May 16, 2011

Benefits of GST - fact or myth?

One of the more obvious fact of implementing the Goods and Services Tax (GST) is that the Government will reduce corporate and individual tax to make it sustainable for business, and also become more attractive for foreigners to invest in the country.

The Malaysian Government recently (via its Deputy Finance Minister Datuk Donald Lim Siang Chai) announced that the Budget 2012 on October 7, 2011 is expcted to address the issue of reducing income tax rates.  The tax reduction will take place once the Government  implements the long-awaited Goods and Services Tax (GST), he says.



What other benefits can we expect from the introduction of GST?


1. Without GST, the Malaysian government  experiences a deficit of 5% of GDP.  With GST, the Government hopes to reduce the deficit to 2.8% - 3%  by 2015.

2. It is time we follow the other 225 countries in the world that have already implemented GST.  Malaysia is one of the last remaining countries in South East Asia that does not have GST.  [my one sen : So it is time for Malaysia to do the same, ??]

 3. GST system will address the imbalance of sources of government revenue.  GST is seen to be a fair system , as all sectors of the population will contribute to the country's development. Under the current tax structure (combination of corporate tax, sales tax, excise duties, and other direct taxes), only a small section of Malaysians and companies are bearing the taxes.  

4.  Reducing corporate tax to offset GST should encourage more foreigners to invest in Malaysia, and drive Malaysia's economy  [my one sen : with 225 other countries trying to vie for foreign investment, and doing the same, won't we be in the same boat pre and post GST?]

5. Even though GST is imposed at every level of the supply chain, the tax element does not (and should not) become part of the product cost, because the GST paid on the business inputs is claimable.



With the introduction of GST, the cost of just about everything (except basic necessities and controlled items) may increase (despite anti-profiteering acts).  The GST may be intended to make it cheaper for business to spend because it eliminates sales tax and custom duties.  However, it does not prevent the businesses from increasing prices due to ignorance and abuse of the system, so stricter enforcement is required to ensure that traders do not hike prices, and circumvent the GST by not issuing receipts and invoices.

GST may have a financial impact on the poor, and not all the 225-odd countries that have implemented GST have high-income economies, but the GST tax system works in those countries
  

Reference