MOF: Prices will go up after GST

Citing examples, MOF said prices of watches will increase because it is currently tax exempt but the prices of soft drink, clothing, electronic products and cars will be revised from the current 10% sales tax to 6% GST.

KUALA LUMPUR: Although the price of goods is expected to increase by 1.8% as a result of the  GST (goods and services tax) coming into force in April, 2015, the hike however is likely to come down in the long term.

Citing experience of countries like Singapore, Canada and New Zealand, Ministry of Finance GST advisor Kamariah Hussain said the price of goods would normally come down in the second and third year of the GST’s implementation.

Speaking to reporters after attending a GST briefing in Wisma MCA today, she said the increase would vary between products depending on the sales tax that is currently imposed on an item.

Citing examples, she said the prices of watches will increase because it is currently exempted from any sales tax.

Whereas the prices of soft drink, clothing, electronic products and cars,  which are now tagged with a 10% sales tax, would be revised to the 6% GST thus pushing prices down.

“In any case, the increase should not exceed the GST rate, which is 6%. Any increase more than that will be profiteering,” she said.

Kamariah also said for second-hand car, GST would only be charged on the profit margin, and not the value of the car because it has been charged once when it was freshly-produced.

She also said the government would come out with a shopper’s guide to assist consumers on the price changes of goods and services.

To offset the “one-off” price hike, she said the government has designed various compensation packages in the form of RM300 Bantuan Rakyat 1 Malaysia (BR1M) cash aids and reduction of individual income tax.

She reiterated that there would be only a minimal tax burden because the GST will replace the current 5%-10% sales tax and 6% service tax, and will not be imposed on basic food and services.

“Besides, the GST will reduce the cost of doing business because there won’t be any cascading effect as currently incurred in the sales and services tax regime,” she said.

Turnovers below RM500k

Meanwhile Kamariah said GST would not be imposed on businesses with the annual turnover below RM500,000.

She however said it does not prevent those that fall under the category to voluntarily enter into the system.

“Based on other country’s experience, 40% of the businesses would come in voluntarily, because if they don’t come in, they cannot claim back their input tax.

“The big guys will not do business with them because there is a GST paid on the acquisition, and the big guys cannot claim it back,” she said.

Under a normal scenario, when a standard-rated product is produced, a manufacturer, wholesaler and retailer would be allowed to claim back the GST cost incurred and the 6% GST is only borne by the consumer.

Whereas for zero-rated products, the process is the same except the consumer need not pay the GST.

This included foodstuff, agriculture products, livestock supplies, seafood, utility and exports of  goods and services.

Meanwhile, certain public and utility services are classified as ‘exempt supply’ whereby the consumer need not pay taxes and the wholesaler and retailer cannot claim back their GST.

This included rail, bus and water transportations, taxi, highway toll, land for agriculture and general use, private education and health, residential property and financial services.

Kamariah pledged that the government would be able to refund the extra GST paid by businesses within 14 days if the tax is submitted electronically.

If it is handed in manually, she said it would be refunded within 28 working days.