4 Costly GST Mistakes that Businesses should Avoid - Part 2

This is the second of a 4 part series on GST written by Thenesh Kannaa, Partner of TraTax Malaysia
(the first part can be accessed here).

(Speaker for the upcoming Wolters Kluwer workshop, GST Health Check: Ensure Compliance - Avoid Costly Mistakes held in Kuala Lumpur on the 21st of July 2016)

For today's Part 2 instalment, we discuss GST implications with regards to contacts. 

Contractual Terms

Where contracts are entered into, GST implications must be taken into account. The primary consideration is who bears the GST. The general principle is that the price agreed is treated as inclusive of GST, unless the contract clearly states otherwise. This principle applies to contracts entered into before 1^st April 2015 as well as those entered into from and after that date.

It is crucial for any clause which shifts the GST burden to the purchaser to be well drafted. Any negligence in contract drafting could be costly. There are many reported foreign cases on disputes between vendors and purchasers on GST clauses. As an example, in Cityrose Trading Pty Ltd v Booth, an Australian court opined that ‘the language used is so obscure and so incapable of any definite or precise meaning that the Court is unable to attribute to the parties any particular contractual intention’.  Thus the GST clause was regarded as void – resulting in the default situation, i.e. GST to be borne by the vendor. 

It is also important for other related documents such as the quotations, tender and promotional materials to adopt a GST treatment that is consistent with the express terms of the contract.

Stay tuned for our third instalment!

Thenesh Kannaa is a partner at Thenesh, Renga & Associates (a.k.a. TraTax Malaysia), a firm of tax advisors. He is the author of Wolters Kluwer’s Master GST Guide (2^nd Ed., 2015) and is a prominent speaker on tax topics. He can be contacted at thenesh@tratax.my. Views expressed are his own.