IS GST RECEIVABLE AN ASSET

IS GST RECEIVABLE AN ASSET?

Recently, my son, an Australian non-Accounting undergraduate approached me and asked me whether GST receivable is an asset or a liability. On the surface, I noticed that his question invite discussion as to why it should be treated in that manner, that is more important than the right answer.

Because of my exposure to the Singapore environment and I am fully aware of their compliance with the International Accounting Practices where the GST receivable is allowed to be net off from GST payable. Therefore it should be regarded as an asset, as explained below :

Why is GST receivable an asset?

Generally, GST receivable is regarded as an Asset because it will later be received from the Tax authority in the form of cash. As such, GST receivable is being debited as current asset when a business purchases taxable merchandise. By subtracting GST receivable from GST payable (received as a result of providing taxable merchandise/services to a customer), we will get the amount that is owed by the Inland Revenue.

However, sales revenue normally are greater than purchases, thus the GST Payable will be much larger than the GST Receivable, therefore the net result will be a GST Payable. Only the net GST Payable or net GST Receivable will be reflected on a balance sheet accordingly.

It is interesting to note that it is not applicable in Malaysian context. This is because GST Receivable is not applicable here as there will not be any GST Receivable arising in the first place. Why I say so?. This is because GST imposed on taxable merchandise purchases are NOT allowed to net off from the GST payable in according to its Statutory Legislation. It is its peculiar treatment which is not in harmony with GAAP practices in other parts of the World. As a result, it is Not an asset, but to expense out in its Profit and Loss Accounts.

Perhaps, it is the time Now for our Malaysian regulatory authorities to revisit this piece of legislation and amend it accordingly so as to harmonise with the International Accounting Practices so as to avoid any confusion in this aspect. At the same time it will not add any additional burden to its consumers who are already suffering with high inflation.

In summary, it is safe for me to conclude that the answer to the above question depends very much on its Statutory Legislation and Practices in that particular country.

With the above, I trust I have answered the question with clarity. Please do let us know which other countries have adopted and practised similar procedures as Malaysia in the comments below.

Thanks and look forward to seeing you again,

James Oh

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