt supply (Source: Royal Malaysia Customs Department, 2014)

How GST works on an exempt supply by a service provider:

Figure 6: GST works on exempt supply by service provider (Source: Royal Malaysia Customs Department, 2014)

Here is the example of how Starbucks apply on 6% GST.In a GST regime (6% GST in this calculation), the following happens:1. Starbucks buys the coffee beans from the wholesaler to make your cup of coffee for RM10 (RM10+ 6% GST). The Wholesaler keeps RM10 and passes on RM0.60 from Starbucks to the tax authorities.2. You buy that cup of coffee from Starbucks, which the beans were used to make, and pay RM15.90 (RM15 + 6% GST). Starbucks now keeps RM15 and passes on RM0.30 to the tax authorities (RM0.90 - RM0.60). The reason why Starbucks only passes RM0.30 to the tax authorities is because they have effectively already 'paid' RM0.60 in tax earlier on the first RM10, and only RM0.30 tax is left to be paid on the RM5 "value-add".

There is a picture graphically shown this example below.Figure 8: GST causes price increase (Source: Savemoney.com, 2015)Figure 9: How GST works? (Sources: Restaurant Old town Facebook, 2015)This is the picture, which we found from the Facebook of the Restaurant Old Town. They teach the consumers and show them how they will charged on the 6% GST. Besides, this picture draws criticism and laughter.

3.0 Effect of Goods & Services Tax (GST) on property market in Malaysia3.1 What will happen when GST is imposed on property?Business that fall under the general business turnover thresold of more than RM500, 000 in 12 months period will need to account for GST on their business activities.Generally everyone who consumes the goods and services will be charged an additional 6% GST which means additional as table shown below:Original price6% of GSTPrice after 6% GST

RM1, 000.00RM1, 000 X 6% = RM60RM1, 060.00

RM10, 000.00RM10, 000 X 6%= RM600RM10, 600.00

Rm100, 000.00RM100, 000 X 6% = RM6, 000RM106, 000.00

RM1, 000 ,000.00RM1, 000, 000 X 6%=RM60, 000RM1, 060, 000.00

Table 2: Example of price after applicable of GST

Specially for the real estate industry, GST will directly affect the market as the supply of land and building used for commercial, administrative and industrial purpose as shop lots, office, retail business, small office virtual office (SOFO), smal office home office (SOHO), small office flexible, mote, hostel, hotel, warehouse and factories is subjected to GST. However, the supply of land used for agricultural, residential (residential house such as semi-detached house, link house, detached house, apartment including condominium and serviced apartment) is exempt from GST. Thus, general consumers of residential properties will not see an obvious impact of GST, as least not on their bill when it comes to purchase or rental of residential property as it is tax exempt. Tax exempt means GST is not charged on the supply but does not mean it is GST-free. For businesses such as property developers, it means there is no entitlement to recover GST incurred which translate to cost to their business.

This means the developers will need to pay for GST for all supply of materials and services from contractors, building materials, professional service, thus residential properties are not free from GST after all. In fact, developers have voiced concern of upward cost pressure on residential property prices. While residential property is considered an exempt supply, sales and rental of residential properties such as condominiums, apartments, houses are not subjected to GST tax. However, all commercial properties such as shops, offices, factories will be subjected to GST. For example, a sale of a RM3, 000, 000 shop office will be subject to GST of RM180, 000 6% GST to be borne by purchasers. When the same property is rented out, an additional 6% GST will be imposed on the tenant. For example, a RM10, 000 rental will have an addiitonal RM600 6% GST tax on the rent payable.Diagram 1: Real estate classification

3.2 Classification of real estateDiagram above shown the classification of real estate. Real estate can be classified into four (4) categories, which is residential, commercial, industrial and special purposes (Mehdi Tasaloti, 2015). There will be different effect on different types of property.

4.0 Residential propertiesResidential property refers to areas that are developed or able to be developed for living. Residential property which is zoned for single-family homes, multi-family apartments, townhouses, condominiums and any other place where people live. Residential property does not have to contain a residence. An empty plot can be zoned as residential. This means that people are restricted from using it for non-residential purposes. Residential real estate, including privately owned residences as well as government and industrial housing, satisfied the basic shelter needs of our population. Residential property can be intermingled. This is often found in urban areas. Business and homes may be in close proximity or they may be connected. When this is the case, the owner has power to choose they want their property to be used. There is a wide range of home business and it is the largest source of demand in the market.

4.1 Effect of GST on residential propertiesResidential properties are GST-exempted rated; therefore, homebuyers are technically not charged GST. However, prices of houses would still be affected, as the construction materials used to build them are not exempted. Additionally, developers cannot get a refund for the input taxes, as houses are not Zero-rated items. Consequently, home builders would be forced to accept a lower profit margin by absorbing a higher cost or raise the prices of their products in a bit to offset the higher cost. This seems like a good news for homebuyers as they do not have to pay GST when purchasing a home. However, it is no stretch of the imagination to think that developers would try to build in the additional tax costs into the final sale price implicitly.

Flowchart 1: GST exempt rated for Residential properties (Richard Onn, 2014)During the building construction period, developers would incur taxes during of their inputs and materials. In the GST, all building material and services such as contractor and engineers will be charge in GST with standard rate of 6%. It is means that the developer has to bear the additional tax cost for materials and service. So the developer needs to pay GST to the material supplier and engineering service, the cost of building increase, developer might reduced margin of profit or increase the selling price to cover GST incurred that is tax exempt which is not recoverable. Table 3: Final Cost to Consumer (loan street, 2014)Table 3 shows a comparison between the cost of a new property before and after GST. Certain taxes and costs leading up to the sale to the final consumer have been simplified for this purpose. Also, an assumption is made that developers are able to transfer 100% of all incurred tax costs over to the consumer via the sale price.For lease and rental, GST is imposed on each successive lease or rental payment. Whenever the consideration is received or the developer issues a tax invoice relating to that lease or rental. Any lease inducement payment to attract a key tenant may also be subject to GST. But according Malaysian Royal Custom Department has clarified that there are no GST charges for residential rental of properties. (GST Malaysia, 2014)If you are not in business, you do not have to. Even if you are in business, you do not have to charge GST if you are receiving rental from residential properties which are exempted from GST. For management and agency services, the property management and agency services will be subject to GST. The facilities and services provided by a management corporation are likewise subject to GST. Property manager and agents need to take care where items invoiced to clients are classified as reimbursement or disbursement. Reimbursements are expenses incurred in relation to goods and services consumed to enable the performance of services to clients such as printing, photocopying, and telephone charges. These expenses are deemed to form part of the cost of supplying services to client, thus GST is chargeable. (1GST, 2014)In addition, the GST could compound the woes plaguing the countrys housing market such as pricey land cost which includes conversion charges, premium cost and development charges, as well as stamp duty and quit rent. Another problem is the shortage of land in urban areas like Penang and Klang Valley, which is exacerbating the cost of houses. (PropertyGuru, 2015)

5.0 Commercial propertiesCommercial property is a type of property, which normally used for business activities. Commercial real estate includes various types of income-producing properties, such as office buildings, shopping centers, stores, gas (petrol) stations and parking lots. A commercial property is generally considered to be a public accommodation (a private entity) that provides goods, services, facilities or accommodations to the public. There are four primary types of commercial real estate lease, each requiring different levels of responsibility from the landlord and the tenant. In addition to rent, a single net lease make the tenant responsible for paying property taxes; a double net lease will pay the property taxes and insurance; and triple net lease makes the tenant responsible for paying property taxes, insurances and maintenance. Under gross lease, the tenant only pay the rent, which is fixed and landlord will pays for the buildings property taxes, insurance and maintenance.5.1 Effect of GST on commercial propertiesGiven that commercial is not Exempted rated goods but falls under Standard rated items, the GST will have a greater impact on this segments. As the lessor, GST will be applicable based on your properties title and usages of the properties. (PropertyGuru, 2015)The first criteria for GST registration would be the total income of the owner from properties rental. A factory sale RM2, 000,000 will be subject to GST of RM120, 000 by purchasers. Individuals or companies who have an accumulated rental income of more than RM500,000 per year have to be GST registered and subject to charge their tenants the 6% GST. (Worldwide Properties, 2014)

Figure 10: Example of commercial property implemented GST on it. (Sources: iMoney, 2014)For commercial property investors, these properties will be imposed 6% GST and this will push the prices of such properties higher. Commercial properties include offices, shops, retail, hotel, malls, factories, and hospitals; On the other hand, residential properties are exempted from GST.

All properties with commercial title such as shop lots; retails can be subjected to GST tax. Some property title such as SOHO and SOVO will subject to GST with standard rate 6%, where it is automatically considered as commercial title unless owner can specifically proves that these rented units are not being used commercially. Owner of property rental will bear the responsibility to declare and determine income from commercial properties. (GST Malaysia, 2015)Here is the other example for commercial properties, buyers will have to pay for the GST based on the price of the property which means if the property cost RM1million, the GST due will be RM60, 000. In the case of new projects, the payment will be subjected to the progressive billings of the stage of construciton. For example stage 2a billing is RM100, 000 then the GST due will be RM6, 000. In the secondary market, the full amount based on the selling price will be due practically immediately. Having said that, there are exceptions as the above only applies to purchasing a property from a GST-registered person. Rentals (property belonging to a GST-registrant) and maintenance charges will likewise attract GST. (Chan Ai Cheng, 2015)GST also will effect on the material cost because the GST will imposed on the manufacturer stage. Some may argue that cost of construction may instead reduce, considering that the rate of sales tax in Malaysia which is currently 10% will replaced by the 6% GST and this would in fact translate into some savings on the cost of construction materials. However, it would be worthy to note that pursuant to the Sales Tax (Rates of Tax No.2) Order 2012, the sales tax rate on most building materials enjoy a preferential sales tax rate of either 0% or 5% as at 31 December 2013. So in fact, the tax element of construction materials would in reality is increase. (Richard Oon, 2014)

Flowchart 2: GST Standard Rate for commercial properties (Richard Onn, 2014)Besides the property transactions, GST also applied on financing part. For commercial propertys financing, investor required to pay for GST mean additional charges applied for each commercial property during loan disbursement. It will increase the investment cost. (Samuel, 2014)

For lease and rental, Malaysian Royal Custom Department has clarified have a standard 6% GST chargeable for commercial use rented properties. GST is imposed on each successive lease or rental payment. Whenever the consideration is received or the developer issues a tax invoice relating to that lease or rental. Any lease inducement payment to attract a key tenant may also be subject to GST. If the lease agreement contains clauses, which will transfer the title of the asset to the lessee at the end of the leasing period, it is a supply of goods. If there is no transfer of title at any time of the leasing period, then it is a supply of services. In the event a lease spans the start date of GST, tax will need to be levied on the rent payable from the start date. The impact and pricing implication of the GST needs to be considered in relation to these contracts. Owner of property rental will bear the responsibility to declare and determine income from commercial properties.

In addition, only a GST-registered company that sells you the commercial property, such as in the case of a property developer is allowed to charge you. However, a private seller who is not GST-registered is not allowed to charge GST on the commercial properties they are selling. Furthermore, if you are a GST-registered buyer and but a commercial property for the purpose of running a business selling GST taxable supplies, your are actually allowed to claim back on the GST incurred. The GST payable on commercial properties does not become part of his cost of doing business. And when you decided to sell the property later on, the incurred GST, which you cannot claim back, will likely be included in the subsequent selling price. (Alis Padasian, 2015)

6.0 Industrial propertiesThe industrial process converts raw materials into finished products, comprising all activities involved in the production, storage and distribution of goods. Industrial property includes all land and facilities used for heavy and light manufacturing, for storage and for the distribution of goods.6.1 Effect of GST on industrial propertiesThe Overview of GST Treatment on the Industry PropertyThe supply of the use of building and land for the administrative, commercial and the industrial purpose which is subjected under the GST. The classification for the building or land are based on the conditions of the use which stated in the title of property. The supplies of the commercials, administrative and industry building which have subjected to the GST, except the residential housing or building which are exempted.

Example:DEP Develop Sdn Bhd carries out a mixed development project incorporating 200 units of residential housing, 20 units of commercial building and 10 units of industrial building. The sale of the 20 commercial and 10 industrial units are subject to GST. But the sale of the 200 residential houses units are exempt by the condition of the use stated in the document of title. (Sources: GST guide to Property Development, provided by Royal Malaysia Custom, at as 12th April 2010)

The company have to account for the GST under the progressive payment contracts or schedule payment in the supplies of uncompleted of the non-residential property, which at the various stages of the payment based on the earlier of the following:A.When tax invoice issued; orB.When payment is received.

Example:A Purchaser enters into an agreement to buy an industrial building which is under the construction. The sales price of the building is RM300, 000.00. The payment is scheduled for 4 successive interval payments and the respective amounts to be paid is as follows:Scheduled payment periodAmount (RM)

1st payment (1st April 2016)40, 000.00

2nd Payment (1st July 2016)60, 000.00

3rd Payment (1st Oct 2016)80, 000.00

4th Payment (1st Jan 2017)120,000.00

Table 4: GST to be implemented on 1st April 2010.

The developer subsequently issues a tax invoice at each successive period. The GST chargeability is as follows:1st Interval Payment (1st April 2016)

Tax invoiceRM 40, 000.00

GST (RM40, 000.00 x 6%)RM 2, 400.00

2nd Interval Payment (1st July 2016)

Tax invoiceRM60, 000.00

GST (RM60, 000.00 x 6%)RM 3, 600.00

3rd Interval Payment (1st Oct 2016)

Tax InvoiceRM80, 000.00

GST (RM80, 000.00 x 6%)RM 4, 800.00

4th Interval Payment (1st Jan 2017)

Tax InvoiceRM120, 000.00

GST (RM120, 000.00 x 6%)RM 7, 200.00

Table 5: GST chargeabilityThe developer accounts for the GST based on the date of the tax invoice is issued. Assuming you are on a monthly taxable period, if you issue a tax invoice on 1st April, he have to account for the GST in his April GST return. (GST guide to Property Development, provided by Royal Malaysia Custom, at as 11th March 2014)All the value of the portion of property have made available before the GST implementation, which is not subject to GST. So, if any of the value of the portion of property are delivered after the GST implementation date, it will be subject to GST. However, for those semi completed property which under construction subject to periodic payment, the GST is applicable only on the value of the portion of property made available after the GST implementation date.

Example:Assumption: GST to be implemented on 1st July 2010KL Sdn Bhd signs a contract with JK Sdn Bhd to buy an industrial building. The contract is scheduled to begin on 16th July 2009 and completed by 30th July 2010. Under the contract of the agreement, KL Sdn Bhd will receive an amount as provided under the progress payment schedule. KL Sdn Bhd will invoice to JK Sdn Bhd middle of each month. On 15th July 2010, KL Sdn Bhd lodges a claim amounting to RM200, 000.00 for value added to the building between 15th June to 14th July 2010.

The GST due for value added of building after GST implementation is as follows:GST = RM200, 000.00 x 15/30 x 6% = RM6, 000.00Total period involved in valuation = 30 daysPeriod after GST implementation = 15 days

For the period from 15th July till 30th July, that in the period during GST implementation, the total value of the remaining portion of the building delivered is subject to GST. Assuming the value id RM120, 000.00, the GST = RM120, 000.00 x 6% = RM7, 200.00(Sources: GST guide to Property Development, provided by Royal Malaysia Custom, at as 12th April 2010)

6.2 The Supplies under the Designated AreaThere are 3 designated area in Malaysia which located in Langkawi, Labuan and Tioman Island. If the developer who is registered under this designated area, and making and supply on non-residential Property such as Commercial and Industrial Property, so the developer who can no tax will be charged in the GST implementation. However, the developer company is register within the designated area but he supply those non-residential property outside the area, so these supplies will be subjects of GST and he have to account for the GST. Example:Today, I have a construction company and my office is located in Kota Kinabalu. However, the premise for running the business is located in Labuan which stated as Designated Area. I am issue the bill from Kota KInabalu for the services provided by me. What is the GST implication on the services provided from the designated area if my customers are in Malaysia and in the designated area as well? The supply of the services made within a designated area is disregarded. However, the services that I provide to my customers in Malaysia are considered as local supplies. Hence, GST is chargeable on the supply of services if I am taxable person.(GST guide on Designated Area, provided by Royal Malaysia Custom, at as 11th March 2014)

6.3 What is the Designated Area?As a developing nation, Malaysia strongly encourages the development of export-oriented industries. To support this policy, various facilities have been introduced by the Government, which are namely the formation of licensed warehouses, free industrial and commercial zones, licensed manufacturing warehouse and the free ports. Under the Customs Act 1967, free Ports are regarded as places outside the Principal Customs Area (PCA). It is because, the policy and act is to maintain the status of quo, special provisions and ules are introduced under the GST system for the free ports and they are to be known as designated Area. The taxable person who need nor register for the GST if the person makes the supplies wholly within or between the designated areas. But if the person who makes the supplies to Malaysia or within Malaysia (outside the designated Area), he is required to register for GST even the principle place of Business situated under the designated Area. Before the implementation of GST, the free ports, with minor exceptions are free from all types of customs duties, service ax and sales tax.How the GST changes The Property Investment in Malaysia?Nowadays, there are many company will be affected under the GST, the Commercial Propertys transaction will also affect. Commercial and Industrial Property which catalogued under the standard rate which GST is imposed. For the Residential Property is fell because under the Exempted Rate which the GST is not subjected. It means that there are no GST if we sell the residential property, however there is the GST while we sell in the commercial and industrial property. Such as SOHO (Small Office Home Office), SOFO (Small Office Flexible Office) and beyond. These types of property are depending on the land titles.

Besides that, the GST also have applied on the financing part, which the commercial and industrial propertys financing, the investors who are required to pay for GST. Additional, the charges applied for each commercial and industrial property during loan disbursement. It will increase the investment cost and there are most of the investors not yet notice this changes. The Investors who purchased the commercial types of the properties before GST, some of them not yet been informed by the financial institute (Commercial Bank).

Table 5: All Properties with SST (Sources: Raine & Horne Newsletter I)

Table 6: Residential & Agricultural Properties with GST (Sources: Raine & Horne Newsletter I)

Table 7: Commercial and Industrial Properties with GST (Sources: Raine & Horne Newsletter I)

Table 8: the Differences between SST and GST (Sources: Raine & Horne Newsletter I)

The table 5 until table 8 as shows on the top is the Prices before the implementation of GST and the after the implementation of GST in the Malaysia properties market. Through the figure, the investors will can have good idea in the invest of property market in Malaysia.

7.0 Special purposes propertiesHotels, motels, club, resorts, nursing homes, theater, schools, colleges, government institutions and places of worship are considered special-purpose property. Their common denominator is the fact that the activity in these buildings is a special business or organizational undertaking that indicates the design and operation of the buildings themselves.7.1 Effect of GST on special property7.2 CinemaThe entertainments duty act 1953 of Malaysia states that admission to a place where any form of entertainment is held is subject to the entertainment duty. An additional 25% fee from the cost of per movie ticket at the cinema is chargeable and is to be paid to the tax collector, the ministry of finance, for whom the state government enforces and collects for.

The new Goods and Service Tax is set at a fixed rate of 6% and will be implemented starting from 1 April 2015 onwards. The GST is set to replace the current Sales and Service Tax (SST) that is made up of sales tax; between 5% to 10% and the Service Tax that is 6%. With the new GST set to eliminate the SST, it sounds like a pretty good deal mathematically doesnt it? Answer is WRONG, because movie tickets are not subject to the SST anyway, only the entertainment duty, thats why the latter is so high. The GST will be a new addition chargeable to the movie lover with the current 25% entertainment duty.How does GST affect movie ticker pricing? With an additional 6% GST to pay on top of your 25% of entertainment duty, this will bring your total tax paid to a whopping 31%, and this is just to buy a single movie ticket. Since most of us dont go to the cinema alone often, imagine if you went to watch a movie in pairs or with your family. How much in tax will you actually be forking out? The implementation will neither make our wallet lighter nor weigh it down. Things can get rather pricey. Take note the 6% GST is chargeable only over the net pricing of the ticket and the net price other items/purchases from the cinema. The GST charge does not include other tax or service charges, which remain as its own separate chargeable over the net pricing of tickets and items purchased. The existing Entertainments Duty of 25% is only chargeable for the net pricing of movie tickets and not for concession items and dining. Golden Screen Cinemas have adopted a 'rounding off' system where movie ticket prices are balanced between the net ticket price and GST charge to provide customers with a final rounded off ticket price. With the implementation, there is a slight increase in ticketing pricing observed that start from RM0.50 onwards depending on the type of movie ticket (standard, couple seats) or type of movie format (2D, 3D, D-Box, Atmos and etc.) picked by the cinemagoer. (Cinema Online, 2015)

Figure 11: GSC explains their GST pricing on their website. (Sources: Cinema online, 2015)

Figure 12: Movie ticket from GSC Cinemas (Pavilion KL) with GST included. (Sources: Cinema online, 2015)

TGV Cinemas takes a different approach as it states there is no additional 6% GST charged on current ticket prices as it is already absorbed by their ticketing prices. The nett price of their tickets have been adjusted so that now the GST and Entertainment Duty charge 6% and 25%, respectively, will still give cinemagoers the same ticketing prices as charged by TGV Cinemas before this.Figure 13: TGV Cinemas say that there is no increase of their ticketing prices. (Sources: Cinema Online, 2015)

Figure 14: Movie ticket from TGV Cinemas (Suria KLCC) with GST included. (Sources: Cinema Online, 2015)

7.3 EducationGood and Service Tax (GST), which is also known as VAT or value-added tax in many countries is a multi-stage consumption tax on goods and services. Malaysia will implement GST beginning 1 April 2015. For those in the education industry, the good news is that there are many supplies, which will be GST-exempt.First on the GST-exempt list are educational services and services related to the education provided to students by child care centers, pre-schools, and private primary and secondary schools registered under the Education Act 1961 (Act 43, 1961), the Education Act 1996 (Act 550), enactments related to the regulation of Islamic religious schools in the states of Perlis, Kedah, Penang, Perak, Selangor.Second, educational services and services related to the higher education provided to students by private higher educational institutions approved under the Education Act 1996, the University Colleges 1971 (Act 30).Third, food and drinks supplied by the canteen operators at pre-schools, and primary and secondary schools registered as mentioned previously, will also be exempted from GST.In addition, there will also exempted from GST at schools and institutions that provide educational services curriculum and course materials; excursions or outdoor activities; the provision of food and accommodation; transportation for students; administrative services; examination services; and the supply of cleaning and maintenance services, electricity, gas and air conditioning as part of the provision of student accommodation.Besides schools and private higher education institutions, childcares services provided by childcare centers registered under the childcare center will also be exempted from GST. A childcare service is defined as any form of childcare services provided part-time or on a daily basis with payment, or as an employment benefit.

Reading materials including childrens colouring books, exercise and references books, textbooks, dictionaries and religious books are also exempted from GST. (Sources: Goods and services tax (exempt supply) order 2014, P.U. (A) 271, e-Federal Gazzette, 2015)

7.4 Hotel industryThe GST will have a minimal impact on the local hotel industry but teething problems are, nevertheless, expected when the new tax regime is implemented on April 1.Malaysian Association of Hotels President Samuel Cheah Swee Hee said members were now in a better position to implement the GST after having attended numerous sessions with the Customs Department to gain relevant technical knowledge.I believe we have no issues in implementing the GST. However, we expect some hiccups when we switch over to the GST from the current sales and service tax (SST) after March 31.Asked if guests would have to fork out more during their stay at the associations 808 member hotels, he said, they need not worry as the GST would be replace with the SST but with a slight adjustment.

For example in SST, the room rate could be RM100 plus a 10 per cent service charge and six per cent service tax with the final amount coming up to RM116. But with GST, the rate stays at RM100 and service charge at 10 per cent, bringing it to RM110. GST is then charged on the RM110 and the room rate will finally amount to RM116.60. As such, the guest only needs to pay an additional 60 cent, he said.However, Cheah said 50 per cent of association members would only charge the normal hotel rate and GST without the 10 per cent service charge as agreed to when minimum wages were implemented in 2013. So hotels that currently operate without the service charge will not be affected at all. He added.Cheah also said the association was still awaiting clarification from the government to waive payment of the GST for customers doing advanced hotel bookings. He said it was unfair for customers to pay the GST upfront as a refund, in the case of a cancellation, would be cumbersome.On the outlook for hotel industry, Cheah expected a slow down for this year, following the downtrend in the global tourism industry. Due to the economic slowdown, we have seen a decline of about eight to 15 per cent in hotel bookings from Chinese, Middle Eastern and European guests. (Sources: Bernama News, 2015)

8.0 The overall effect of GST upon Real Estate in Malaysia8.1 Property utilities & outgoings will not be affected much.Property outgoing costs such as electricity and water bills will not be subjected to GST. However, other outgoings such as maintenance charges may be affected.All supplies where charges and fees imposed by the Government related to real estate such as quit rent, premium, survey fees (conducted by Survey Department),registration of titles and other payments are regarded as out of scope. The assessment rates imposed by the local authorities is also out of scope of GST. However, it should be noted that only the first 300 units of electricity would be exempted. Anything after that would be subjected to GST. There may be a surge in maintenance fees due to this reason.

8.2 Residential property exempted, but not all residential titles would be exemptedResidential Properties would be exempted from GST, but still subject to Real Property Gain Taxes as in status quo.To this end, the sale, purchase and rental of properties, which are on a commercial and/or industrial title, are likely to have GST implications. However,the treatment of any land transaction with a building or structure attached willdepend on its usage. If a residential building is built on the commercial land title, it will be treated as residential and such transaction is exempted from GST. However, if the residential building has been used for commercial purposes, GST is charged on the sale of this building.The final decision on whether the particular property is subject to GST depends on the Inland Revenue Board and Customs Department of Malaysia. It is best you consult a licensed GST Tax Consultant for this purpose should the status of your property is a complicated one.8.3 Construction materials supply chain and surging prices in the primary real estate marketIncreased costs of construction materials would happen due to the GST. Property Developers would had to pay on materials costs, construction and building services, equipment and other development essentials where these costs would be passed on to home buyers, with only minority of the charges absorbed by developers. It is difficult to determine construction materials used for the construction of properties in a mixed development whether its for residential, commercial or both, giving rise to a loophole where the developer could only claim back GST on the costs that have no relation with the exempted residential properties. Therefore, construction materials are not exempted from GST even if it is used for Residential Properties. In order to recuperate the costs increased from construction materials, thispushes developers to incur more expenses, which in turn, result in higher sale price of properties in the primary market to recuperate the costs.8.4 Transfer of commercial properties is considered a transfer supply of goodsThe sale or lease of commercial buildings will be taxed at 6% while the sale or lease of residential, agricultural and burial land would be exempted from GST. However, it should be noted this does not applies to other charges such as Real Property Gain Taxes. The type of real estate would be determined based on its land use and category as stated in its title.Any transfer of the whole right of ownership in land, land under an agreement for the sale of such land, land under an agreement which expressly stipulates that the ownership of such land will pass at some time in the future, any interest under Deed of Assignment or any strata title is a supply of goods.

8.5 Disposal of property would be taxedThe sale and disposable of property involving a transfer of ownership or title is regarded as a supply of goods. In the case of taxable supply, GST is charged on the whole value of the property when the land is made available to the purchaser that is the date of conveyance. However, in the case of property under construction involving progressive payment, the supply is treated as separately and successively supplied, and GST is charged whenever a part of the consideration is received or whenever the developer issues a tax invoice relating to that supply, whichever is the earlier. Where the transaction involves a transfer of possession such as lease and rental of property, it is regarded as a supply of services. GST is imposed on each successive lease or rental payment. GST is charged whenever the consideration is received or whenever the developer issues a tax invoice relating to that lease or rental.

8.6 Secondary real estate market expectationsThe Secondary Market of real estate in Malaysia would increase as well, especially when we can see that across the entire primary market, prices would be increasing, making it more lucrative to purchase properties in the secondary market, where differences between the inflated sale price due to GST can be used for renovation of buildings in the secondary market. Besides, secondary market properties deemed to be more worthy of purchase due to surging prices in the primary market, causing more demand for developed secondary market properties. The rise of demand ultimately leads to increase of property prices in the secondary market. This is also known as a chain reaction or knock-on effect.

8.7 Mortgages, finances and loans when you purchase your propertyFinancial Services are exempted from GST.

8.8 GST taxable periodsAnnual sales of properties with morethan RM5,000,000 for developers, the taxable period would be every month, while for lessthan RM5,000,000, the taxable period would be every three months. This only applies for taxable goods.

8.9 Lease, tenancy, easement, licenses and permits to occupy land is a supply of servicesAny lease, tenancy, easement, license to occupy land or transfer of undivided share in land is a supply of services. A lease is meant for duration for more than 3 years while tenancies are for duration for less than 3 years. GST is charged for all these purpose. However, should the property used is classified as residential property and was rented out to another party for residential purpose, it would be exempted from GST.Hopefully, this article would provide some new insights and knowledge onto the effects of GST Upon the Real Estate Industry in Malaysia.9.0 ConclusionIn conclusion, the implemented of the GST in Malaysia has a big effect on it. Different people will have different opinions on this implementation, either good or bad. However, we always look at the best way and positive thinking that this may promote our nation as more prosperity among others country.Furthermore, while we apply the efforts of the government to introduce the broad-based Goods and Services Tax (GST) to replace the Sales and Service Tax (SST) to make the Malaysia tax system more comprehensive, we would like to highlight its effects on the property developers, and particularly the 140 upstream and downstream industries.

The Classification of land and property under the GST is based on the usage at the condition as below:1.The actual use of the property, design features and the essential characteristic and attributes of the property.2.In the case of newly completed property which has not been used, the sale of property will be based on the design features and the essential characteristic and attributes of the property.3. Vacant or bare land to the treated based on the usage according to the title.For the impact of the GST in 2015, it is based on the following calculations with implementation of GST at 6%, prices of the properties will increase for both residential (1% to 2%), and commercial (2% to 3%), assuming that the developers do not factor in the GST into the selling price of the residential properties. In the case of the developers factoring in GST into selling price, buying residential and agricultural properties from the secondary market seems more cost-effective.10.0 ReferencesWebsite references1. Iskandar Malaysia. 2015. How Will GST Impact The Malaysia Property Market. [ONLINE] Available at: http://www.malaysiapropertyiskandar.com/how-will-gst-impact-the-malaysia-property-market/. [Accessed 27 March 15].2. Royal Malaysian Customs Department. 2012. How does GST works. [ONLINE] Available at: http://gst.customs.gov.my/en/gst/Pages/gst_zr.aspx. [Accessed 27 March 15].3. One stop portal for Goods and Services tax information. 2014. GST and property rental. [ONLINE] Available at: http://www.gstmalaysia.co/gst-and-property-rental/122/. [Accessed 27 March 15].4. Loanstreet. 2015. How GST will impact home prices and property. [ONLINE] Available at: http://loanstreet.com.my/learning-centre/How-GST-Will-Impact-Home-Prices-&-The-Property-Market. [Accessed 28 March 15].5. Property Guru. 2015. How will the GST impact the Malaysia property. [ONLINE] Available at: http://www.propertyguru.com.my/property-news/2015/4/89965/how-will-gst-impact-the-malaysia-property-market. [Accessed 28 March 15].6. iProperty.com. 2015. Residential properties & residential exemption. [ONLINE] Available at: http://www.iproperty.com.my/news/9847/residential-properties-gst-exemptions. [Accessed 01 April 15].7. Fennie Lim. 2014. Do you have to charge GST in your rental income. [ONLINE] Available at: http://malaysiapropertyupdate.com/2014/07/16/do-you-have-to-charge-gst-on-your-rental-income/. [Accessed 01 April 15].8. Eva Yeong. 2013. Start GST at lower rate, says expert. [ONLINE] Available at: http://www.thesundaily.my/news/757051. [Accessed 01 April 15].9. Naseem Randhawa. 2015.Cinemagoing habits remain despite GST. [ONLINE] Available at:http://www.cinema.com.my/Articles/Features_Details.aspx?search=2015.f_cinemagoerssharethoughts_22940. [Accessed 03 April 15].10. Navin Amos. 2015.Cinemagoers share GST thoughts. [ONLINE] Available at:http://www.cinema.com.my/Articles/Features_Details.aspx?search=2015.f_cinemagoerssharethoughts_22940. [Accessed 03 April 15].

11. BERNAMA. 2015.GST To Have Minimal Impact On Hotel Industry. [ONLINE] Available at:http://web10.bernama.com/gst/news.php?id=1115597. [Accessed 03 April 15].12. e-Federal Gazzette. 2015.GST AND EDUCATION HOW WILL IT AFFECT YOU?. [ONLINE] Available at:http://www.studymalaysia.com/top-stories/gst-and-education-how-affect-you. [Accessed 03 April 15].13. 1 GST. 2014.GST GUIDE FOR PROPERTY OWNERS AND PROPERTY HOLDING COMPANIES. [ONLINE] Available at:http://1gst.com.my/gst-library/92-gst-guide-for-property-owners-and-property-holding-companies.html. [Accessed 04 April 15].14. Richard Oon. 2014.Goods & Services Tax and the Property Investor. [ONLINE] Available at: http://www.propertyhunter.com.my/expert.php?id=74. [Accessed 04 April 15].15. Worldwide properties. 2014.Effect of GST upon real estate in Malaysia. [ONLINE] Available at: http://www.worldwideproperties.com.my/uncategorized/10-stunning-effects-of-gst-upon-real-estate-in-malaysia/. [Accessed 05 April 15].16. Samuel. 2014.How GST changes Property Investment?. [ONLINE] Available at: http://allestatewealth.com/gst-property-investment/. [Accessed 05 April 15].17. Alis Padasian. 2015. The Effects of GST Implementation in Property Industry. [ONLINE] Available at: http://www.propertyhunter.com.my/news.php?id=1425 [Accessed 05 April 15].18. Star special. 2015. In light of GST. [ONLINE] Available at: http://malaysiaretailnews.blogspot.com/2015/02/the-star-in-light-of-gst.html. [Accessed 05 April 15].19. John Gilbert. 2014. Confusion over GST. [ONLINE] Available at: http://themalaysianreserve.com/main/news/corporate-malaysia/5846-confusion-over-gst-will-hit-property-market. [Accessed 05 April 15].

20. Samuel. 2014. How GST change property investment. [ONLINE] Available at: http://allestatewealth.com/gst-property-investment/. [Accessed 05 April 15].21. INVESTOPEDIA. 2015. Commercial Real Estate. [ONLINE] Available at: http://www.investopedia.com/terms/c/commercialrealestate.asp. [Accessed 06 April 15].22. wiseGEEK. 2014. Residential property. [ONLINE] Available at: http://www.wisegeek.com/what-is-a-residential-property.htm. [Accessed 06 April 15].

PDF1. PwC. 2010.How does GST affect property industry. [PDF] Available at: PwC Malaysia [Accessed 04 April 2015].2.Malaysia Goods and Services Tax guide on Designated Area 2014. [PDF] Available at: Royal Malaysia Customs [Accessed 04 April 2015]3.Malaysia Goods and Services Tax guide on Property Developer 2014. [PDF] Available at: Royal Malaysia Customs [Accessed 04 April 2015]4.Malaysia Goods and Services Tax guide on Property Developer 2014. [PDF] Available at: Royal Malaysia Customs [Accessed 04 April 2015]5.Malaysia Goods and Services Tax guide on Construction Industry 2013.[PDF] Available at: Royal Malaysia Customs [Accessed 04 April 2015]6.Newsletter of GST vs SST 2014. [PDF] Available at: Raine&Horne (International Zaki + Partners Sdn Bhd). [Accessed 04 April 2015]

Video references1. STProperty Impact of Budget 2015 & GST Implementation on the Malaysian Residential Property Market, 15 Dec 2014, Mr Tang Chee Meng [Online.Video] [Accessed 05 April 2015]

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