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Malaysia GST Blocked Input Tax Credit

Input tax is defined as the GST incurred on any purchase or acquisition of goods and services by a taxable person for making a taxable supply in the course or furtherance of business. Under the GST category, businesses are allowed to claim GST incurred on purchase of most goods and services.

What is Blocked Input Tax Credit in GST?

Blocked input tax, however, means input tax credit that business cannot claim.

A list of “No Input Tax Credit”:

i. Supply or importation of passenger car (including lease of passenger car)

“Passenger car” is defined as a motor car of a kind normally used on public roads which is constructed or adapted for the carriage of not more than nine passengers inclusive of the driver and the unladen weight of which does not exceed three

thousand kilograms.

ii. Club subscription fee (recreational or sporting purposes)

“Club subscription fee” here means any joining fee, subscription fee, membership fee, transfer fee or other consideration charged by any club, association, society or organization established primarily for recreational or sporting purposes

iii. Medical and personal accident insurance premium

iv. Medical expenses (for example, wheel chair)

v. Family benefits for employees

vi. Entertainment expenses except for employees and existing customers


Why Do We Have Blocked Input Tax Credit in GST?

We can see that GST incurred becomes an expense to the business while acquiring such goods and service but no credit is available in respect of the tax. As such, the expenses are blocked based on the following reasons:

i. To avoid the administrative burden [of controlling the actual use of such goods and services] this may be easily used for dual business or private purpose due to their nature.

ii. To reduce the risk of fraud; and


What Are the Exemptions?

i. The entertainment of employees

The entertainment of employees or existing customers is not blocked (but you must have a valid tax invoice to claim). Please note that entertainment incurred for potential customers, suppliers, business partners are blocked from claiming the credit.

ii. Life insurance premiums

The reason is simple – life insurance is an exempt supply, thus the provider will not charge GST and there is no ground for the payer to claim any credit in respect of that.