GST Treatment: Partial Exemption

Introduction

This guide will explains how Partial Exemption, Apportionment and Annual Adjustment are made in respect of residual input tax which is attributable to both taxable and exempt supplies in SQL Financial Accounting.

Partial Exemption Rules

Flowchart of Partial Exemption Rules

Input Tax Recoverable Ratio (IRR)

Formula:

IRR = (T-O1) / (T+E-O2)

T = SR + ZRL + ZRE + DS + OS + RS + GS

E = ES

O = Total Value of excluded the following supplies made in the taxable period.

No.	Excluded Supplies	O1	O2
1	SR (Disposal of assets)	√	√
2	DS (Self-recipient accounting transactions, ie. any supplies users make to themselves eg. imported services etc.)	√	√
3	OS (Out of scope transactions which are not taxable in Malaysia)	√	√
4	ES43 (Incidental financial supplies)		√
5	ES (Disposal of assets which are exempted eg. residential house)		√

De Minus Rule (DMR)

To satisfy the De Minus Rule:

1. DMR <= 5% and

2. Total Exempt Supply (ES) <= Rm5,000.00 per month

Formula:

DMR = ES / ES + (SR + ZRL + ZRE + DS + OS + RS + GS)

Input Tax Claimable Logic to TX-RE, TX-E43 & TX-N43 (Based on DMR)

Below is the summary of the calculation logic based on DMR to determine the input tax claimable.

Tax Code	Tax Rate	Fulfill DMR?	Input Tax Claimable (ITC)
TX-RE	6%	Yes	ITC x 100%
TX-RE	6%	No	ITC x IRR
TX-E43	6%	N/A	ITC x 100%
TX-N43	6%	Yes	ITC x 100%
TX-N43	6%	No	ITC x 0%

How to exlude the IRR for the capital goods disposal off?

Disposal of asset are using the tax type SR to report as GST Tax Payable in GST-03. According to the IRR formula, this taxable amount must be excluded (o) from the total value of all taxable supplies (t).

IRR = (T-O) / (T+E-O)

T = SR + ZRL + ZRE + DS + OS + RS + GS

E = ES

O = ES43 (Incidental financial supplies)

ES (Disposal of assets which are exempted eg. residential house)

SR (Disposal of assets)

DS (Self-recipient accounting transactions, ie. any supplies users make to themselves eg. imported services etc.)

OS (Out of scope transactions which are not taxable in Malaysia)

For example, Mixed Co. Sdn Bhd., whose current tax year ends on 31 December 2016, has in his taxable period of April 2015, made some mixed supplies and at the same time incurred residual input tax as follows.

		RM)
T	Value of all taxable supplies, exclusive of tax	200,000.00
E	Value all of exempt supplies	40,000.00
O	Value of a capital goods disposal off (exclusive of tax)	50,000.00
O	Value of incidental exempt supplies	20,000.00
	Residual Input Tax Incurred	10,000.00

Steps

1. Go to GST | Maintain Tax...

2. Edit the SR tax code.

3. Click on the tax rate lookup. See the screenshot below.

4. Click +' sign follow by IRR Excluded to insert additional tax rate 6% IRR excluded.

Note:
1. Tax Rate set as EA or E6%. 
2. E = Exclude from IRR formula.

5. Enter the disposal of asset in Cash Book Entry (OR).

6. Select tax code SR.

7. Select tax rate E6% to exclude from IRR calculation.

8. You will found the IRR calculated (88.24%) and the GST-Listing breakdown by tax code as shown in the screenshot below.

IRR calculation:

		Calculation	RM
t	Value of all taxable supplies, exclusive of tax	100,000 (SR) + 50,000 (ZRL) + 50,000 (OS)	200,000
e	Value all of exempt supplies	20,000 (ES) + 20,000 (ES43)	40,000
o	Value of a capital goods disposal off (exclusive of tax)	50,000 (SR with tax rate E6%)	50,000
o	Value of incidental exempt supplies	20,000 (ES43)	20,000
	Residual Input Tax Incurred	166,666.66 X 6% (TX-RE)	10,000.00

9. Therefore, IRR = (200,000 -50,000) / (200,000 + 40,000) - (50,000 + 20,000) = 0.8824 (88.24%).

10. The amount of residual input tax can claim for the period is,

Residual Input Tax Recovery % X Residual Input Tax = 88.24% x Rm10,000 (TX-RE) = Rm8,824.00.

RMCD Reference:
We get the similar example from Partial Exempt guide by Royal Malaysian Customs Department. 
See the screenshot below.
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See also

• Maintain Tax
• GST-03 Item 12 (ES + ES43) : How to compare the Total Value of Exempt Supplies between GST-03 and Ledger