what is Goods and Services Tax (GST)???

What is GST? GST is Goods and Services Tax, which is also known as VAT or the value added tax in many countries is a multi-stage consumption tax on goods and services. GST is the replacement of the Sales Tax (SST) (10%) and Service Tax (6%) in Malaysia. To develop the country monetarist system as well finding new sources of revenue by enhance the adeptness of tax collection the government takes one step by introduce GST. GST is imposed on the supply of goods and services at each phases of the supply chain from the supplier up to the retail phase of the distribution. The tax element does not become part of the cost of the product because GST paid on the business inputs is claimable, even though GST is imposed at each level of the supply chain.

What is contribution of GST towards the country? The government purposes to obtain about RM23.1 billion, with the implementation of the GST. This revenue is made to cover the cost of national development of RM49.5 billion will be channelled to infrastructure investment. As part of government attempt to rebuild the financial system, the GST will help us realize the objectives of the economy.

What is the advantage of GST?

GST is a transparent Tax and also reduces numbers of indirect taxes. With GST implemented a business premises can show the tax applied in the sales invoice. Customer will know exactly how much tax they are paying on the product they bought or services they consumed. Besides that, GST will not be a cost to registered retailers therefore there will be no hidden taxes and the cost of doing business will be lower. This in turn will help Export being more competitive. Next, GST can also help to diversification of income sources for Government other than income tax and petroleum tax. In addition, under Goods and Services Tax, the tax burden will be divided equally between Manufacturing and services. This can be done through lower tax rate by increase Tax base and reducing exemptions. In GST System both Central GST and State GST will be charged on manufacturing cost and will be collected on point of sale. This will benefit people as prices will come down which in turn will help companies as consumption will increase. Biggest benefit will be that multiple taxes like central sales tax, state sales tax, entry tax, license fees, turnover tax will no longer be present and all that will be brought under the GST.

What is the benefit that can GST offer to Malaysia consumers and business?

Improved standards of living: The revenue from GST could be used for development purposes for social infrastructure, like health facilities, institution, educational infrastructures, and public facilities to further improve the standard of living.

Lowing cost of doing business: under the current system, some businesses pay multiple taxes and higher level of cascading tax. With GST, businesses can benefit from recovering input tax, thus reducing cost of business.

Nation building: GST is a better and more efficient method of revenue collection revenue for the government. More funds can be channelled into nation-building projects for progress towards achieving a high income nation.

Fairness and equality: With the GST, taxes are imposed fairly among all the businesses involved, whether they are involve in manufacturing, wholesaling, retailing, or services sector.

Enhanced delivery system: GST will be administrated in fully computerized environment, therefore speeding up the delivery, especially for refund claims. This will make it faster, and more efficient and reliable.

Increase global competitiveness: As no GST imposed on exported goods and services, price of Malaysia exports will become more competitive on the global stage while GST incurred on inputs can be recovered along the supplies chain. This will make our export more strong, helping the country progress even further.

Enhanced compliance: The previous tax which is SST has many intrinsic weaknesses making administration difficult. GST system has in built mechanism to make the tax administration self-policing therefore will enhance compliance.

Reduces red tape: Under the previous tax which is SST, businesses must apply for approval to get tax-free materials and also for exemption for capital goods. Under the current tax system which is GST, this system is terminated as businesses can offset the GST on inputs in their returns.

Fair pricing to consumers: GST eliminates double taxation under SST. Consumers will pay fairer prices for goods and services compared to SST.

Greater transparency: consumer will benefit under GST as they will know exactly whether the goods and services they consume are subject to tax and the amount they pay for.

Types of GST

There are 3 types of GST, they are standard-rated GST, zero-rated GST, and exempt-rated GST. How standard-rated GST work Goods and services in this category will be charged a tax rate of 6% at every stage of the supply chain. Every party except the final consumer can claim back credits on the GST they already paid (known as input tax). The Category that put under standard-rated GST are groceries, food and beverages, fruits and vegetables, toys and games, house hold, medicine, garment, footwear, bag and accessories, stationaries, pets, hardware, kitchenware, health and beauty, and others. Next, zero-rated GST be apply Goods and services in this category will be charged a GST rate of 0%. This means that GST is not charged to the final consumer but businesses can claim back credits on their input tax. The category that put under zero-rated GST is groceries, food and beverages, fruits and vegetables, medicines, stationaries. Lastly, under exempt-rated GST, Goods and services in this category will be non-taxable and are not subject to GST. The final party in the supply chain can’t claim back credits on their input tax even if they might have incurred it. The category that put under exempt-rated GST is land, precious metals, financial services, transportation services, health care services, and educational services.

160 countries around the world have the GST as part of their revenue stream. Here are eight examples of how the GST is implemented in our neighbouring countries. The Singapore government revises GST during periods of high growth: 3% in 1994, 4% in 2003, 5% in 2004, and 7% in 2007. Singapore spent S$4 billion (US$3.1 billion over five years to offset GST. This offsets consisted of direct transfer benefits in the form of cash pay outs (GST credits, growth dividends, senior citizens’ bonuses). Next, CPF top-ups (post-secondary education account top-ups for students, Medisave top-ups for older Singaporeans). Lastly, rebates (on utilities and public housing services and conservancy charges.)