GST (Goods and Services Tax) is not an expense nor an income. The tax amount received (Output tax) from the supply of goods and services is a current liability, which you need to pay to the government at the end of the GST cycle. Whereas the tax paid (Input) during the purchase of goods and services is a current asset, which will be claimed at the end of the GST cycle. However, some of the goods and services purchased, such as Medical expense, may be classified as a “Non-Claimable” tax in some countries; which need to be reversed during tax filing.
In Singapore and Malaysia, BL GST code is an example of a “non-claimable” GST. For example: A medical expense of $100.00 incurred with a GST of $6.00 (Based on the Malaysia GST rate of 6%). The “BL” GST code will be used to record the medical expense and the double entry will be:
Debit Medical Expense 100.00 Debit GST Paid (Input) 6.00
Credit Bank 106.00
When finalizing the GST, a journal will be passed to transfer all the tax amount from both GST Paid (Input) and GST Received (Output) to the GST Holding account (GST Control). The net tax amount in the GST Holding account will be the amount owes or refund from the government.
The accountant has to check for those “non-claimable” tax incurred (The breakdown and the total BL GST amount are shown on the GST report), then pass a reclassification journal to debit the “Non-Claimable GST” expense account and credit the “GST Holding” account.
The BL GST, which is a non-claimable, will be omitted from the GST form (GST Form 5 for Singapore and GST-03 for Malaysia); but will be recorded in the GST Audit File (IAF for Singapore and GAF for Malaysia).