Malaysia: GST Oh GST!

Last Updated: 24 February 2016
Article by Manisah Saharin

The impact of the Goods & Services Tax on property transactions and other related issues.

Of late, there had been a lot of uproar regarding the Goods & Service Tax ("GST"). This 'new' set of tax was actually mooted way back in 2011 and was finally implemented under the Budget 2014 regime which took effect on 1st April 2015 at a fixed rate of 6%. An entity has to register for GST if the annual taxable turnover is more than RM500,000.00 a year.

For the purpose of this article, I shall focus on the impact of GST on property transactions and its related issues which include the purchase of a commercial or residential property from the developer, a sub-sale of property as well as tenancy for a property.

Let me first brief you on the definition of GST and other related terms.

What is 'GST'?

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.

It is important to understand that not all types of property is subject to GST. A taxable supply can be either standard-rated or zero-rated.

Standard-rated supply means a taxable supply of goods or services subject to tax; for example, the sale or rent of commercial properties. When a supplier who is a GST registered person supplies standard rated goods or services, he is allowed to charge GST on the supply.

Zero-rated supply is a taxable supply which is subject to a rate of zero percent (0%) such as basic food items, education, healthcare and medical services.

On the other hand, Exempt-rated supply is a supply which is not subject to GST, i.e. no GST is chargeable

on such supply. Residential property, agricultural and general use of land (e.g. burial grounds, playgrounds and government buildings) falls under this category.

Now that we have understood the different types of supply, let us move on to the impact of GST on property transactions.

Buying Property from Developer

A. Residential Property

Since residential properties fall under the Exempt-rated supply, they are technically not subject to GST. But you may ask: "Would the prices of residential properties be affected if they are exempted from tax?"

It is my opinion that one of the possible reasons for GST to affect the prices of residential properties would be because developers will have to incur the costs of the construction materials inclusive of tax since construction materials do not fall under Exempt-rated supply, but they cannot get a refund for the same as such costs do not fall under the Zero-rated supply. As a result, developers would be forced to accept a lower profit margin. To avoid this, they may opt to raise property prices. In the end, we as buyers would be the ones who have to bear the cost of the end product while the developers secure their profits.

As a chain effect, the increased price will most likely affect property prices if it involves sub-sale properties. So, even though residential properties are not subjected to GST, the buyers may still feel the pinch due to the increasing cost of construction indirectly.

B. Commercial & Industrial Property

Unlike residential properties, the sale of commercial properties is a clear cut case which falls under the Standard-rated supply and is taxable under the GST. Instead of beating around the bush, there is a clear pricing scheme for properties of these kind where there is a segregation between the actual sale price and the post-GST price.

C. Property where usage differs from the type of land

However, there are circumstances where usage of a property does not reflect the type of land. In this case, the Director General of Customs and Excise will look at the usage of the property. For instance, even though Shop XYZ is built on a condominium lot, Shop XYZ will always be treated as a commercial unit; hence it is subjected to GST.

Property under construction / progressive billing

A developer is entitled to impose GST on the progressive payment for Standard-rated property that is under construction as at 1st April 2015. However, if you have already signed the Sale and Purchase Agreement ("SPA") with the developer prior to the implementation of GST, the developer will only be allowed to charge GST on the progressive billing if any clause in the agreement specifically provides so.

The selling price of a property displayed by the developer in an advertisement after the implementation of GST will be the purchase price inclusive of GST, unless the developer has obtained prior approval for exemption to comply from the Director General of Customs and Excise.

Sub-sale Market

In sub-sale transactions of commercial properties involving individuals, is the vendor required to collect or impose GST from the buyer? By right, the answer is no. But in instances where a person repeatedly buys and sells commercial properties, the Director General of Customs and Excise may consider those transactions performed by that individual to be an act of an enterprise and so GST will be imposed.

The other instance where a vendor can collect or impose GST will be if the vendor can satisfy the four elements stated under Item 5 of the GENERAL GUIDE FOR GOODS AND SERVICES TAX as at 16th March 2015 which are as follows:

  1. Is it a taxable supply? [The answer would be yes if it is a commercial property]
  2. Is it a taxable supply? [The answer would be yes if it is a commercial property]
  3. Is it a taxable supply? [The answer would be yes if it is a commercial property]
  4. Is it a supply in the course and furtherance of any business?

    [The answer would be no if the property is held as an investment to derive income. The owner does not deal in the property and this transaction is a one-off deal.]

    [The answer would be yes if trading and dealing in properties is the business in nature i.e. the carrying on of an enterprise.]

As a buyer, you can verify whether the vendor is a GST registered person by visiting the Customs' website at

Tenancies, Leases, Easements & License and the Exemptions

Any tenancy, lease, easement, license to occupy of a commercial property is a supply of services, therefore GST applies. To illustrate, a simple analogy would be as follows:-

  1. Shop ABC was sold to XYZ Sdn Bhd for RM2 million and will be subject to GST of RM120,000.00. The GST will be borne by XYZ Sdn Bhd.
  2. If the same property is leased out to Ahmad, GST will be imposed on him. For instance, the monthly rental of RM20,000.00 is subject to an additional RM1,200.00 being the GST sum.

Given the situation, landlords are advised to review their leasing agreement to ensure it includes the relevant GST clauses.

However, if it is a residential property and was rented out for residential purposes, it will be exempted from GST.

Property Utilities & Outgoings

Any supply which was charged by Government related bodies for purposes such as quit rent, assessments, premium, registration of titles, stamp duty and other payments fall outside the scope of GST. However, other outgoings may be subjected to GST.

As for electricity supply, the first 300kWh of electricity supplied to domestic consumers has been gazetted by the Government as Zero-rated supply. For any usage above, it will be considered as Standard-rated supply. For non-domestic consumers, the supply of electricity is still subject to GST.

Generally the supply of treated water by State authority and private company is subjected to GST at the standard rate. For example, in service apartments or condominiums, the supply or treated water by the provider to Joint Management Corporation (JMC) or Joint Management Body (JMB) is treated as business to business supply; therefore the water provider must collect or impose GST for the supply. However, under the GST (Zero-rated Supply) Order 2014, supply of treated water for domestic consumption is Zero-rated.

Currently, only GST-registered businesses can claim back GST. Unfortunately, GST is not claimable by a domestic consumer.


It is relevant to know the impact of GST as we are all involved directly or indirectly.

If you wish to buy a new property, determine first the category that it falls under i.e. Standard-rated, Zero-rated or Exempt-rated. Only then, you will have a clear picture on the costs which revolves around it.

I hope that this article will provide you new insights and general knowledge on the topic.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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