Goods and Services Tax
Good and Service Tax (GST) is a consumption tax based on the value-added tax concept applied to goods and services at all levels of the business. The tax is paid when the consumer is shopping. Tax payments are made at all levels by intermediaries in the production and distribution process. GST is imposed on goods and services at every stage of manufacture, production, distribution, supply, wholesale, business, and retail including importation of goods and services. The introduction of GST tax is aimed at reforming the country’s tax system, diversifying national income sources, and enhancing tax collection efficiency. Goods and services (GSTs) began in France as early as the 1950’s. On April 1, 2015, Malaysia became part of more than 160 countries in the world to implement a value-added tax system as part of a country’s revenue source.
The 6th Prime Minister, Datuk Seri Najib Tun Razak, who is also Finance Minister, announced the implementation of the GST effective April 1, 2015 at 6% in the 2013 Budget presentation at the Dewan Rakyat on October 25, 2013. Goods and Services Tax (GST) is a fair taxation system because it distributes tax burden amongst the wider population based on the amount of usage and determines the tax and tax quantities that a consumer has to pay for the goods and services it uses. Implementation of the GST is one of the measures taken by the government to restructure the country’s tax system so that it is more effective, equitable, efficient and transparent. The government’s intention to propose GST at a lower rate is to neutralize the impact of the GST on the people and consumers so as not to burden the people, especially the low-income group. By charging GST at a lower rate, it is hoped that consumers will benefit from price reductions in most goods and services.
There are three types of GST to be implemented differently on certain goods and services. First, the goods and services tax is rated “Standard”. All goods and services in this category will be charged at a 6% GST tax rate. GST tax will be imposed on the use of goods and services at each stage of the supply chain. This means that there are input tax and output tax in the “Standard” GST system. In addition, each party (except end users) in the supply chain can reclaim their input tax (GST) and this will avoid duplication in taxes. However, end-users are not eligible to reclaim input tax credit and have to bear the standard rated output tax burden of 6%. The tax is collected by the Royal Malaysian Customs Department and incorporated into the Consolidated Fund. Funds from the Consolidated Fund will be distributed within the annual budget then invested in the development and welfare issues of the Malaysian population. Therefore, the end user must bear the entire tax burden. Examples of items in this category are shirts, cars, and fruits.
Second, zero-rated GST. Goods and services in this category will be charged with 0% GST. This means that GST will not be imposed on end users who are measuring the standard rated GST tax burden of 6%. Similarly, goods and services exported overseas will not be taxed. However, business entities can still reclaim their input taxes. Examples of items in this category are basic foods (meat, fish and cooking oil) and the first 200 units of electricity per month.
Third, GST exclusions. Goods and services in this category will not be taxed and not subject to GST at the output stage (stage where goods are sold to end users). This means GST will not be imposed on end users. Business entities, especially the last party in the supply chain (before the end user) cannot reclaim their input tax credits even though they may be subject to GST tax on input purchases. Examples of goods and services in this category are property and health services.
The GST is proposed on the basis of improving existing tax systems that are said to have various weaknesses such as double taxation on consumers and the absence of full tax relief on exported goods. These weaknesses have resulted in losses not only to consumers but also to the government as a result of these losses. GST is seen to yield more stable sources of revenue as GST is based on consumption and is not influenced by external factors. GST is also a more efficient and effective system. GST uses self-policing method and has a cross-checking system. These two methods are not only able to increase tax compliance rates, but also reduce bureaucratic red tape. Additionally, the underlying economic sector will also be tempted to join GST as the GST imposed on business inputs can be reclaimed. All kinds of taxes are difficult to make sure they are transparent to all parties. GST implementation is more stringent as everyone who pays GST needs to maintain a clear record. If the records are unclear, they cannot get a refund on the tax already paid. Generally, we can say that this GST has a check and balance system because in order to get a refund we must write a record in a transparent manner.
The benefits of GST to the country and the people are GST will bring higher returns to the country. While the people only rely on what the government will do with higher tax revenue. People will be lucky if the government uses tax collected for their good. In the event of a national financial waste, it will not bring any benefit to the people and will have to bear the heavier burden in the face of inflation. The main purpose of introducing the GST is to reduce and mitigate the economic leakage caused by a traitor in the economy. The government constantly improves the country’s economy and taxation system so that economic leakage, corruption and economic irregularities can be overcome with a more efficient and transparent management system. The government is of the opinion that the national rate of inflation is now below 2% lower and it is indeed the best time to implement the GST. This is to ensure the people are not burdened with the implementation of GST if inflation rates are high.
The findings show that GST will burden the lower income people. GST seems unfair to those with low income because they have to pay taxes at the same rate as those with high income. Therefore, the government as well as implementing the GST need to introduce a package or program such as cash payments or rebates to those with low incomes. To reform the tax system in Malaysia, the Malaysian government adopted a social welfare policy by listing over 900 items in the zero-rated GST tax category, the grant of the “Bantuan Rakyat 1 Malaysia” (BR1M) to the lower income group (B40), and the income tax deduction incentives for the income earners simple (M40). Nonetheless, high-income groups comprising 20% of the Malaysian population are responsible for paying more individual income taxes and super rich taxes as income to the country. The proposed aid package is an addition of the “Bantuan Rakyat 1 Malaysia” (BR1M) of RM300 in the first year of implementation of GST, additional BR1M to RM650 for those earning fewer RM3,000 and BR1M of RM450 for those earning between RM3,000 and RM 4,000.
The concept of consumption tax (such as GST) is the more you buy goods or use more and more tax services paid. That means you can control your expenses prudently and frugally. Those with high income will pay higher taxes when they spend more than those with low income will only spend according to their ability. The government’s cash aid program will reduce the impact of GST on low-income people. Their poor people will not have difficulties because the goods used by them are not taxed by the government. While for those with high income, they have no problem because they have enough financial resources to buy taxable items.
Implementation of GST is in line with Malaysia’s aspiration to achieve high-income and higher income status by 2020. However, on June 1, 2018, Malaysia’s 6th Prime Minister’s leadership, Tun Dr. Mahathir bin Mohamad and his new government have abolished the goods and services tax (GST) and turned into sales and service tax (SST) to be introduced on September 1, 2018.
Goods and Services Tax