ANALYSIS

QUESTION:

a) Do you agree with the implementation of GST in Malaysia on 2014?

The Goods and Services Tax is a consumption based tax on goods and services (as
opposed to a direct tax, such as income tax, real property gains tax and stamp duty). The rate of
tax is fixed at 6%. The scope of the GST Act will apply to goods or services supplied in
Malaysia, and on any importation of goods into Malaysia. Any person who would be making a
taxable supply is liable to be registered under the GST Act . A taxable supply means a supply of
goods or services which are standard rated supply and zero rated supply but does not include
exempt supply. In the event the taxable turnover is less than RM500,000 for a period of 12
months or less, it is not mandatory for such person to be registered under the GST Act and
accordingly not permitted to charge or collect GST on the supply of goods or services.

b) If yes, state the reasons for

For us, yes we agreed with the implementation of GST because of Lower cost of doing
business. Currently, many businesses pay multiple taxes and higher levels of tax-on-tax. With
GST, businesses can benefit from recovering input tax (this means that businesses can claim
back the GST paid by businesses when making purchases), thus reducing the cost of doing
business. Otherwise because of its Fairness and equality with the GST, taxes are levied fairly
among all the businesses involved, whether they are in the manufacture, wholesale, retail or
service sectors. Other reason was it can be Increase in global competitiveness. Prices of
Malaysian exports will become more competitive globally as no GST is imposed on exported
goods and services. At the same time, GST incurred on inputs can be recovered along the
supplies chain. This will strengthen Malaysia’s export industry and contribute towards the
enhancement of the Malaysian economy.

(https://www.thestar.com.my/news/education/2014/11/16/understanding-the-gst/)

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c) If no, state the reasons

Based on article, there are several arguments that have been highlighted by Suresh
Narayanan (2014) is his article and among them are the major fear for the society towards the
implementation of GST is the increase in the price level. With many of the subsidies of products
has been lowered and taken off, it seems that GST implementation is considered as worsening
the scenario. On the other hand, the society seems to against this idea due to the conception of a
fiscally irresponsible government would use the GST as a revenue generating machine without
addressing wasteful expenditures and leakages that occur through corruption, the lack of
transparency and accountability in the management of public finance. They seem to be confused
over the full benefits that they will received from this situation.

( Narayanan, S. (2014). The impact of the goods and services tax (GST) in Malaysia: Lesson
from experiences elsewhere (A Note). The Singapore Economic Review. 59(2), 1-15. )

Reasons disagree with GST:

1. May result in inflation as general products prices may go up.

2. Increase the tax burden on low income working group (the other 85% as described
item 3 above)

3. The government may possibly increase the GST rate from 4% to 15% to increase
revenue.

4. Worry that the GST tax may even higher than current sales tax 10% and service tax
5%.

5. Worry that the effect of tax revenue re-distribution may not be achieved.

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d) Do you think that Malaysian government has made a good move to go back to SST?

The Sales Tax is only imposed on the manufacturer level, the Service Tax is imposed on
consumers that are using tax services. SST rates are less transparent than the GST which had a
standard 6% rate, the SST rates vary from 6 or 10%.

In my opinion, Malaysian government should not move to go back to SST. It seems like
SST does not make much reduction but more tax is collected. Nevertheless, consumers have to
take note that GST applies to almost all of the goods and services in Malaysia, any company with
revenue more than RM500K will need to be registered under GST. While SST only applies to
manufacturers or retailers on certain industry. Hence, when GST is changed to SST, less things
will be taxed. For example, withdrawals from processed food, ATM and reloads of Touch and
Go cards were not subjected to SST but is subjected to GST. Figure 4 provides a picture of
how different sectors may fall into different categories in SST using the suggested SST
framework.

Thus, assuming that the government will using the suggested SST framework and that
every sectors' profit margin remain the same, prices for most of the items will be reduced,
while only some may increase due to increased tax percentage from 6% to 10% in goods supply
sectors.

e) In your opinion, what makes SST is much better than GST for the government

The general consensus is that with SST back in the system, some prices have seen a
decrease, but it remains to be seen whether prices will stay that way as there is still room for
price adjustments. The single-stage taxation also means that businesses incur lower costs and that
fewer businesses are impacted. Finance Minister Lim Guan Eng announced that the threshold for
F&B providers is set at an annual turnover of RM1 million, meaning that those who operate with
less than RM1 million turnover would not need to charge the 6% service tax. This also means
that consumers potentially save a lot more on their discretionary expenditures.

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f) In your opinion, what makes SST is much better than GST for the people

Generally, living costs will be relatively lower in the SST era as the B40 group of
consumers would certainly be relieved in their daily eating affair. SST is people friendly as the
daily consumption of food and beverages would be much lower in price as compared to the GST
regime. The imposition of service charge is not governed by any law and it is entirely at the
discretion of the F&B operators. In order to avoid disputes, it is advised that notice be placed
outside the premises if the F&B operator is imposing a service charge ans the rate determined by
them.

g) In your opinion, what makes SST is much better than GST for the business community

Business entrepreneurs must be mindful and careful in the cost management as Sales Tax
although imposed at 10% – would eventually result in a much lower pricing of goods as
compared to the GST regime. Under the GST regime, input tax is available as a credit or
deduction against output tax based on tax invoice received from GST registrant suppliers. GST is
never a business cost as deduction is available against output tax even though there is no sales
generated. Sales Tax on the other hand, would be paid by the trading company purchasing goods
from the manufacturing company.

It is a business cost and deduction is only available when there is a sale. This would mean
that business cost would be higher as Sales Tax is part of the inventory cost and to be deducted
as cost of sales when goods are sold or exported. In simple terms, no sales, no deductions.
Businessmen are urged to carefully analyze the cost and not overprice the goods for the benefits
of the people and the sustainability of their businesses. The reduction of GST from 6% to nil
would immediately translate a price reduction of 6%, which is a must for a businesses to adhere
to.

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h) In the future, will government move to implement GST?

In the future, yes government will move to implement the GST.