Can we claim input tax (GST) incurred on purchases for the purposes of employee benefits?
If a GST registered person acquires any goods or services and provides them as employee benefits to the employee, it is considered as for the business purposes e.g. Company A who is a GST registered company purchased a hamper from a hypermarket and provided free to reward one of the sales manager reaching the annual sales target set by the company, then the company is allowed to claim input tax incurred for the purchase of the hamper as long as there is tax invoice issued to the company.
However, there are two (2) exceptions:-
Firstly, when the purchase is related to the making of an exempt supply under the GST (Exempt Supply) Order 2014. The reason is because all exempt supply is not subject to GST, hence any related input tax incurred is not claimable.
The common exempt supplies are private education services, private medical expenses, supply of residential property etc.
In this instance, any input tax incurred will be disallowed for input tax claim and therefore form part of the operating expenses.
Secondly, the goods or services purchased have been charged with GST but the tax incurred is specifically disallowed or under category of “blocked input tax”.
In such cases, any input tax incurred by any taxable person cannot be claimed even though the taxable goods and services are acquired for business purposes.
The blocked input tax comprised the following:-
- (a) the supply to or importation of a passenger motor car;
- (b) the supply of goods or services relating to repair, maintenance and refurbishment of a passenger motor car;
- (c) the hiring of passenger motor car;
- (d) club subscription fee;
- (e) medical and personnel accident insurance premium;
- (f) medical expenses;
- (g) family benefits; or
- (h) entertainment expenses to a person other than employees or existing customers except entertainment expenses incurred by a person who is in the business of providing entertainment.
In order to comply with the above requirements, please ensure the GST tax codes are assigned correctly within the accounting software used by your company.
This article is written by our GST Consultant and Trainer, Mr. Danny Lim. He is also the founder and partner of Brexson Advisory PLT (Malaysia).