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GST and the Lawyer's Invoice: 6% or 0%?

In a statement on 16.5.2018, the Ministry of Finance announced that goods and services within Malaysia and those imported from abroad, which incur GST of 6%, will see the rate reduced to 0% effective 1.6.2018 (see this report from Edge Markets).

This is of course pending the expected (re-)introduction of the sales and services tax.

In the meantime however, what does this date of 1.6.2018 mean for those in the service industry, in particular for us lawyers, when we issue our invoices? Confusion may arise given that the nature of our work could span from a matter of days to weeks and months, and this may mean the provision of services to our clients encompassing the period before, through and after 1.6.2018.

For example, a client engages me today (25.5.2018) to provide him with an opinion. It seems quite clear that in the event I complete and deliver my opinion by 31.5.2018 and issue my invoice to him by the same day, the 6% GST will be applicable.

However, what rates should I apply and to what portion of my invoice should it be applied to when:-

  1. I complete and deliver my opinion on 30.5.2018, but only issue my invoice on 6.6.2018 (Scenario 1); or

  2. I complete and deliver my opinion on 5.6.2018, and issue my invoice on 6.6.2018 (Scenario 2)?

I was initially at a loss.

The starting point may be a reference to Section 66 of the GST Act 2014 (a copy downloadable from the Customs website here) which provides as follows:-

Supplies spanning change in rate or description

66. (1) Notwithstanding section 11, this section shall apply where there is a change in the—

(a) rate of tax fixed under section 10;

(b) description of the supply of goods or services determined as zero-rated supply under section 17; or

(c) description of the supply of goods or services determined as exempt supply under section 18.

(2) Where there is a change in the rate of tax fixed under section 10, the rate at which the tax is chargeable on any supply spanning the change in the rate of tax shall be as follows:

(a) tax shall be charged at the old tax rate on the higher of the following amounts:

(i) full payment or part payment received before the date of change in the rate of tax; or

(ii) value of the supply of goods where the goods are wholly or partly removed or made available or the services are wholly or partly performed before the date of change in the rate of tax; and

(b) tax shall be charged at the new tax rate on the difference, if any, between the amount of the whole supply and the amount referred to in paragraph (a).

The Customs had also released an FAQ in its endeavours to guide us, and perhaps its own, through this transitional period. The latest version of this FAQ was released on 24.5.2018 and can be downloaded from here.

Of note for present purposes are Q&As 4.5 to 4.8. In particular, Q&A 4.8 is reproduced as follows:-

4.8. Q : Tax invoice was issued on 15 June 2018 in respect of utility services granted from 15 May 2018 to 14 June 2018. What is the GST treatment on this supply?

A : GST should be charged at 6% up to 31 May 2018. From 01 June 2018, GST should be charged at standard rate of 0%. Utility companies should make adjustments in subsequent bills.

On my reading of the above, it seems clear that for the purposes of Section 66(2)(a)(ii), the rate of GST attaches to the date a service is provided, not to the date when the invoice is issued (with the exception of scenario appearing in Q&A 4.7 of the FAQ and Section 66(2)(a)(i) of the GST Act 2014, which is not particularly dealt here).

Therefore, given the above, the full 6% ought to be charged in Scenario 1.

In Scenario 2 however, I will have to charge 6% for all work done between 25.5.2015 and 31.5.2018, and 0% for work done between 1.6.2018 to 5.6.2018. Provisions will therefore either have to be made where your invoices will apportion the professional fees and GST charged to periods "before and including 31.5.2018" and periods "after and including 1.6.2018", or alternatively to ease your internal GST compliance, you could also consider issuing invoices by 31.5.2018 for all work up to that date with the applicable 6% GST, and moving forward all invoices issued thereafter will carry 0% GST. Until of course when we have to then deal with the sales and services tax...

Needless to say, it would be in your best interest to consult your tax advisor. I am not a tax practitioner and do not profess any expert grasp of the subject. This note is merely to share what I have, and how I think I will be proceeding. The views in this article are mine personally and do not and cannot constitute, and shall not be construed as legal advice, or relied upon in that regard.

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