Too many exemptions led to GST confusion, say tax experts

Fresh food is GST exempt to ease the burden of ordinary Malaysians. Tax experts say it is better to have introduced a lower tax than the present 6% and covered all goods and services. – The Malaysian Insider file pic, May 19, 2015.

More than a month since the goods and services tax (GST) made its debut, tax experts say they expect teething problems to be ironed out soon, but also admit that Putrajaya had made things complicated with the many exemptions to cater to low-income earners.

Placing of several items under the zero-rated and exempt-supply list to help the poor is a reason for hiccups seen in the tax's implementation since April 1, Customs Department GST director Datuk Subromaniam Tholasy said.

Another tax expert said Putrajaya should have opted to make the tax cover more goods and services but at a lower percentage.

Subromaniam denied that implementation challenges faced today were due to unpreparedness on the government's part, but came about because the government did not want to burden the people.

"The government had noble intentions to place many items under zero-rated and to give exemptions, but such a model comes with challenges.

"I agree sometimes we do not have ready answers for some unique business issues but we will try to resolve them in technical meetings which we have at least once a week," he told The Malaysian Insider.

Chairman of independent tax consultant Taxand Malaysia Sdn Bhd Dr Veerinderjeet Singh agreed, saying that Malaysia had chosen to implement a complicated version of the GST.

With a long list of exempted and zero-rated goods and services, there were bound to be problems involving practical issues, with certain sectors lobbying for better treatment, he said.

The consumption tax, which was introduced at 6%, was opposed by politicians and civil society members, who said the government should deal with leaks and corruption in the public delivery system first.Customs Department GST director Datuk Subromaniam Tholasy says many of the issues that have cropped up since the tax was introduced on April 1 will be sorted out at technical meetings. – The Malaysian Insider file pic, May 19, 2015.

Veerinderjeet said Malaysia's complex GST system caused teething problems for businesses, especially those which sold all types of goods, as they would have to spend quite a bit on software and consultancy services.

A better way to introduce the tax would have been to debut it at a lower rate, such as in Singapore, which started at 3% and applied it to almost all goods and services.

"Malaysia appears very concerned about the rakyat, especially the low-income group and so the government has had to bend backwards to provide exemptions. 

"The proper way should have been to impose the GST on almost all goods and services but make social welfare payments or assistance to deserving groups.”

Mobile prepaid reloads and service charge

One of the biggest problems to arise since the consumption tax was enforced on April 1 was the confusion over mobile prepaid cards.

Conflicting statements were made by Deputy Finance Minister Datuk Ahmad Maslan and the Customs Department, leading Prime Minister Datuk Seri Najib Razak to instruct Communications and Multimedia minister Datuk Seri Ahmad  Shabery Cheek via Twitter to handle the matter.

The GST was to have replaced the sales and service tax (SST) of 6% for mobile prepaid reload cards, but still saw complaints from consumers on the first day of implementation about higher priced reloads.

Subromaniam said that they had not anticipated this problem given that GST was a replacement tax for the sales and services tax (SST).

"We did not expect this to be an issue until the telcos decided to go for a tax-exclusive basis from tax-inclusive basis under the service tax regime.

"Even though they increased the airtime for the tax-exclusive basis, it did not go down well with the masses," Subromaniam said.

The options debated for mobile prepaid reload cards were either to sell them with GST imposed on top of the credit value of the card, for example, RM10.60 for a card worth RM10, or at RM10 but with airtime value of RM9.43.

Shabery later said GST for mobile prepaid reloads would be imposed based on customers' usage, where customers who pay RM10 for the prepaid reload would receive RM10 worth of mobile services value.

Opposition politicians, however, have said that this more or less ends up the same with users paying GST on the reload value.

The 10% service tax imposed by outlets such as eateries and hotels was also another teething problem in GST implementation.

The national union representing workers in the service industry had said it will take employers governed by collective agreements to court if they stopped imposing the 10% service charge to customers, which they said were meant to be divided between workers.

Subromaniam said the government had decided that businesses could continue to collect service charge to protect workers, most of whom earned low wages.

Such businesses, however, have been advised to display a notice informing consumers on the service charge imposed at their outlets.

Veerinderjeet said the issues concerning mobile prepaid reloads and the service charge imposed by restaurants and hotels were not really GST problems per se.

Consumers had already been paying service charges before GST and getting mobile card reloads at a price that was inclusive of the service tax.

"But we did not really know there was a service tax as telcos decided to absorb it and the government agencies appeared to have forgotten about this and maybe so did the telcos," he said.

Good system but better communication needed

Veerinderjeet said that the real problem was that the government was concerned about overburdening the people and was bending over backwards to be seen as benevolent.

"I agree that such matters should have been cleared before the implementation of GST but obviously some overlooked the issue. 

"Does that mean our GST was not well planned? I disagree," he said, adding that the laws in place were generally clear, and that implementation problems should be resolved in the next few months.

Confusion in some industries on executing the GST had led to a suggestion for a special cabinet committee to oversee the tax's implementation. 

This was proposed earlier this month by Selangor Youth Council president Datuk Irmohizam Ibrahim and supported by Universiti Utara Malaysia Islamic accounting lecturer Dr Ram Al Jaffri Saad.

But Subromaniam said that there was already a steering monitoring committee chaired by the second finance minister. 

The committee, he added, comprised ministers from the Ministry of International Trade and Industry Ministry; Communication and Multimedia Ministry; Domestic Trade, Cooperative and Consumerism Ministry; Housing and Local Government Ministry; first and second deputy ministers of finance; as well as the chief secretary and director-general of each ministry.

Veerinderjeet said a cabinet committee would not be effective in solving issues, adding that it was best handled by the relevant agencies.

He said that a problem in Malaysia was the lack of adherence to proper hierarchy of jurisdiction.

"Any agency says what it wants and that is bad for overall governance.

"It gives the impression that no one is managing matters, this has been an issue for a long time. GST is not the first time such miscommunication has occurred, it appears to be in our psyche to confuse others.”

- TMI