Allow GST’s tax refund for business-to-business deals, govt told

 A tax expert and an economist say this would stop taxes from piling up before goods and services reach consumers with higher costs.

The GST, a multi-stage consumption tax, was introduced in April 2015 at 6% before being zero-rated in June 2018. (Bernama pic)

PETALING JAYA:

Experts have suggested that Putrajaya incorporate the refund component of the goods and services tax (GST) scheme for transactions between businesses under the current sales and service tax (SST).

Baker Tilly Malaysia’s tax head Anand Chelliah said businesses should not have to pay tax again on costs that had already been taxed, a phenomenon known as cascading taxes.

He said these taxes could pile up as goods and services move from one business to another, with consumers eventually paying higher prices.

Anand told FMT that businesses could instead reclaim some of the tax paid on costs such as rent, transport and professional services.

“The government should introduce its key value-added principle into the SST, particularly for business-to-business transactions,” he said, in suggesting the GST components the government should integrate into the SST.

Economist Yeah Kim Leng of Sunway University agreed, describing the refund mechanism as the most useful part of the GST as it would stop taxes from building up along the supply chain.

“Businesses may pass these savings on input costs to consumers, resulting in lower prices for consumers,” he added.

Anand said this would lower costs for consumers while preventing the imposition of a broad GST on the public.

“Without a system allowing businesses to claim back tax already paid on their costs, either the supplier loses or the consumer loses. It is a lose-lose situation.”

Earlier this week, Prime Minister Anwar Ibrahim said the government was open to studying how components of the GST could be integrated into the present SST system.

Anwar, who is also the finance minister, said the SST should remain the base tax scheme although GST-based adjustments could be made to establish a more progressive tax system.

The GST, a multi-stage consumption tax, was introduced in April 2015 at 6% before being zero-rated in June 2018.

Under the GST, businesses could seek refunds for tax paid on things they needed to run their operations. This helped stop tax from piling up as goods and services moved from one company to another.

Under the current SST system, tax paid by businesses for services they use cannot be reclaimed, making it part of their cost.

However, delays in GST refunds accumulated to RM19 billion at the point the tax scheme was abolished in 2018. Putrajaya has since paid off the bulk of the amount, except for about RM30 million as of February this year.

Tread carefully in making changes

Yeah urged the government to exercise caution, saying any change in the tax system should be introduced slowly, while essential goods and basic services are protected from taxation.

He also said that cash aid and personal tax relief could help households while a broad GST remains off the table.

Bank Muamalat Malaysia chief economist Afzanizam Rashid agreed, saying any new tax system must work smoothly and be simple enough to avoid burdening businesses.

“The last thing we want is for the tax mechanism to be burdensome and result in pushback from businesses,” he said, noting that problems with input tax credits under the GST affected cash flow for businesses at the time. - FMT