10 benefits of GST for Malaysians

The Finance Ministry has come out with a list of 10 benefits of GST for the Malaysian business sector and consumers.

The 10 advantages of GST are

1. GST is an effective tax system.  It is a self-assessment tax and there are penalties to ensure compliance.  
2. GST is a transparent tax structure. The tax amount is clearly shown on the sales invoice.  Business and consumers will know exactly how much tax he or she is paying on the goods or services.
3. GST will ensure that everybody pays their fair share of taxes.  You pay tax when you spend.
4. Shadow business will be encouraged to register for GST, in order to claim for input tax credit.
5. With GST, there is a marked reduction in red tape and bureaucracy. 
6. GST will lower the cost of doing business.  The input tax paid is passed on to the next consumer on the supply chain, and is not a cost of doing business, unless you are not registered for GST
7. The lower income group will not be burdened.  The Malaysian government will give out BR1M aid to offset the impact of GST on the CPI (Consumer Price Index)
8. The export sector will become more competitive, as there is no tax on exports
9. For the nation, GST is an additional  form of income, other than income tax and petroleum tax
10. The prices of many items will come down, now that the GST tax is at a lower rate of tax of 6% compared to sales tax of 10%. 

It  is also noted that the GST implementation will have a direct impact on the CPI which would take 6 monhts to stabilise. 

Are you already planning to buy lots of toilet paper and other household necessities at pre-GST prices? .

   
Extracted from a Bernama news report of 10 advantages of GST
 

Reactions to GST announcement in the 2014 Malaysian Budget

Here are some of the comments regarding the announcement of GST in Malaysia. 

GST targets a bigger group but poor hit most

-  say economists from the Socio-economic and Environment Research Institute (SERI).

The decision to finally introduce the Goods and Services Tax (GST) is a regressive move that would largely hurt poor and debt-ridden Malaysians.   The introduction of consumption tax of 6% effective April 1, 2015 would in fact do more harm than good in the long run.   The poor “tend to have lower savings as most of their expenditures are for necessities”.

By pushing forward with the GST, the government would reinforce investor confidence but burden the people in the long run.

The Government need to ensure that it can enforce the GST effectively.

- say  Institut Rakyat economist

The committee tasked to oversee the implementation of GST must have the teeth to enforce the GST on traders, manufacturers so as to curb inflation.

The GST would require an input and output of tax to be enforced at every level of the supply chain, and is a tedious and complex task requiring stricter enforcement

Malaysia GST - money spinner for the government

Now that the 13th Malaysian General Election (GE) is finally over on May 5, 2013, talks are resurfacing about the implementation of GST in Malaysia.

Recently the Minister in the Prime Minister's Department, Idris Jala,  spoke at the forum "GE13 - What it means for business?"  and mentioned that with the introduction of  the GST, a new taxation mechanism for Malaysian, it   "can guarantee additional revenue of RM20 billion to RM27 billion, at maturity."  The term 'at maturity' refers to the period when "every Malaysians starts to contribute towards the GST ".

Just to put things in perspective, the Malaysian Government debt for year 2012 stands at RM 543 billion, which is equivalent to 53% of the Gross Domestic Product GDP.  With the introduction of GST, the Malaysian Government will be able to reduce the debt level, and also provide extra funds for the government to spend on the well-being of Malaysians

Source : The article above is extracted from a report  entitled GST Implementation To Add Up To RM27 Billion To Malaysia's Income, which is published  here (May 17, 2013)



    

Why the Malaysian GST may not be such a bad thing after all

This article  Why the goods and services tax may not be such a bad thing after all
appeared in the Star as a run up to the Malaysian Budget 2013.

The writer has taken the example of the implementation of the GST in Australia  and shed some light as to what to expect when the Malaysian GST is implemented.  The Australian GST system was implemented in year 2000.

Here are the points mentioned in the article, with added comments on our part.    

1. GST gave the Australian Tax Authorities an opportunity to abolish outdated and complex tax structures.     The Malaysian GST will replace the Sales and Services Tax.   

GST is a simplified form of tax collection, and is more transparent that sales and Services tax (SS).   GST workings is easier to understand and thus easier to implement in the business.  There will be a savings in terms of time and compliance costs. 

Under GST environment, the tax that the business collects from the customer is called 'Output tax'.  The tax that the business pays to the supplier for purchases of materials, supplies and services, is called 'Input Tax'.  When the business submits the amount collected for 'Output Tax',   the business can deduct the 'Input Tax' paid, and only settle the difference to the Customs Department.  To make it more transparent, the amount of tax charged should be clearly indicated on the Tax Invoice.   

2. GST was also able to plug the cash economy, and reduced tax evasion in Australia.

Those companies that conduct their business entirely on cash basis do not have income traceability, and are thus able to report lesser or no taxable income.  Some owners of  profitable companies employ tax consultants to minimize their company's and their personal income tax liability .

GST is a consumption tax. With the introduction of GST, whenever these companies or individuals buy a luxury item, such as a car or mansion, with their untaxed income  they will have incurred GST.  Thus, the Malaysian Government will collect taxes.which has earlier escaped their net.   In this respect, GST is a fairer means of tax collection for development purposes.

3. In Australia, GST brought with it a cut in income tax rates for individuals and companies.  

A lower company tax rate will improve the country's economy, as international investors will be attracted to do business in the Country.  As it is, Malaysia has one of the highest company tax rates among the neighbouring countries, and it places Malaysia in a less competitive situation as far as foreign investment is concerned.

4. The GST makes it possible to abolish wholesale tax in Australia, making Australian exports to be more competitive. 

Malaysian manufactured products may contain an element of sales tax which makes exports quite expensive. When GST is introduced in Malaysia, we can expect sales tax to be removed. In addition, GST is a tax on local consumption, and as such exports are also not subjected to GST.  These combined effects will make Malaysian exports even more competitive.

5. GST also reduces Australian Government's reliance on income tax revenues.

GST is a more consistent and reliable source of revenue for the Government as it is based on consumption.  Income tax is based on profits or employee's income. In a downturn economy, the Government's revenues will be affected by the reduction in profits.

Because GST is based on consumption, Australian GST is not charged on basic food, education  and healthcare.in order to look after the interests of the lower income group.  Malaysian Government also proposes to exempt basic necessities from GST.



6. Short terms inflation of 3% in Australia for two quarters post-GST but returned to pre-GST levels six months later. 
   
At its inception, the Australian GST rate was fixed at 10%.  This caused an inflationary pressure on the prices of goods and services. The Australian government established a price control watchdog to monitor prices and penalised companies that was caught profiteering under the GST.  So it should hopefully not cause an escalating inflation in the Malaysian economy.

The Malaysian Government has recently enacted the Price Control and Anti-Profiteering Act 2010 ahead of the Malaysian GST implementation, in a bid to control inflation and prices.

7. Australian companies and individuals defer or accelerate their purchases ahead of the GST implementation.

Depending on the tax composition of the goods and services, some goods and products will be cheaper or more expensive after GST is introduced.  Consumers will make their purchases based on their analysis of the situation, and this may temporary skew the economic situation either way.

Summary

GST is a more transparent and equitable tax system. It broadens the Government's tax base as anyone who spends will pay the Goods and Services Tax..  In addition, Malaysia needs desperately to reduce its dependence on petroleum revenue, and GST is seen to be an effective replacement for that.

Of course, the Government should make sure that the poor and elderly, and small businesses will not be worse off under GST.  


My one sen worth :

Knowledge is power.  With the above information, you should start to analyse your product's tax structure and work out how GST will impact your business cash flow and process flow.   

If you are a business owner, you should start asking your accounting software vendor whether their software will be able to handle GST when it is introduced in Malaysia. GST will have an impact on everyone's life once it is introduced, and you should be ready to embrace it.


Extracts for this post is taken from the full article here.

We would like to thank the writer for making time to write a reassuring article on Malaysian GST. 

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.

However, it is hard to measure the benefits of GST.

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

Time we embrace GST to boost revenue, growth 

GST still remains a revenue option : E&Y

Benefits of GST still hard to measure 

Podcast : Implementing GST in Malaysia and Its Effects on SMEs

GST - the dreaded three letter word. What are the repercussions of GST for every Malaysian, and how best to prepare for impending GST implementation in Malaysia.

Listen to the podcast on the BFM 89.9 Business radion station on the topic 'Implementing GST in Malaysia and Its Effects on SMEs" by Mr Paul Jennings, MD of MYOB Malaysia.

GST will only be introduced after Anti Profiteering Bill is passed

The Malaysian Government will now first table the Price Control and Anti-Profiteering Bill in the Dewan Rakyat (Parliament) before it re-tables the GST bill.   The Anti-Profiteering Bill is expected to be tabled in June 2010.

The Anti-Profiteering Bill will prevent indiscriminate price increases following the implementation of GST.   Once the law is in place, it will allow the authorities to take action against unscrupulous traders who takes advantage of the situation to raise prices and use GST as an excuse.

The Deputy Finance Minister Datuk Seri Awang Adek Hussin made the announcement in the Dewan Negara (Senate) on 5 May 2010.

He stressed that there was no need for the public to worry about increase in prices of goods as most of the essential goods would be exempted from GST.

There are about 40 items that will be exempted from GST,   including agriculture produce  (like padi and fresh vegetables)   basic food items (like rice, sugar, salt, flour, cooking oil),   livestock  (like cow, buffalo, pig, goat, chicken, duck),  eggs (including salted eggs), fish, prawn, cockles and squid (including the dried and salted ones).  There would be a cap on the amounts that are exempted.


Services with zero GST will include electricity supply for the first 200 unit every month for domestic consumers, the first 35 cubic metres in water supply every month for domestic consumers, goods and services meant for export and international services.   Suppliers of zero rated GST items and services are allowed to claim the GST paid on inputs in the production of that item, like overheads and raw material costs.



The Minister also said that only business companies with sales of more than RM500,000 a year would be subjected to GST.  This means 78 per cent or 433,558 business entities will be exempted from the GST system.

The GST rate will be capped at 4%.

With the introduction of GST, the Consumer Price Index (CPI) will reduce by 0.1%.  The sectors that are currently taxed under the Sales and Services tax (SST) will see a reduction in CPI that varies from 0.08% to 2.71%

Services  - 0.08%
Restaurants & Hotels - 1.2%
Communications - 1.86%
Transportation - 0.94%
Shoes & Clothes - 2.71%
Housing, Water, Electricity, gas, Fuel energy - 1.57%
Alcohol & Tobacco - 0.73%   

My one sen worth :
 Does it mean that shoes and clothes will become cheaper?  The SST for shoes and clothes is around 10% - 20% now.    With GST the tax is capped at 4%.    So cheaper shoes?   Lets see.


The Government is trying not to rely solely on revenues from Income Tax and petroleum forever.    The Goods and Services Tax is a new source of revenue, and is based on consumption rather than income.  GST would seem a fairer way to collect tax  as it is based on the buying ability of the citizens. 



The only reservation, is how the extra tax collected under GST (budgeted to be $1 billion per year)   is going to be used to benefit Malaysians in general.
 
 
Extracted from Bernama and theSun

GST will not result in (long term) inflation in Malaysia, says Bank Negara assistant governor.

One of the main concerns of the GST is that it will cause an increase in inflation rates. 

According to Bank Negara Malaysia (BNM) assistant governor, Dr Sukhdave Singh,  the introduction of GST in Malaysia could cause be a temporary spike in prices (based on experiences of other countries), and a moderate increase in the rate of inflation.  

"If it (GST) is to be introduced in a moderate level  (estimated at 4%), we will see a temporary moderate increase in inflation rate. But, if there is no secondary impact, then the inflation rate will come down very quickly because there is nothing to support it,"  he said

For now, BNM do not think it will create inflation. He said if there are opportunistic attempts to increase prices, thus inducing an inflationary cycle, BNM will use monetary policy to check it (inflation).

So, what is the main purpose of introducing GST in Malaysia?  Reading between the lines from these 2 articles,  GST will   "certainly be steadying the development in the economy after the introduction".

Do your part for nation building.  That's what taxes are for anyway.

See full article in
The Star  dated March 26, 2010
Bernama dated March 25, 2010