Understanding GST calculation and costing for eCommerce in 10 seconds.
I plan to share at least an original content each week so by the year end, there is 52 original article, which hopefully are able to help others in this community. Last week I missed one article, thus publishing 2 article this week. Enjoy.
GST oh GST.
If your company has yearly sales revenue less than RM500,000 which translate to around RM42k monthly sales revenue, then you had no need to worry too much about GST. Just proceed with your normal happy life and god bless. But then you should start to understand more about GST if your company is growing as sooner or later, GST will come to you ha-ha. Actually then it is a good problem la.
Let’s avoid being too academic on GST which you can refer to other sites on the web, lets drill right into eCommerce GST using an example.
First, if you want to sell a product at RM12.99 online, Is it GST included, or GST excluded?
If it is included, that means customer has to paid only RM12.99. Than the amount of real money you will be collect will be (RM12.99 / 1.06) = RM 12.25. While the remainder RM 0.75 is GST and this is government money. (NOT YOUR MONEY!!!!)
If it is excluded, it means price which consumer has to pay is RM13.77. RM 12.99 is your money while RM12.99 X 6% = RM 0.78 is GST and this is government money. (AGAIN NOT YOUR MONEY!)
Below is the table of comparison, and GST in this is known as OUTPUT TAX.
I always prefer to let the customer pay RM12.99, as the 99 is related to consumer behaviour, theoretically. For example if a customer set a budget below RM100, RM99.99 is below the budget, yet RM101.00 is above budget although different is only RM1. Often consumer ignore those price which is above their budget. I also try to avoid a cold shower on customer buying experience, for him to find out during check out that due to GST, he has to be over budget to purchase my product. However there are those which disagree… up to you haha.
Ok now you have decided the Final Price to consumer. What about the cost from suppliers? All suppliers also had to choose whether it is including or excluding GST also.This is known as GST INPUT TAX to your company. Again below table shows the comparison for both. I had set the initial value at the yellow cells.
Next is the confusing part, how to you combine all the supplier charges with different method. In this excel, under column B, I had place a condition, if you select “Y” which means YES, than it will copy the value from above table which included GST in the price. Else it will copy the value from table which excluded GST in the price. I have selected 2 "Y" and 2 "N". Notice the value which is copy from different table in Section B.
You can notice I had divided the costing into 3 column, One Column is your money which is without GST. The next column is government money which is the GST itself. The 3rd Column is sum of both.
In this example, Your Output Tax is 0.735 which Consumer pay for it. Your Input Tax is 0.546 which you paid the suppliers. In simplifying, you are supposed to pay only 0.189 to government after having the OUTPUT TAX - INPUT TAX (0.735 – 0.546). Please this requires solid documentation and real accounting expertise. Get help for GST claim. Dont Play Play.
So at the end for your money calculation (not including GST), although customer pay you 12.99, your real revenue (Your own money) from this sales is 12.255, and the real cost is RM9.106 and your Gross Profit is 3.149 which is 25.69%. Your real GST need to pay government is 0.189 equivalent to 1.54% from RM12.255.
Thus here I could not give you a single formula for your costing or understanding of GST. I can only provide you a simple excel on this simple example. It is downloadable at
Change only the value in yellow cells as there is formula in others.
Why I calculate from Top to Bottom (Sales to Cost) and not Bottom to Top (Cost to Sales)? It is because regardless your cost, your sales had to be competitive to the market. If the market average price is RM13, Rm12.99 will give you’re a definite competitive advantage. If you claim that your cost is too high and at the end you need to charge RM13.99, the cost is your problem and not the customer problem. Look into your costing, buy from better supplier, minimize wastage and improve your value proposition, and in this case Price. For example learn to do things in 10 seconds is high efficiency and low cost ehehe (super thick face)
Having said that, if you charge RM13.99 because you have unique competitive advantage to your product compare to your competitor, then it might not be a wrong decision. This decision making process need more market analysis and internal analysis. This again will be another day topic hehe.
Lastly, I am not an accountant, and might be wrong in my understanding, and if there is any mistake on my excel please let me know!
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