The implementation of GST in Malaysia

Kesuma A.Rahman In general, as a consumer, I would have no reason to disagree with its implementation since in theory, it would not merely replace the current consumption tax we are all accustomed to, the rate will be lower at 4% compared to between 5-10% and 5% respectively for the Sales and Service Tax. In other words, I would actually pay less taxes. Unfortunately, that would be simplistic understanding on my part. The government has taken extensive measures to educate the public on GST, through publications, press statements, seminars and online portals such as www.gst.customs.gov.my. However, being proponents of the GST, the government and other beneficiaries does appear to paint a one-sided picture of the mechanism and implementation of that tax system. To substantiate any stand taken, GST would have to be evaluated based on existing implementations in other countries. Before that can be done, GST as a system and the solution it intends to provide needs to be understood. Concerns regarding its implentation and effects, also needs to be highlighted. And all this needs to be done from the consumer's point of view, being the final bearer of the tax. The Goods and Services Tax(GST) is defined as a broad-based, multi-level consumption tax which is to replace the current Sales and Services Tax(SST). As opposed to the SST which sets a fixed rate at the point of sale, the GST is applied to a product at every stage of the manufacturing and distribution. This means, material suppliers, manufacturers, wholesellers, retailers and service providers need to include the tax at every stage of sale between them. However, unlike consumers, businesses can get a refund for any taxes paid since they are not the consumer of the product, for which this tax is for. In this sense, nothing has changed for the consumer, which still pays the tax. The rate is lower, at 4%, but that is somewhat misleading as the current SST of 5-15% is only highlighted and included by certain services providers like telecommunication companies and restaurants. The GST when implemented will affect all products and services. There will be some exemtions, but to date the government has yet to provide a comprehensive list. Businesses with a turnover of less than RM500,000 will also be exempted from including it in the price of their products. The GST is seen as an efficient tax system which the government needs to increase its revenue. It hopes to end reliance on direct taxes, such as income tax and oil-based revenue which cannot keep up with increasing government expenditure. As it is, the government has to borrow more each year to cover deficits in spending. The government has initially set 4% as a starting rate. This will eventually increase together with the income tax rate as seen in most countries with similar consumption taxes. Singapore started with a 3% rate which now stands at 7%. Most European countries have consumption taxes in excess of 20%. As consumption has an upward trend and is usually stable even in a recession, the GST will provide the government with the stable income that it needs. As far as its implementation is concerned, the GST Bill in its current form is very comprehensive with regards to collection of the GST and outlines serious repercussions for failure of businesses to comply which includes heavy penalties. This alone serves as a powerful incentive to add the tax to their products. Although this will lead to self-policing by businesses, the possibility of fraud still needs constant and comprehensive monitoring by the government, in this case the Royal Malaysian Customs. However, this needs to be done correctly. The government and businesses need to have the right system in place,

which includes hardware, software and properly trained staff to manage it. An article by Daniel J. Mitchell, Ph.D, Beware the Value Added Tax, published by the Heritage Foundation states that this additional expenditure can cost up to 2% of sales. This has to be bourned by the consumer as they are the reason for the said tax in the first place. Although some establishments make the SST known to us, other companies may have included the SST in their prices without the consumers knowing about it. Hence when the GST is included in the bill, consumers would only see it as an additional cost. This is a significant concern as when the GST is implemented, we will see it in all our bills. Smaller establishments may be exempted from charging it, but this is also misleading as these businesses have already bourne part of the tax when acquiring their materials and products. To apply for a refund will require them to register and be subjected to audits, which some businesses especially new SME's may be hesitant to do. So in this case, they will resort to raising their prices. Although mooted as far back as 1988 by the then Finance Minister, Tun Daim Zainuddin, the GST Bill was only tabled in parliment late 2009 for implentation in 2011. However a second reading has been postponed a number of times and according to the Minister in Prime Ministers Department , Datuk Seri Idris Jala, no date has been set for its implementation yet. However the Performance Management and Delivery Unit(PEMANDU), seems to point to 2014 as a possible date. The events to date implies that the government is not confident to implement it just yet. The critics of GST might be right after all as all analysis point to increased prices all round and not just selected products, as stressed by the government. The percieved repercussions stemming from this might very well be the reason for the delay in its implementation. If personal income level does not rise, then as a consumer, a reduction in my purchasing power would be the only reason I need to disagree with the implementation of GST.