‘GST is the way forward’

The Goods and Services Tax will provide long term benefit by eliminating weaknesses under the existing Sales and Services Tax system.

PUTRAJAYA: The proposed implementation of Goods and Services Tax (GST) has caused consternation among Malaysians, with many unsure of how the consumption tax is going to affect their lives.

Without a clear understanding on the significance of GST in the first place, many have been harbouring unfounded fears and even have opposed the new taxation system announced by Prime Minister Najib Tun Razak in his 2014 Budget speech.

The GST, effective on 1 April 2015 with a fixed rate of six percent, will replace the current Sales and Service Tax (SST) that in total could reach up to 16 percent.

Generally, the GST gives the people a long-term benefit by eliminating weaknesses under the current SST such as cascading taxes and compounding effects, no complete tax relief on goods exported, transfer pricing and shifting values, and bureaucratic red tape.

As from the government’s perspective, the GST will create an effective taxation system that will benefit the people accordingly and help address the country’s fiscal deficit.

The GST Director of Royal Malaysian Customs Department Subromaniam Tholasy explained that Malaysia practiced an open economy and depended much on exports.

Being one of the only three countries in Southeast Asia that have yet to implement the GST, Malaysia realises the new taxation system is the way forward in adressing the shortcomings in the current taxation system and in ensuring the exports become competitive.

As GST is not imposed on exports, he said, the pricing of Malaysian exports would become more competitive while the GST incurred on inputs could be recovered along the supply chain.

“This will strengthen our export industry, helping the country progress even further,” he said in an interview with Bernama recently.

The additional export revenue will boost the country’s economic growth and the export revenue is expected to increase by 0.5 percent within the first year of GST implementation.

He explained that taxes under the current system were only being imposed on imports or at factory level. If someone managed to beat the taxes at any one level, this is akin to smuggling.

With GST, he said, the processes at every level of the supply chain needs tax invoice thus tax evasion could be detected and foiled.

Apart of that, all these while, consumers were paying taxes at the manufacturer’s stage known as sales tax about five to 10 percent and another six percent on service tax.

Under SST, the tax imposed on manufactured goods is not stated on the sales receipts thus no one is aware of the hidden costs involved. And this is why the people do not feel the taxes that they are paying under SST.

However, once GST comes in, consumers will pay fairer prices for most goods and services compared with under SST.

“At the same time, pricing will be more transparent in the future…dishonest dealers will find it difficult to take advantage of consumers,”Subromaniam said.

Subromaniam said under SST, nobody knew which party and how much businesses profit from sales as the cost and taxes are not itemised and instead lumped together.

“As for instance, one may claim once the petrol prices goes up, house prices too will go up…the reason given is higher transportation costs but we do not know how much is their cost and also the profit they are making.

“It is because nobody is being audited…the Customs Department do not audit them but under GST, we will get to know the exact amount as we can trace every single transaction,” he explained.

He added that GST would be an effective taxation system that could bring the country and people towards higher income nation in few years to come.

- Bernama