Introduction

As many of you know, effective 1 April 2015, Malaysians will have to start paying the
Goods and Service Tax (GST) when purchases or services are sought after. Replacing the currect
Sales and Service Tax (SST). With the news buzzing around all over us, what will this mean for the
people of malaysia? Will prices start dropping? Or will it be raising up instead? Why are certain
groups of people so opposed to the Goods and Services Tax, while others are laxed and even
contented. The implementation of GST is a new thing to Malaysia and worries and curiosity are
found in all of us.

Content

First up, what is GST? The Goods and Service Tax is a multi stage consumption tax on
goods and services based on a tax-on-value-added cencept. It is imposed on the supply of goods and
services at each stage of the supply chain. From the manufacturer to the sales. This is in contrast to
the Sales and Service Tax (SST) Malaysia has been using which is only taxed at one stage of the
supply chain which is the Sales Tax at the manufacturer stage and Service Tax when a sale is made
to a consumer. The Goods and Service Tax in Malaysia was originally proposed by the federal
government in 2011 to replace the present Sales and Service Tax. But this motion was met with
heavy resistance from the general public due to the implications of price hikes in goods and services
and lack of understanding on the taxation systems in Malaysia.

One of the confusions on taxes in Malaysia is the shorthand GST. Goods and Service Tax
can be found in up to 160 countries. And is known worldwide as GST. But in Malaysia due to our
previous taxation methods, it was differientiated as SST which is a combination of Sales Tax (Sales
Tax Act 1972) and Service tax (Service Tax Act 1975). This is where the confusion comes in. The
Sales Tax is 10% paid by manufacturers and importers who have a revenue of RM100,000 and
above. Whereas the Service Tax is 6% that is applied to certain items in the service industry which
includes food, drinks and tobbacco. This Service Tax is frequently called GST (Government
Service Tax) by the inhabitants of Malaysia. Thats why with the implementation of Goods and
Service Tax, a lot of people are confused between the two.

Now how does Goods and Service Tax (GST) work in Malaysia?

Using the Sales and Service Tax, the 10% Sales Tax and 6% Service Tax is to be collected
by one party ( usually the vendor) and handed on to the tax authorities. For example, if you were to
buy a cup of coffee from Starbucks that is priced at RM15, you would have to pay RM15.90 which
includes the service tax of 6%. Starbucks will keep RM15 and the remainder RM0.90 will go to the
tax authorities. Meanwhile, if we are to use the Goods and Service Tax (GST) system, the taxation
will be split into seperate parts.

Firstly, Starbucks buys coffee beans from a whoelsaler to make a cup of coffee that cost
RM10 but pays the RM10 + 6% GST. The wholesaler then keeps the RM10, and passes the
additional RM0.60 from paid by Starbucks to the tax authorities.

Next stop, you buy that cup of coffee from Starbucks which the beans bought were used to
make at a price of RM15 + 6% GST which is RM15.90. Starbucks now get to keep RM15, and
passes over only RM0.30 to the tax authorities (RM0.90-RM0.60). This is because Starbucks has
effectively paid RM0.60 in tax earlier when the purchased of beans for RM10+6% GST was made.
Hence only RM0.30 is to be paid based on the RM5 that was added to the value (value-added).

Here is a graphical example of the situation and how Goods and Service Tax (GST) is added on
every level.

So why did the government feel the need to replace Sales and Service Tax (SST) with Goods
and Service Tax (GST)? The reason our current SST has been replaced by GST is to overcome
certain weaknesses found in the previous tax system such as cascading tax, double tax and so on.
And is part of the government's approach to expending their tax base to diversify tax revenue
sources. Even though the official explanation given by the Royal Malaysian Customs Department
(RMCD) is that "GST is a method of collecting taxes which works better than others". This new tax
will increase the government's revenue and narrow down the fiscal deficit. Basically its suppose to
be good for our economy, but as most of us know now, due to current events, this is highly doubtful.

There are still certain items that are exempted with a 0% rated tax which are
-Essential items such are: Rice, sugar, salt, flour, cooking oil anmong others
-Public transport (LRT, KTM, Rapid)
-Sale and Rental of property
-Electricity consumption up to 200kwH

How will the implementation of Goods and Service Tax affect the citiziens of Malaysian
from now on is whats on everyones mind. The replacement of Sales and Service Tax (SST) is meant
to be revenue neutral. Meaning that GST that it is to be paid by everyone as long as a purchase of
product or service is bought; no matter what income a person earns. Whether you are rich or poor,
employed or unemployed, everyone has to pay GST now. Here are 3 scenarios to the outcome of
implementing Goods and Service Tax (GST).

First we have items charged with Service Tax but no GST.

The second scenario will be items charged with the Service Tax but not GST

And the last scenario is items with no Sales or Service Tax but with GST.

As we can see from the three graphical examples. The tax paid with Goods and Service Tax
(GST) will either stay the same or even decrease in some cases. While certain goods and service
that did not previously require taxation will increase if that good is not a zero percent (0%) rated
product. The reason why we see price hikes in certain places is because dishonest vendors are
taking advantage of this new and confusing tax systems by going ahead and increasing their prices
without a real need to. The Anti-Profiteering Act is in charge of preventing these unscrupulous
businesses and moniter the aggregate pricing information in Malaysia.

What does this mean for honest businesses? Does the Goods and Service Tax affect their
prices directly? The answer is no. This is because registered business are actually allowed to claim
their input tax under input credit from the government. Bussineses have two seperate tax catgories
which are Input Tax and Output Tax. Input Tax is the GST charged when purchasing goods and
services for use in the business. And Output tax is the GST charged and collected when making a
sale or supplying goods and services. Therefore since business can claim back their input tax credit,
there should be no reason to raise prices with the excuse of covering their cost. It should also be
noted that business with a turnover of less than RM500,000 are exempted from being GST
registered, and thus will not be required to collect or pay the Goods and Service Tax.

Conclusion
The Goods and Service Tax brings both the good and bad. On one hand, the country does
gain an increase in revenue as the whole of Malaysia starts paying taxes, but on the other hand,
where does the money really go into? Without proper leadership and management, the country will
still strongly disagree with the current Goods and Service Tax (GST). Unless the government proves
themselves and open their activities to tranperancy. This sudden change in taxation methods will
only bring more questions and doubts than answer them. That is why there are so many citizens in
Malaysia who are oppose to the Goods and Service Tax (GST). The lack of understanding of this
new tax system and the morally destitute businesses that are milking this situation for all its worth.