The sixth amendment of the Goods and Servies Tax Act provides that the rates for tourism sector GST and general sector GST will increase to 16% and 8% respectively effective from 1st January 2023. This is a 33% increase in rate compared to the current GST rates.

Summary of changes

Note: Amended rates will be effective from transactions for which the “time of supply” occurs after 1^st January 2023.

For a successful transition to the new rates, it is important to consider how to determine the applicable GST rate for transactions that fall within the borderline of the cut-off period for the change.

The GST act and regulations provide guidance on how to determine the time at which a transaction occurred for GST purposes. This guideline is called “Time of Supply”.

Time of Supply

The general rule of time of supply is that for a particular transaction, the time of supply is

1. the date on which the tax invoice for a supply is raised; or
2. the date on which payment for that supply is received

Whichever comes first. Below are some important things to consider while applying the above rule.

Pro-forma invoice: In order to determine the above, a Pro-forma invoice must not be considered an invoice, hence, time of supply will not be triggered with an assurance of a Pro-forma invoice.

The 3-day rule: Persons who are GST registered have to issue a receipt or tax invoice within three days of the removal of goods from the place of supply. Likewise, a tax invoice or receipt should be issued if the goods aren't taken out of the place of supply but are made available to the recipient. For services supplied, a tax invoice must be issued within 3 days of the completion of the service.

In the above cases, even if the registered person does not physically issue a receipt or tax invoice within three days, it would still be considered that a receipt or invoice was issued on the third day under the "Time of Supply" rule.

Complex transactions: For more complex transactions, such as goods and services supplied under installment agreements, advance payments, refundable and non-refundable deposits, etc. it is advisable to refer to specific guidelines provided by GST act and regulation and guides issued by MIRA to determine the time of supply for the transactions.

Managing the change effectively

Given that the changes will have a huge impact on all businesses, the next question is how businesses can manage this change effectively with minimal cost and impact on business operations.

Below are some advisable steps that businesses can take to successfully manage the change.

1. Ensuring that the accounting system and information systems can handle the rate change and if any customizations are required
2. Ensuring that the staff in sales and marketing and related areas are aware of the change to reduce customer frustrations
3. Ensuring that the billing team correctly understands the time of supply rule and adding further checks to invoices issued during the cutoff period
4. Reviewing business arrangements entered into future dates and analyzing the impact of the change on those transactions and carrying out negotiations if required.

If you require any further assistance, please reach out to us at [email protected]