Besides noting how the new goods and services tax (GST) regime will affect your daily purchases, activities and spending habits, it is also important to know how it will impact your investments.

To begin with, the general rule that applies is while the 6% GST will be levied on the services offered by the financial institution, it will not be charged to the interest earned by an investment. In taking a look at banks and their services for example, interest earned from savings accounts, current accounts and fixed deposits are not GST taxable. Neither are deposits or withdrawals from the abovementioned.

However, once a bank charges a fee, that fee is subjected to the GST. According to the Royal Malaysian Customs Department, the following types of fees are taxable: Establishment fees, arranging fees, advisory fees, processing fees and safekeeping or custodial fees.

What is GST free are fines and penalties, including late payment charges, interest charged on outstanding credit card balances, compensation charges on dishonoured cheques and overdraft excess fees.

Similarly with investments, the new tax will not be imposed on the realised capital appreciation of assets. This includes shares, bonds, property, dividends and other types of income distributions. The GST will only apply when investors are subjected to pay a service or sales fee when making such investments.

Hence, fees such as upfront fees, clearing fees, annual management fees, performance fees, switching fees or transfer fees will all incur GST. Stamp duty to trade a share however is not GST taxable.

Effectively, this means that the sales charges and entry fees for going into unit trust funds will increase for investors, and that a better return will be needed to break even. What investors are advised to do then is to go with funds which levy a lower front-end service charge or entry fee. Areca for example imposes a very low upfront fee of about 1% on equity funds, comparatively lower than the industry’s average of 5% to 6%.

Another thing investors can do is to use a wrap account, which is an account where a brokerage manages an investor’s portfolio for a flat quarterly or annual fee. This option is usually offered by financial planners, and its fee should cover administrative, commission, and management expenses and fees.

It is important to note that the exit fee levied by a fund is subjected to standard GST rate as well. However, if the exit fee is punitive in nature where it is imposed on investors upon breaching conditions prescribed by the fund manager and disclosed as a penalty, it is not GST taxable.

Investors can also look to funds managed by foreign fund managers, as these funds are not taxable. Funds managed outside of the country are considered out of the GST scope, compared to business activities conducted inside Malaysia that are subjected to GST.

For insurance policies, all policies except for life insurance ones will be charged with the GST. It will also impact all kinds of traditional and investment-linked policies with medical, health-related, critical illness or personal accident benefits attached to it. How the GST will be charged depends on the type of policy: GST will be imposed on the insurance premium if it is a traditional policy; investment-linked policies will see GST on the insurance charges, which increases with age.

All general insurance policies are also subject to the GST, unless the risks are located outside of Malaysia. However, there are no GST charges for life insurance products like endowment, child, education and annuity.

For precious metal aficionados, investment precious metals (IPMs) such as bullion gold, silver and platinum fall under the GST exempt supply. These IPMs are accredited with the London Bullion Market Association (LMBA). Investors who trade with non-physical precious metal, such as through a gold or silver investment account with a bank, are not GST impacted. Jewellery however is subject to the GST.


Impact of the GST on Bank Services and Investments