free extra items, what tax code should apply?
When a person purchases goods with free tied-in goods, the value of the tied-in goods is treated as being included in the price of the principal goods supplied.
If both tied-in and the principal goods are standard-rated
Principal goods – 1 carton of 1.5L Drinking water (standard rate)
Tied-in goods (free item) – 1 carton of 0.5L Drinking water (standard rate)
Since the principal goods is a standard rated supply, GST is chargeable on the supply. If the price of the goods with the free tied-in goods is (let’s say the 1 carton of 1.5L + free 1 carton 0.5L of drinking water) RM53.00 inclusive of GST, GST should be accounted from RM53.00 as the tied-in goods and principal goods are treated as one supply.
Price (inclusive of 6% GST) of 1 carton of 1.5L Drinking water : RM53.00
6% GST inclusive : RM3.00
(RM53.00 X 6%/106%)
The registered retailer accounts for output tax of RM3.00
Tax code is SR when you sell those tied-in (free) 0.5L drinking water.