What is Goods and Services Tax | Fact that You Should Know
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What do You Know About Goods and Services Tax (GST)?
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How GST affects businesses?
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What do YOU need to do?
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GST is a broad-based tax on consumption of goods and services, and in simplest form, it means people will pay tax each time they purchase a good or service.
The proposed implementation of GST will replace the current Malaysian service tax and sales tax.
It is expected to be implemented on mid-2011 and considered as more efficient tax system.
There is a debate whether GST will be a burden to the people when it is implemented. This is usual reaction to the notion of a new tax, especially in this tough economic climate, would be a mixture of suspicion and defiance.
According to Penang Chief Minister, Lim Guan Eng, currently only 1.8 million individuals from total of 12 million in the workforce paid tax for their salary is more than RM3,000, but with GST, the entire workforce(mean everyone, including poor workers, will be affected) will be required to pay tax.
He added due to exemptions and rebates, those having monthly salaries below RM3,000 effectively do not have to pay anything for their income tax.
But with the GST, these people who did not have to pay tax before, will have to do so. That is why we hope the GST will not be imposed
Among Asean countries, Malaysia, Brunei and Myanmar have not implemented GST. Singapore and Thailand has implemented GST.
It good that the Government learn and can get good references from countries that impose GST such as Singapore and Thailand before implemented the tax scheme. This is to ensure the GST do not burden the people, especially the lower-income group.
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Increase productivity instead of GST
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Getting to grips with GST – what you should know
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THE introduction of the goods and services tax (GST) due mid-2011 will represent a profound change in our tax system in recent decades.
While GST, also known as value-added tax, is as a whole relatively simple compared with the income and corporate tax, some of its features and rules are anything but simple.
This poses a challenge to officials who are charged with bringing on the tax – to get businesses and consumers (i.e. the public) to get to grips with or at least have a broad understanding of how the tax works.
That there are clear misconceptions amongst many can be discerned from the various letters written to the press expressing negative sentiments.
The answers to the following broad questions will assist in the basic understanding of the GST.
What is GST?
It is a tax on consumption, an indirect tax charged on imports and on the value added to goods and services sold by one business to another, or to the end consumer.
It is the buyer who pays the tax, not the seller. GST replaces the current sales and service tax but not the income tax or customs import duty or excise tax. It will be broad-based, covering a comprehensive range of business transactions.
What is value added?
It is basically the mark-up in arriving at the selling price of a product/service. The selling price is made up of the cost of materials and purchases plus profit charged to customers.
How will the tax be charged?
GST will be charged at 4% of the value added to goods/services at each stage of production/ distribution. This rate, indicated by the Finance Minister, is known as the standard rate.
How does GST differ from the sales tax which it will replace?
Sales tax is a single stage tax whereas GST is multi-stage (i.e. the latter is levied at every value added stage in the distribution chain). Unlike the sales tax, GST has no cascading effect and does not lead to price distortion.
What are the benefits from changing to the GST system?
It is widely considered as a more efficient system. More tax can be collected with a lower rate because it is broad based. The system of issuing invoice for input tax credit operates as an auto control which could reduce tax evasion and thus increase income tax collection.
Who can charge GST?
A business with sales in one year amounting to RM500,000, as indicated by the Finance Minister, must register to charge GST. A business with sales amounting to less than this threshold may volunteer to register to charge GST and claim input tax credit (see paragraph below).
GST on imports
Businesses which import goods and services will have to pay GST at the time of importation.
GST on domestic products
Businesses supplying goods and services will pay GST within one month following the end of the taxable period. This taxable period can be one, three or six months depending on how the business is “classified” by the GST authorities.
Final consumers will pay the tax upon purchasing the taxable goods and services. Not all goods and services will be charged to tax. They will be classified into three main categories viz: taxable, zero-rated and exempt.
Taxable goods and services
Consumers will be charged GST at the established rate of 4%. A GST registered business will charge GST at the same rate on the sale of taxable goods and services and pay GST on its purchases.
Zero-rated goods and services
The final consumer will pay GST at a rate of 0%. This essentially means that no tax is charged on consumers on the item. A GST registered business will be able to claim a credit for any GST paid on its inputs.
Exempt goods and services
No tax is charged on the consumer. Unlike the zero-rated goods, the GST registered business is not entitled to claim any input tax credit on purchases.
How will GST affect you, the consumer?
Since the current sales and service tax are at rates exceeding the GST proposed rate of 4%, the final prices of these goods and services are not expected to see an increase.
The prices of goods and services which currently have little or no taxes will increase slightly. Some goods and services will be exempted from GST and others taxed at a zero rate.
The latter category will cover essential goods and services; the measure is to shelter the lower income group from the effect of the tax. The list of exempt and zero- rated items has yet to be released.
Businesses in general need to understand the detailed rules and consider how these would apply to their own business operations.
Failure to do so may result in the loss of the set-off or credit for input taxes suffered and/or being exposed to onerous penalties for non-compliance with the law.
■ Kang Beng Hoe is executive director of Taxand Malaysia Sdn Bhd.
fr:biz.thestar.com.my/news/story.asp?file=/2010/2/25/business/5663013&sec=business
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Pakatan bets on GST to muscle BN out
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An anti-goods and services tax (GST) forum held by Pakatan Rakyat (PR) here last night marked the coalition’s aim to use the issue to edge its rivals out come the next general election.
The forum was held to educate voters on the GST, something PR has been harping on ever since the Najib administration announced its plan to use the GST as a way to increase the efficiency of the country’s tax system.
At the forum, PR leaders argued that the implementation of a GST system to replenish the national coffers racked by a rising federal debt, believed to be more than RM300 billion, would burden voters especially the poor.
Their argument centres around three major points: the cost of its implementation given the government’s exorbitant debt, inability to regulate the complex system as evident in widespread corruption, and income stagnancy.
Penang Chief Minister Lim Guan Eng said with the old sales and services tax system, only some 1.5 million of the total of 12 million workers are taxed but its replacement with the GST will mean everyone, including poor workers, will be affected.
Selangor Mentri Besar Tan Sri Khalid Ibrahim argued that GST can only be implemented if the income gap is not as wide as that in Malaysia.
He also said that a GST is only viable if the tax rate was set at 15 to 20 per cent as in the case of other developed nations with GST bearing the cost of its implementation.
Finance Minister II Datuk Seri Husni Hanadzlah had said that the government plans to set the GST rate at 4 per cent, something Khalid said was not possible.
“So I expect them to increase it to that rate sooner or later,” said Khalid.
Another panellist, Kuala Selangor PAS MP Dr Dzulkefly Ahmad, said the government had also lied about the amount of taxpayer money needed to implement the GST, which was about RM22 million.
“The Australian government needed A$5 billion to implement the GST, given the extremely complex nature of the system, and that was 10 years ago,” said the PAS lawmaker.
He added that instead of implementing the GST, the government could find other ways to obtain revenue like stopping “financial leakages” which were causing billions in taxpayers’ money.
Petaling Jaya Utara DAP MP and one of the major critics of the GST, Tony Pua, agreed with the other panellists that the system can only be implemented if the country’s per capita income is high.
He also said that only businesses will profit from the GST and not voters.
He backed Dzulkefly’s views that there were alternative ways to increase the country’s revenue, for example, eradicating patronage economics.
“If BN keeps increasing prices and taxing people more and more, it won’t last. The GST will be the nail in BN’s coffin,” he said to loud applause.
The GST Bill is scheduled to be tabled for second reading at the March Parliament sitting It is expected to be voted through and the ruling coalition expects to fully implement the system by end-2011.
Husni said the planned GST will save businesses up to RM4 billion and add RM1 billion to the government’s tax collection in the first year of its implementation.
fr:themalaysianinsider.com/index.php/malaysia/54374-pakatan-bets-on-gst-to-muscle-bn-out
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GST waiver for basic goods and services
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KUALA LUMPUR: Malaysians need not worry about paying goods and services tax (GST) on certain basic necessities and services under the new tax regime targeted for implementation in the middle of next year.
The Government has decided that 40 basic goods and services will be exempted from the GST, said Finance Minister (II) Datuk Seri Ahmad Husni Mohamad Hanadzlah.
They included basic foodstuff, residential accommodation, education, health services, public transportation and domestic water and electricity supply to a certain limit.
“The Malaysian GST model is being carefully formulated, taking into consideration the interest of the population at large, especially those of the lower income group,” he said when opening the National Conference On GST: Roadmap to Malaysia’s New Taxation System yesterday.
GST is a consumption tax on imported goods and on supplies of goods and services in the country.
It was earlier reported that certain goods such as rice, sugar, salt, flour, eggs, meat and chicken as well as the first 200 units of electricity and 35 cubic metres of water utilised could be exempted from the tax.
Ahmad Husni said more than 140 countries had successfully implemented GST. Among Asean countries, only Brunei, Malaysia and Myanmar had not implemented it.
“If 143 countries have done it, why not us?” he said, adding that a number of countries having lower purchasing power than Malaysia such as Venezuela, Kazakhstan, Brazil and Sudan had implemented GST.
“The introduction of GST is to ensure that Malaysia’s fiscal footing is on firmer ground as we embark on our quest to be a high-income economy within the next decade.”
He added that GST too had in-built cross-checking features and this would enhance tax compliance.
“It is a self-policing mechanism that facilitates its administration and makes it difficult for anyone to avoid or evade this tax,” he said.
Ahmad Husni said with the higher tax compliance, the Government could generate additional revenue that would go back to the people through socio-economic development such as the provision of better infrastructure, education, welfare and health services.
fr:thestar.com.my/news/story.asp?file=/2010/2/12/nation/5666542&sec=nation
GST will be good for the country in the longer term, say experts
KUALA LUMPUR: The planned introduction of the Goods and Services Tax (GST) by mid-2011 in Malaysia must be implemented across the board and not piecemeal to ensure its success, according to tax experts.
BDO Australia partner (tax) Dennis Lin said GST, a broad-based consumption tax, would impact all businesses and individuals initially but would be good for the country in the longer term.
“It will trigger major changes to the culture of an organisation as well as key aspects of how a business operates. The degree of impact on companies will depend on the size and type of business,” he said at the BDO GST seminar, entitled GST: Which hat are you wearing? yesterday.
Lin, a guest speaker, said GST would also have an immediate impact on individuals’ spending pattern.
“However, the approach to successful GST implementation is to be focused and have considerations or adjustments in key areas impacted,” he said, adding that the speed and success of the GST implementation would depend on collective effort from the corporations, individuals and, more importantly, the Government in applying the right incentives.
Lin said Malaysia should learn from other nations like Australia and the United States, especially their mistakes, when GST was introduced. “Typically it takes about two years or so before corporations and individuals accept the new tax regime,” he said.
Lin said Malaysia’s planned GST at 4% to replace the current sales and services tax of 5% and 10% respectively was reasonable, compared with neighbouring countries which started with higher GST rates.
BDO Consulting Sdn Bhd associate director Douglas Brown said there were now about 150 countries, mostly in the developed world, that had adopted GST.
“Initially there will be some difficulties in the implementation of GST and adjustments from various quarters but overall it will be a more efficient and effective tax structure,” he said.
Meanwhile, PricewaterhouseCoopers senior executive director Jennifer Chang told Reuters that Malaysia was likely to give equal tax treatment to Islamic finance and conventional banking under a new tax regime next year, ensuring syariah banking products were not disadvantaged.
The imposition of GST would potentially raise the cost of Islamic financing transactions as they typically involve more legal steps than conventional finance.
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GST bill delayed
Malaysia’s troubled flirtation with the good and services tax (GST) continues, with the government announcing that it will put the tax on hold and not table it in next week’s Parliament sitting.
The decision comes after feedback from Barisan Nasional (BN) MPs suggested that opposition to the GST was also palpable among component party members.
Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said today the government needed more time to gather public feedback.
“It (the GST) will not be tabled for second reading in the March/April session (of Parliament) because we need more time to engage with the public. We want the public’s opinion on GST,” Husni told reporters after opening the Kuala Lumpur Malay Chamber of Commerce (KLMCC)’s annual general meeting here today.
However, the move will be interpreted as retreat of sorts from an administration that has not put forth the most convincing argument for introducing the GST.
It is understood that BN lawmakers, and even senior Umno officials, have asked the government to reconsider the unpopular move.
“If it’s true that the debate will be delayed then the government can use the time to explain the issue to the public… each sector in turn so that the public truly understands what the implementation of the GST means,” Sri Gading MP Datuk Mohamad Aziz, when contacted by The Malaysian Insider.
Other BN MPs were surprised at the last-minute move as they had been given copies of the Bill as preparation for intense debates with Pakatan Rakyat (PR) lawmakers who have opposed the GST and were making it a cornerstone of their next election campaign.
The GST, which would have generated revenues totalling around RM8.8 billion, was due to be introduced in 2011, to replace an existing sales tax as part of measures to reduce Malaysia’s dependence on oil revenues, which currently account for almost half of government income.
Malaysia’s budget deficit hit a more than 20 year high of 7.4 per cent of gross domestic product in 2009, according to government data.
PR had planned to gather at least 2,000 supporters outside Parliament on Monday when the Dewan Rakyat begins sitting.
“The GST is going to affect the livelihood of 85 per cent of the population who today do not earn enough to pay income tax,” said Parti Sosialis Malaysia secretary-general, S Arutchelvan.
He described Monday’s protest as “a common thing in any democratic society”.
Police have warned against any such protest
fr:themalaysianinsider.com/index.php/malaysia/56121-gst-bill-delayed
GST plan will not be derailed
PETALING JAYA: The plan to introduce the goods and services tax (GST) will not be derailed as the Government is determined to diversify its revenue base away from oil.
According to Malaysia Rating Corp Bhd chief economist Nor Zahidi Alias, the postponement of the second reading of the GST bill pending public feedback does not mean it would be shelved as the Government needs to strike a delicate balance between improving its revenue base through a higher tax base (via the GST) and ensuring that Malaysians’ welfare is upheld by not imposing an additional burden to households.
“The only pressing issue is timing,” Zahidi told StarBiz.
Meanwhile, RAM Holdings Bhd chief economist Dr Yeah Kim Leng hoped the postponement was just a temporary “hold” decision to ensure smooth implementation and not another policy reversal to abandon the GST or keep it on the backburner as too many policy reversals would erode public confidence and impact negatively on the credibility of the Government’s entire structural reform and transformation process.
Harvey & Associates managing partner Harvindar Singh said the Government deferred the second reading of the GST bill to first create more awareness about the benefits of GST to both the business community and the public before implementation.
“Although there would be tax savings as a result of the implementation of the GST, there exists some apprehension as people are not aware of this,” he noted.
He added that the man on the street was also worried about inflationary pressures, which was likely to be one-off, as a result of the GST.
Harvinder also said although the Government had been actively engaging the business community with regards to how the GST was to implemented, many companies were still “in the dark” about the mechanism of the new tax system.
“The postponement is a welcome relief to businesses as it gives them more time to prepare,” he added. He opined that due to its many benefits, the GST should be implemented as it had successfully been done in over 140 countries.
However, the implementation process may require more time than initially planned by the Government.
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Businesses given time to get ready for new tax system
KUALA LUMPUR: The postponement of the second reading of the Goods and Services Tax (GST) Bill will give business people “breathing space” to get ready for the new tax system, says Deloitte KassimChan Tax Services Sdn Bhd managing director Ronnie Lim.
Companies were struggling to get ready for GST and grappling to understand the mechanism of the new tax system, he said.
“Having the postponement gives them time to be ready,” he told reporters yesterday when met at the Chartered Tax Institute of Malaysia GST – The Way Forward seminar.
Nevertheless, he said what the Government was proposing was good for the country in the time ahead as proved by over 140 countries now using the GST.
The Government last week postponed the second reading of GST to gain more feedback from the public after the first reading in December.
Meanwhile, Finance Ministry tax review panel chairman Datuk Kamariah Hussain said the postponement of the second reading of the GST Bill did not mean the tabling of the bill would be halted as GST would eventually be implemented.
“What we are going to do now is to create more awareness among the public so that they will understand GST better,” she said, adding that the ministry would go on more road shows to raise public awareness on the need for GST.
She also said the perception that those who were not eligible to pay income tax prior to the implementation of GST would now have to pay taxes on everyday consumption was wrong.
“Rakyat with (monthly) income of less than RM3,000 and not paying income tax have always paid sales tax and service tax estimated at RM79.75 monthly,” she said.
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so got Big surprise PRESENT for Rakyat after the next general elections?
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BN delays GST until after next election
The Najib Administration will only revive the introduction of an unpopular consumption tax after the next general elections where it hopes to regain Barisan Nasional’s (BN) customary two-thirds parliamentary majority.
The government last week announced it was putting the Goods and Services Tax (GST) Bill on hold despite indicating it will go ahead to debate the law in the current Parliament sitting.
The decision comes after feedback from BN MPs suggested that opposition to the GST was also palpable among component party members apart from the Pakatan Rakyat (PR) bench.
“BN will delay the GST Bill until after the next general elections to ensure we win big,” a BN MP told The Malaysian Insider on condition of anonymity.
He said it would take time to gather public feedback and also to educate people about the GST which the government said will initially be four per cent, substantially lower than the present Sales and Services Tax of between five and 10 per cent.
“The reality is that people don’t like the new tax and the PM is aware of it,” the MP said, referring to Datuk Seri Najib Razak who had stressed that “the days of government knows best is over” when he took office last April.
The opposition has flayed BN over the tax and claimed it was scuttled due to their campaign. However, they want the tax proposal to be completely dropped and have promised to make it a campaign issue.
Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah had said last Saturday the government delayed the Bill for more time to gather public feedback.
“It (the GST) will not be tabled for second reading in the March/April session (of Parliament) because we need more time to engage with the public. We want the public’s opinion on GST,” Husni told reporters after opening the Kuala Lumpur Malay Chamber of Commerce (KLMCC)’s annual general meeting.
However, the move was interpreted as retreat of sorts by an administration that has not put forth the most convincing argument for introducing the GST.
It is understood that BN lawmakers, and even senior Umno officials, have asked the government to reconsider the unpopular move.
“If it’s true that the debate will be delayed then the government can use the time to explain the issue to the public… each sector in turn so that the public truly understands what the implementation of the GST means,” said Sri Gading MP Datuk Mohamad Aziz, when contacted by The Malaysian Insider.
The GST, which would have generated revenues totalling around RM8.8 billion, was due to be introduced in 2011, to replace an existing sales tax as part of measures to reduce Malaysia’s dependence on oil revenues, which currently account for almost half of government income.
Malaysia’s budget deficit hit a more than 20 year high of 7.4 per cent of gross domestic product in 2009, according to government data.
fr:themalaysianinsider.com/index.php/malaysia/56591-bn-delays-gst-until-after-next-election
GST will be implemented eventually
KUALA LUMPUR: It is not a question of if but when the goods and services tax (GST) will be implemented in Malaysia, according to Taxand Malaysia Sdn Bhd managing director Veerinderjeet Singh.
The GST had been scheduled to replace the current sales and services tax (SST) by the middle of next year.
But Second Finance Minister Datuk Ahmad Husni Hanazlah recently said the government would defer tabling the GST bill for a second reading in Parliament.
Husni had said the government wanted more time to seek public feedback before proceeding with the GST.
But Veerinderjeet believes it is only a matter of time before the GST is implemented despite the deferment in tabling the GST.
“We believe that if the GST is not implemented this time next year, it would likely be implemented the following year,” he told reporters after his presentation at the GST & Other Indirect Tax Developments seminar yesterday.
The seminar was organised by Taxand Malaysia and the Malaysian International Chamber of Commerce and Industry.
Veerinderjeet said the seminar was to educate professionals on the actual mechanics of GST in preparation for the eventual implementation of the GST. “Businesses in general need to understand the detailed rules and consider how these would apply to their own business operations. “Failure to do so may result in the loss of the set-off or credit for input taxes suffered and/or being exposed to onerous penalties for non-compliance with the law,” he said. On the challenges of implementing the GST, he said there were several, including pricing and embracing appropriate technology in areas such as GST collection at each stage of the supply chain. On the proposed GST rate at 4%, Veerinderjeet noted that the current SST rate far exceeded the proposed GST rate.
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GST delay not due to lack of political will: Husni
IPOH: The government’s decision to postpone tabling of the Goods and Services Tax (GST) Bill for second reading in parliament is not due to lack of political will.
Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah said the government’s political will was putting people first by providing adequate information before GST is implemented to replace Sale and Service Tax (SST).
“The people are given the chance to give input so that when implemented, GST will be accepted by the people and the government,” he told reporters at Taman Meru here Sunday.
He said the people should be fully informed on GST as they had been exposed to all sorts of information that was against the government’s aim in implementing GST.
Husni denied that the GST postponement was because Barisan Nasional feared punishment by the people at the next general election.
“The opposition’s weaknesses have actually strengthened Barisan. The Anwar Ibrahim factor will also play a part.
“It is not right to say that our fortunes rest on GST. Election will only be held in 2012 or 2013 and there will be other factors by that time,” he added.
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GST must be accepted by people first
IPOH: The Government will only implement the proposed Goods and Services Tax (GST) if the people accept it, said Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah.
He also denied that it was the lack of political will on the Government’s part that made it put off the plan for now.
The Government wanted the people to view the GST favourably, rather than look at it as something imposed on them, he added.
”We want this to be the nation’s GST, not the Government’s,” said Ahmad Husni, who is also Tambun MP, after visiting his constituency here yesterday.
Ahmad Husni had announced earlier this month the Government’s decision to postpone the second reading of the GST Bill in Parliament.
Asked if the decision to postpone the GST implementation to a later date could be perceived as a lack of political will, Ahmad Husni said:
“Our political will is to look after the interest of the people first.”
He also refuted claims that the Government’s decision was actually a sign of weakness.
“I do not hear that. In fact, I think the people should feel proud because they are being consulted.
“As a member of the rakyat, I’ll be very proud because my Government does not impose things on me. It wants me to know what it is doing,” he said.
Ahmad Husni said due to the many misconceptions about GST, the Government would embark on a programme, with help from the Information Department, to educate the public and disseminate accurate information.
fr:thestar.com.my/news/story.asp?file=/2010/3/22/nation/5907530&sec=nation
GST will not result in inflation, higher rates
The implementation of the goods and services tax (GST) is not expected to cause inflation and result in higher interest rates, said Bank Negara assistant governor Dr Sukhdave Singh.
“The GST is going to be a one time event, substituting the existing sales tax. In other countries, there has been a temporary spike in prices but the impact is a moderate increase in the rate of inflation.
“It is not expected to be significant in terms of monetary policy. If there are opportunistic attempts to raise other prices thus inducing (an inflationary) cycle, monetary policy may have to be used.
“But for now, we do not think this will create inflation,’’ he said after a panel discussion on the economy organised by the Malaysian Economic Association yesterday.
On a question if the ringgit was being manipulated, Sukhdave said: “The ringgit is on a managed float against Malaysia’s trading partners. The level of exchange rates is determined by the market.
“We want to see the orderly development of financial markets and not a fluctuating exchange rate. Earlier, when there were capital inflows, we were intervening to ensure the exchange rate did not spike up sharply. With the deleveraging, we used our reserves to support it.
“If it was really for mercantilistic reasons, the support would have been one-sided but there was none of that,’’ he added.
On concerns of interest rates hikes next year, he said: “(The year) 2011 is not a worry. We are assessing the environment but have no definite plan (to raise interest rates). It is just to address the financial imbalances. From the data at this stage, monetary policy is not anticipated over the medium term to be used to fight inflation.
“What we learned from the global crisis is that before something happens, we must not overborrow; however, we do not see widespread imbalances.’’
Standard Chartered Bank economist (South-East Asia) Alvin Liew expected prices to remain benign this year but was concerned about next year when asset markets picked up again with investors searching for higher returns in the property and stock markets. “The overnight policy rate is expected to return to 3.5% in 2011,’’ Liew said.
Participants expressed concern over the growth potential of the economy at 5.5% compared with around 7% previously.
“Coming out of the crisis, 5.5% is very good. Apart from China and India, we have done well relative to our peers and the advanced economies,’’ said Sukhdave.
Tan Sri Clifford Herbert, former secretary-general of the Finance Ministry, observed that private investment was lethargic. “There should be more measures to improve private investments. The trend of overseas investments representing outflows in the short term creates a source of concern,’’ he said.
Sukhdave emphasised that for further growth, the country needed foreign direct investments (FDIs) and to improve the quality of the workforce together with all the factors of production.
“Private investment needs to flow abroad for diversification of income and competitiveness. The real issue is to attract the new foreign direct investments for development over the next 10 to 20 years,’’ he said.
Retired banker Dr Raja Lope Raja Shahrome opined that the growth forecast of 4%-5% was based on assumptions of policy impact on aggregate demand and recovery of exports.
“While I agree on the direction of economic growth, I am not sure how much of the projected figures (will be realised) unless one makes strong assumptions.
“I am also concerned whether CPI (consumer price index) is ‘grossly under-estimated’ and believe the actual rate of inflation could be a multiple of the 2% to 3% that is reported. Prices have risen steeply and the price index could be an area to look closely at,’’ said Raja Lope.
Standard Chartered expects an uncertain outlook in the second half. “Our forecast is for a gross domestic product growth of 4.2% (compared with Bank Negara’s forecast of 4.5% to 5.5%). We note that China, having emerged as Malaysia’s largest trading partner, presents risk factors – the debate over the reminbi can have a protectionist outcome in the global arena.
“Also we are concerned over the health of the Chinese economy with a possible premature tightening,’’ said Liew.
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Ismail: GST implementation will not burden the people
BERA: The Government has denied that implementation of the Goods and Services Tax (GST) will burden the people as claimed by opposition parties.
Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob said the claim was baseless as controlled items would not be taxed when GST was implemented.
“GST will not be implemented soon as the Finance Ministry and my ministry will tour the country to explain it to the people,” he said after opening the annual general meeting of Umno branches in Bera division by Umno supreme council member Datuk Abdul Azeez Abdul Rahim.
Ismail Sabri also said that the Government had no plans to hike the price of goods or services as a lot of factors had to be considered before making such decisions.
On sugar shortage in Kedah and Perlis recently, he said this was because suppliers did not send sugar to traders as scheduled.
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GST only after Price Control and Anti-Profiteering Act approved
KUALA LUMPUR: The Goods and Services Tax (GST) will be implemented only after the Price Control and Anti-Profiteering Act has been approved, Deputy Finance Minister Datuk Seri Awang Adek Hussin said Wednesday.
He said the act was in the final stage at the Attorney-General’s Chambers and was expected to be tabled in Parliament by June this year.
“There is fear that traders might increase prices of goods because of the GST to make more profits.
“Therefore, we need to have a law to prevent profiteering by traders,” he said in response to a question by Senator Datuk Nor Hayati Onn in the Dewan Negara here.
Nor Hayati wanted to know when the GST would be implemented and measures taken by the Government to ensure that its implementation would be accepted by the people.
Awang Adek said the Government was aware of concerns among consumers on the implementation of GST.
“Actually, there is a lot to be gained by the Government and country with the implementation of GST, among them, a new source of revenue,” he added.
He said there was no need for the public to worry about increase in prices of goods as most of the essential goods would be exempted from GST.
“Services with zero GST will include electricity supply for the first 200 units every month for domestic consumers, the first 35 cubic metres in water supply every month for domestic consumers, and goods and services meant for export and international services,” he added.
Awang Adek also said only businesses with sales of more than RM500,000 a year would be subjected to GST.
“This means 78% or 433,558 business entities will be exempted from the GST system,” he added.
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Group: Betting revenue can help delay GST
KUALA LUMPUR: The Government can delay the imposition of Goods and Services Tax (GST) by using the tax revenue earned from legalising sports betting, said the largest association to represent the Chinese business community.
Ultimately, everyone would benefit from such a move, added the influential Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) in a press statement.
The chambers made such a suggestion as it was concerned with the dispute surrounding the Government’s issuance of sports betting licence.
The body also noted with concern that illegal gambling activities were becoming more rampant – with syndicates pervading every corner of the society.
The legal gambling industry contributed enormously to the economy, it said.
According to the statistics, total tax revenue of Malaysia last year amounted to RM158.6bil, and the gambling industry contributed RM3bil or 2% of it.
The revenue has been utilised for various public expenditure.
ACCCIM added that some 13,000 people were directly employed through the legal gambling industry, and another 6,700 people indirectly employed in this industry.
“Although ACCCIM has never supported people to gamble, it is of the view that if legal sports betting does not exist, existing gamblers will resort to bet through black markets, even without cash, resulting in exorbitant debts.
“Some will even fall prey to loan sharks which will cause social problems and ultimately upset national development,” said ACCCIM.
The Government, added the body, had strictly regulated the sports betting licence, with only 220 Sports Toto outlets in areas with few Muslim residents to be allowed to accept cash bets.
Reckoning that the operating revenue of Malaysia’s illegal sports betting industry was between RM20bil to RM30bil annually, the Government could net about RM1bil to RM3bil tax revenue, said ACCCIM.
“The ACCCIM hopes that no matter which company is granted the sports betting licence, it can manage the licence. The Government should make it compulsory for the company to contribute a portion of its profit to charity and education funds annually,” said the press statement.
The body calls on all parties concerned to resolve the disputes on the issuance of sports betting licence by giving preferential consideration to the socio-economic interest of the nation.
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Why are countries raising taxes and cutting spending even before economic recovery?
Tax Insights – By Kang Beng Hoe
WE are at the height of the betting season. With the World Cup and the feverish excitement coursing through our daily lives, few of us can avoid being involved.
Betting is also taking place at a most unlikely level, with much higher stakes at risk. The US and the leading EU economies are amongst those betting that when their governments reign in fiscal stimulus packages by cutting spending and raising taxes before recovery is assured, their private sector will step in to drive growth in their economies. The concern is whether such measures will likely spook consumers, businesses and investors and makes things worse.
So why do policy makers take on this risk when recovery is still fragile? The worry is their huge deficits and the fear that the financial markets will turn on them, as they did on Greece, if they delay deficit reduction. So countries seek ways to curb spending and raise taxes. They try not to tax mainstream businesses as these are relied on to push growth. Increasingly they turn to uncommon measures to help fill their tax coffers. Thus we see some 10 countries across the globe introducing tax amnesties, the US and its whistle-blower reward programme and India bringing in a presumptive tax scheme on top of a capital gains tax on share transactions.
What is presumptive tax? Presumptive taxation involves the use of indirect means to ascertain tax liability, which differ from the usual rules based on the taxpayer’s accounts. There is a legal presumption that the taxpayer’s income is no less than the amount arrived at from using the indirect method, thus the term “presumptive”.
India’s presumptive tax system applies to three types of businesses — civil construction, retail trade and transporters. Under the scheme, businesses with revenues up to Rs40 lakh will have the option to declare income at 8% of their turnover and be exempt from compliance procedures such as maintaining books of accounts. In addition, they will be allowed to pay the entire tax from their business only at the time of filing the return and not in advance. The taxpayer may file accounts and pay tax based on these accounts. This is a rebuttable presumption; an irrebuttable presumption is when no option is available.
The presumptive method has the following advantages and disadvantages:
Accuracy: It is less accurate than the classical tax based on a bookkeeping system and thus it violates the principle of taxation based on the ability to pay.
Horizontal equity: The argument is that it violates horizontal equity since equally well-off taxpayers may end up paying different taxes.
Efficiency: It is in effect a lump sum tax with zero efficiency cost.
Simplicity and compliance costs: A small business keeps books only to satisfy the tax authorities and presumptive tax enables it to avoid such costs.
Equal opportunity: Businesses could view this as in effect a license fee, which is paid without further intervention.
The major issue is that the tax seems arbitrary: This feeling can be reduced if the authorities seek to convince the public that the tax is fair.
Progressivity: Since it imposes a ceiling on the tax it is no longer progressive, taxpayers within the same group with different income levels pay the same amount of tax.
Updating the parameters: The tax is as good as the parameters on which it is based. Since this can change over time, the need for updating remains an issue.
Presumptive taxes are well entrenched although it may not be classified as such. The Malaysian tax system in fact adopts the presumptive tax approach in certain circumstances.
If a taxpayer has substantially understated his or her income, and the transactions giving rise to income cannot be traced, the tax authorities are authorised to assess income on their best judgment. The commonly used method, in the course of a “tax investigation”, is the net worth method. This involves the determination of the change in the taxpayer’s net worth over say a number of years and adding to this amount the estimated personal consumption expenses, determined by examining the taxpayer’s lifestyle.
The estimate of income for each year can then be made. This approach in theory cannot be faulted since income can be defined as consumption plus change in net worth. The difficulty is in using imprecise estimates in the absence of factual information. The courts have nevertheless allowed this method to be used.
Apart from India, the presumptive tax system has been used in France, Mexico, Pakistan to name just a few. Whether it should be extended in Malaysia to specific small business operators will depend on the level of non-compliance in this sector.
If it can be shown that the presumptive tax base to be adopted is close to the tax base the business operators will otherwise pay tax on, then the tax will likely be acceptable. This needs careful study. Presumptive taxation remains a relevant option in helping raise Malaysia’s tax revenue in its efforts to reduce the country’s deficit position.
# Kang Beng Hoe is an executive director of Taxand Malaysia Sdn Bhd.
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What is the goods and service tax? Will it be implemented?
Comment by DAVID LAI and PAULINE LUM
GOODS and services tax (GST) is the tax that everyone is talking about but is probably the most misunderstood tax in this current economic climate. The deferment of GST caused ripples in the current climate. Where does GST go from here? Has the tax been shelved or will GST be implemented in the next two years? Will the consumer ever get to see “inclusive of GST” on a price tag in Malaysia? Is this another setback for GST?
Statements that begin as questions and are replied with more questions – are the taxpayers ready for a replacement consumption tax? Is the rakyat aware of the GST mechanism and its implications? Is it a fairer and more transparent tax system compared with the existing sales and service tax regime?
Going back to the basics, GST is a broad based consumption tax that will replace the existing sales and service taxes (see chart).
The concept of GST allows a self-policing mechanism for collection of taxes, which should result in lower leakages and a lowering of other direct taxes in the future. It is a transaction-based tax, which requires regular submission of both tax returns and remittances of the taxes collected. Such a mechanism allows for refunds to be issued in a more efficient manner, as the monies due to taxpayers (when the output taxes paid are lower than the input taxes paid) are already in the coffers of the Royal Malaysian Customs, due to the regular remittances made by GST registered entities.
Goods and services are either subject to GST (taxable) or not (non taxable). For taxable goods and services, there are two rates of GST that can be imposed, i.e. standard rate (current prescribed rate to be imposed is 4%) and zero rate. For non-taxable goods and services, there are two categories to be considered, i.e. exempt and ‘out of scope’. In both categories of non-taxable goods and services, no GST (i.e. output tax) is imposed and no GST (i.e. input tax) can be claimed.
GST in action
In order to illustrate the different GST implications based on the various categories, we have used arbitrary figures in the example below.
Company A manufactures, develops and sells finished products to consumers. GST considerations have to be made with regards to the supplies/raw materials acquired to manufacture/develop (value-added activity), together with the GST (if any) to be imposed on the selling price to the customer.
Jane acquires a finished product of RM100,000 and Company A acquires supplies/raw materials (taxable supplies) for RM40,000 and pays its suppliers, RM41,600 (GST component – input tax of RM1,600).
We have outlined the GST implications based on the different categories in Table 1.
Is the rakyat aware of the GST mechanism and its implications? Are they ready?
Further to the Second Finance Minister’s statement (March 13, 2010) in respect of the deferment of the reading of the draft GST bill, a point to note is the concern of the “readiness” of the rakyat of this new tax. How many people actually understand the mechanism and impact of GST?
GST is a transparent tax, where there is no cascading effect akin to what is currently experienced with the existing sales and service tax (‘hidden taxes’ borne by the consumer). However, due to lack of awareness and understanding of the GST mechanism, implementation of such a tax could present some challenges.
Does it really take 12 to 18 months for a business entity to get ready to be able to cope in a GST environment? Generally, the time required for a GST implementation exercise varies from business entity to entity, with regards to the existing infrastructure, volume of business transactions, peculiarities of the business itself as well as how efficient the GST knowledge transfer is executed.
A bird eye’s view of considerations to be made with regards to how ready you are for GST is outlined in Table 2. Even though GST is a tax, it impacts all operations of a business.
The list of considerations outlined in Table 2 is not exhaustive. Please note that the “GST readiness” for each entity would vary based on type of business, GST awareness, infrastructure, etc. We hope that the above checklist can provide some assistance to businesses, in terms of determining how ready they may or may not be for a GST environment.
The extension of time or rather deferment of GST can be viewed as being practical, in terms of enabling more taxpayers to educate and better prepare themselves for the impending GST environment. A smooth transition into a new climate is possible, provided steps are taken based on the requirements of an entity (i.e. depending on how “GST ready” they are). Therefore, taking measures to take stock of your position in relation to GST, should be taken now to enable planning for the implementation exercise.
“To think too long about doing a thing often becomes its undoing”. The introduction of GST as a replacement tax and its deferred reading at parliament, really allows more time for the rakyat to get ready. However, the clock starts ticking now and the additional time only becomes useful, if actions are taken now to determine the timelines and implementation exercise to be executed.
# David Lai and Pauline Lum are BDO Tax Services Sdn Bhd’s head of tax advisory and director, respectively
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Expectations, apprehensions and concerns on GST
COMMENT
By KOONG LIN LOONG
THE implementation of a Goods and Services Tax (GST) to replace our existing Sales and Services Tax (SST) has become stale news since the proposal made its maiden appearance during the Budget 2005 speech on Sept 10, 2004. Subsequently Budget 2007, 2008, 2009 and 2010 came and went without seeing the affirmative sight of its implementation until the first parliamentary reading of the GST bill in December 2009. Nevertheless, the second reading, which was originally scheduled for March this year, was postponed indefinitely. The reason is that the Government needs more feedback from the public.
In view of the national importance of the proposed GST, the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) has conducted a taxation survey which includes a “pre-GST” survey to seek views from the small and medium enterprises (SMEs) and gauge their reactions relating to the proposed GST model. The survey aims to understand their expectations in order to communicate them to the Government and the policymakers for their consideration.
Some 2,000 questionnaires contained multiple questions covering various taxation aspects from “general” to “pre-GST” and “tax audit” topics were sent to the selected members of the ACCCIM. The survey was opened for the whole month of June 2010. In this connection, ACCCIM has received an encouraging response of 62.5%.
Since the survey was administered through various business entities such as sole proprietorships, and partnerships across multiple industries, covering east and Peninsular Malaysia, establishments of different ages and/of various sizes in terms of the number of employees and annual turnover, the survey results are truly representative of the opinions of the Malaysian business community and comprehensively cover the views of the SMEs by large.
Only less than half of the respondents (45%) agree that the introduction of a GST will help the Government raise more tax revenue. This comes as a surprise since the Government has been propagating that there will be an additional RM1bil revenue that it expects to earn annually from the GST. Hence it must find out the root of this apprehensive psychology of the SME community and address it, failing which they will not support a replacement tax which they think will be futile.
Although the Government has emphasised time and again that essential goods such as rice, cooking oil, sugar, eggs and poultry will be zero-rated supplies, it is indeed disturbing to discover that 82% of the entities surveyed still believe that the proposed GST will certainly burden the poor since it is inflationary. This means that the Government’s campaign in this aspect has not achieved what they desired. I shall refer this as differ in “GST expectation gap” between the Government and the rakyat! The good news is that the Price Control and Anti-Profiteering Bill 2010 is being enacted recently to reform the law on price control and to make provisions relating to the prohibition on profiteering. This will prevent consumers from being potentially exploited by some unscrupulous businessmen arising from the imposition of a GST.
Further, the proposed GST rate of 4% by the Government is only supported by a mere 3% of the respondents. Most of them opine that 2% to 3% is the most suitable rate. Approximately one-third (32%) think that the most suitable threshold for the GST is RM1mil and above instead of the proposed prescribed threshold of RM500,000 and above. This is food for thought and maybe the policymakers should seriously rethink to start at a lower rate and scale up slowly to avoid resistances from the business community.
There is an alarming finding that 71% respondents indicate that they will not use the electronic filing for the income tax returns this year. Even those in the information and communications technology (ICT) industry, only 40% of the entities pledge to use e-filing. Although the Central Region is more advanced in ICT, nevertheless 79% and 73% of the business entities in Kuala Lumpur and Selangor respectively have indicated their preference of the conventional manual filing of annual tax returns. Thus, further efforts should be taken to encourage electronic filing in the wake of the proposed GST implementation.
Some 35% of the respondents reveal that they are most stressful of learning about existing and/or new tax law. Hence, the Government and the policymakers must make sure that the mechanism and administration of the GST is as simple as possible so that the public is receptive of it.
The Government should make full use of the media to educate the rakyat as the SMEs have voiced that their proactive approach to the GST is to read about them in the media. Further, one-third of them have voiced their dissatisfaction over the lack of GST public information. Training is also vital because 31% are willing to send their staff for external training on the GST by professionals whilst 25% will wait for the Government to provide training.
What concerns the most is as high as 80% of the respondents have indicated that their computer systems are not ready to cater to the administration of GST. This is most obvious in the Eastern Region since as high as 92% and 86% of the entities from Sabah and Sarawak respectively have voiced that their computers are not yet ready for GST implementation. In this connection, the Government should consider giving free GST software in order to kick-start such programmes.
Overall, the survey results clearly point towards the lack of preparedness on the part of the business entities as some 38% of the respondents say that their businesses have not yet prepared for the GST implementation at all. On the other hand, 33% say their degree of preparation is between 1% and 25%. Only 4% think that their readiness for GST is above 75%. This can be interpreted that a longer grace period is required before the GST comes into force. About 86% of the respondents actually feel that a 12-month grace period to get the entities ready for the GST is too short. The majority of the businesses (67%) feel that they should be given at least 24 months.
According to Prime Minister Datuk Seri Najib Tun Razak, it will cost RM222mill to ensure an effective GST implementation. The total figure will cover the GST computerised system (RM139mil) and operational cost (RM83mil). After successfully implemented, the Government will also need to pay an annual maintenance cost of RM8.5mil. Since the GST is such a mammoth project which involves huge public funds, the Government may learn a tip or two from the Hong Kong government’s failed attempt to deploy GST as a single option for broadening their tax base after conducting a public consultation on the proposed tax reform.
The above survey results reveal the expectations, apprehensions and concerns of the SMEs and provide an insight to the policymakers to address the same for a successful implementation of the GST. Clearly there is a message to the Government where the implementation efforts should be aimed at.
The writer is a managing partner and founder of LLKG International Chartered Accountants.
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Will the Govt implement Goods and Services Tax in Budget 2011?
KUALA LUMPUR: The question of whether the Government will announce the implementation of the Goods and Services Tax (GST) in Budget 2011 has drawn mixed views.
While some feel that it was timely for the Government to capture a wider tax base (as only about one million people pay income tax), others feel that it may just announce more details on the politically sensitive issue.
The implementation of the GST, a broad-based consumption tax that will replace the existing sales and services taxes, was scheduled for next year but it was put off due to, among various reasons, the need for more feedback.
KPMG tax partner Tan Eng Yew said the platform for GST implementation had been set; people are just waiting for the implementation date, which could be announced any time, not necessarily in the budget.
“There have been some public consultations and announcements related to the GST in the last few months but these appear to have slowed down,” Tan said, adding that there should be more public campaigns and activities being conducted if the GST was to be announced soon. “It may not be in this budget. The GST will be introduced in the medium term when the Government is confident that the public understands its implications and are ready for it,” Tan said.
Affin Investment Bank chief economist Alan Tan said: “While we do not expect a specific date to be mentioned for GST implementation in this budget, we do expect some focus on the rationale for the country’s tax reform.”
He believed that the Government would give ample time for the private sector to prepare for the GST roll-out.
An economist said it was hard to predict if the Government would announce the GST implementation in the coming budget but noted it was definitely another area that could boost revenue and help reduce the budget deficit.
“We still have to wait for the Government to decide on the best way to introduce it as a lot of people are still unfamiliar and worried about the tax structure,” she said.
An analyst from a local brokerage said the Government might announce more details on the matter but it would require 18 months to prepare for the implementation.
“However, we feel that the Government is not likely to announce the date of implementation as it is still a politically sensitive issue,” he said, adding that the public still perceived the new mechanism to mean higher taxes, a concern that should be addressed before the GST was implemented.
The implementation of the GST to replace the existing Sales and Services Tax made its maiden appearance during Budget 2005.
Subsequent budgets were quiet on the issue until the first parliamentary reading of the GST bill in December last year.
However, the second reading, which was originally scheduled for March this year, was postponed indefinitely as the Government required more feedback from the public.
Studies have indicated that the new system will help the Government collect an additional RM1bil in the first year of implementation compared with the current sales and services tax model.
Currently, about 140 countries have implemented some form of value-added taxations, or GST, while almost all Asean countries have adopted the GST except Malaysia, Brunei and Myanmar.
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Chamber: Cut taxes when GST is implemented
KUALA LUMPUR: The Government should cut corporate and personal taxes at the same time when it implements the Goods and Services Tax (GST) in order to achieve a high-income nation, said Associated Chinese Chambers of Commerce and Industry of Malaysia.
Its national council member Koong Lin Loong said the GST had to be implemented because it was one of the country’s tax reforms.
“We have to follow the world tax concept. Secondly, our country is over dependent on taxes from the oil and gas sector,” he told reporters here yesterday.
“GST is broad-based consumption tax and it is fairer to everyone,” he said, adding that in theory, the implementation of GST would not cause inflation because the proposed 4% rate would replace the current 10% levied for sales tax and 5% for service tax.
“If you are a high income earner and spend a lot, you will be taxed more. Likewise, lower income group who spend less, will be taxed less,” said Koong, adding that GST could become another source of income for the Government.
Some 146 countries have implemented GST and all Asean countries have adopted it, except for Malaysia, Brunei and Myanmar.
Another council member Dr Leong Kai Hin said the chamber supported GST in view of national interest but that corporate and individual income taxes should be lowered like those in other countries.
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Government postpones GST implementation
By SHARIDAN M. ALI
PETALING JAYA: The Government has postponed the implementation of goods and services tax (GST) as it wants to exclusively engage with all segments of the rakyat pertaining to the matter.
“The Government will take into account the interest and welfare of society to ensure the implementation of GST is well received.
“Notwithstanding the postponement, the Government recognises the importance of GST in ensuring a strong and sustainable fiscal position to support the long-term economic growth,” said the Finance Ministry in a statement yesterday.
The GST was initially mentioned in the Budget 2005 speech and had its first parliamentary reading in December 2009.
Deloitte Malaysia executive director (tax) and GST country leader Peter Devlin said this was a confirmation for business community that GST would not be implemented in 2011.
“It was previously indicated that the GST will not be introduced before the price control and anti-profiteering bill is passed into law.
“The price control and anti-profiteering bill that was introduced in July most probably will be passed into law in the parliament session next year or 2012,” he told StarBiz.
The Price Control and Anti-Profiteering Bill 2010, tabled for the first reading in July, is aimed at reforming the law on price control and enacting provisions aimed at prohibiting profiteering.
The bill is to enable the Government to determine the prices of goods and charges for services and, at the same time, curb profiteering activities.
This is to protect the interest of consumers from being exploited by some unscrupulous businessmen arising from the imposition of GST.
Devlin said the Government’s approach (to postpone the GST) was definitely right as the tax collector must fully understand it first.
“But, the implementation of GST is also vital as it is common and provide a stable source of income base for most governments globally.
“All of our neighbouring countries except Brunei are implementing it. Countries that have not implemented GST, such as Hong Kong and the United States, are looking at the prospects of GST and the US is also pressured to do so,” he said.
Devlin said it was important for consumers to understand that GST would not be an additional tax, but replacing the 10% sales tax and 5% service tax at lower rates.
KPMG tax partner Tan Eng Yew said the postponement could be due to the state of recovering economy where the introduction of GST might stall the recovery process.
“Business people must understand it first and it’s also likely due to talks on reducing household items subsidy.
“But we support the fact that GST will provide a stable revenue base for the Government and it could be one of the factors to lower other forms of taxes, such as the corporate tax.
“Singapore, for instance, has a lower corporate tax and it has GST,” he said.
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GST acceptance easier if reductions known upfront
By FINTAN NG
PETALING JAYA: The goods and services tax (GST) may have found easier acceptance if the Government had made known a reduction in corporate and personal tax rates upfront.
Observers said due to the politically sensitive nature of imposing new taxes, even indirect ones, the move to implement the GST necessitated a more transparent communication over how and when personal and corporate taxes would be restructured.
Analysts view the implementation of the GST, together with further cuts in subsidies and higher tariff rates, as part of efforts to help reduce expenditure in order to gradually lower the budget deficit.
Yesterday, the Finance Ministry said in a statement that the Government had decided to postpone the implementation of the GST in order to engage with all segments of society pertaining to the matter.
Deloitte Malaysia head of tax practice Ronnie Lim told StarBiz if the reductions in personal and corporate tax rates were made known upfront, the GST would have seen easier facilitation.
“Where there is opposition to the GST, the valid or perceived issues must be openly and transparently addressed such that both businesses and individuals agree that the tax is good for them and the country,” Lim said.
He said water tariffs and subsidies were politically sensitive matters globally. “Likewise, despite the technical benefits of GST, this tax also carries political undertones,” Lim said.
He added that proper “change management” was necessary and an integral part of this was the education of all concerned, especially individuals.
The second reading of the GST bill in Parliament, which was initially scheduled for March, was postponed following resistance from the ground and from the Parliamentary opposition.
Lim pointed out that the New Economic Model (NEM) called for tax reform as part of other structural reforms.
“The thought behind the reduction of personal and corporate taxes is that there will be an element of self-financing through increases in income and profits which experience shows, have accompanied tax rate decreases,” he said.
Lim said as part of structural reforms in the tax regime for personal taxes, there should be a widening of tax bands which would exempt more from income tax and that with increasing incomes, individuals were not dragged into higher tax bands.
Besides these reforms, he said there should be simplification and consolidation of the many reliefs or deductions available and, improvement of the monthly tax deduction system such that most employees need not file tax returns annually, the exact amount of tax due being automatically collected through monthly tax deduction.
Lim said corporate tax reforms should include a review of incentives to be in line with the thrusts and focus under the NEM.
Other areas of corporate tax reform include a more technically oriented approach by the Government, greater certainty through more elaborate public rulings and sanitised private rulings and a more user-friendly voluntary disclosure regime.
PricewaterhouseCoopers Taxation Services Sdn Bhd senior executive director Wan Heng Choon said the lack of transparency bred uncertainty among the business community while individuals feared the impact on their spending power.
“Although the GST bill has been tabled, the regulations that contain important details of how the mechanics of the tax will operate are still closeted in secrecy,” he said.
Wan said what was clearly lacking too was the assurance from the authorities that the legal framework was clear and not subject to flip-flop changes so that they could confidently embark on steps to implement the tax.
“The business community was also promised industry guides that will provide guidance and clarity of how the GST law will affect various industry sectors. Only a handful have been released and the feedback is that they have not provided the certainty that was promised,” he added.
Wan said acceptance of the tax would have a greater chance if the tax was implemented as a total package of measures that seek to rebalance the tax burden of individuals and the business community.
He said although reduction of corporate and personal taxes were obvious measures, other measures would include elimination of some of the lesser-known taxes such as entertainment duty on cinemas, stamp duty on house purchase and the provision of a cash support to the lower income groups.
Meanwhile, analysts said the new timeframe for implementation could be around 2012.
AmResearch Sdn Bhd senior economist Manokaran Mottain said in a report that the new timeframe could be sometime around 2012, when the economic environment was more stable and conducive.
“We also hope the Government will introduce a relatively low-rate GST, at around 3% (versus the proposed 4%). More importantly, personal and corporate tax rates should be reviewed, in other words made more competitive vis-a-vis those in the region,” he said.
Manokaran added that the key for acceptance of the tax was to set a clear and credible GST roadmap to ensure its smooth implementation.
Citigroup Inc senior Asia-Pacific economist Kit Wei Zheng said in a Monday report that cuts in corporate taxes were unlikely, though targeted incentives for key sectors were expected.
“We think personal income tax cuts are possible, alongside reliefs and rebates,” he said.
OSK Research Sdn Bhd research head Chris Eng said the delay in GST implementation confirmed the house’s earlier view of a possible general election in the second-half of 2011 following the Sarawak state election in the early part of the year.
“Similar to the political sensitivity surrounding the GST, we believe issues such as subsidy reduction and tariff hikes may also be delayed until after a general election,” he said in a report yesterday.
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Tax consultants: Good for Govt, not for consumers
PETALING JAYA: Tax consultants concur that the increase in service tax to 6% will result in higher revenue for the Government but negatively impact businesses and consumers.
PricewaterhouseCoopers Taxation Services Sdn Bhd tax leader and senior executive director Khoo Chuan Keat said with the deferment in the implementation of goods and services tax (GST) which was intended to be tax neutral, the increase in service tax from 5% to 6%, would have an adverse impact on business and consumer costs.
Deloitte Malaysia country tax leader Ronnie Lim said: “The impact of these changes to service tax is a definite increase in costs to consumers and more revenue for the Government.”
“The well-being of the rakyat is being addressed through house ownership schemes and healthcare accessibility although the perennial wish for a reduction in personal tax rates did not materialise.
“Although personal tax reliefs are now extended to contributions to private pension funds, and caretaking of parents, the maximum limits of RM6,000 and RM5,000 respectively have not been increased, so the real benefit to the rakyat may be minimal,” Khoo noted.
Nevertheless, he commended the Government for its focus on human capital development given that it was the fundamental base for a successful economy.
“The Government’s commitment to developing green technology is supported by extension of various green tax incentives including sales tax and import duty exemption for energy-generation equipment.
“The abolishment of import duty on 300 branded goods will help improve Malaysia’s attractiveness as a shopping destination,” Khoo added.
Lim said the increase in service tax was widely anticipated given the delay in the implementation of GST.
“We expected that consumption taxes would be increased as the go live date for GST has been deferred.
“Thus the increase in the rate of service tax from 5% to 6% as well as the slight broadening of its scope is in line with expectations,” he said.
In fact, he felt the Government “has been generous” as it could have broadened the scope of service tax far more.
He also noted that the Government had sought to improve its scope of collecting penalties for incorrect tax returns and improving compliance in the budget.
KPMG Tax Services Sdn Bhd executive director and head of tax Khoo Chin Guan said maintaining personal and corporate taxes was not unexpected, given the Government’s aim to lower the country’s budget deficit.
“I think the public was expecting a timeline for the implementation of the GST notwithstanding the recent postponement.
“Some were also expecting the Government to reveal how it intended to broaden its tax base but there was no mention of it in the budget speech,” he said.
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