A more effective solution

Posted on September 10, 2012, Monday

THE Malaysian government may soon be implementing the long awaited good and service tax (GST) which will replace the existing current sales tax (five per cent to 10 per cent) and the service tax (six per cent).

If the percentage of GST is determined at four per cent or five per cent then, it will be lower than the current sales tax of 10 per cent or service tax of six per cent. This series of seven articles will be publised on Mondays, Wednesdays and Fridays and highlight the purpose of the GST and why the public should support it.

Part 4

This fourth article deals with the current sales and service tax.

A service tax is rated at six per cent (effective from January 2011) imposed under the Service Tax Act 1975. The service tax is collected by the business and to be paid to the government every two months.

A service tax applies to certain prescribed goods and services in Malaysia including food, drinks and tobacco; provision of rooms for lodging and premises for meetings, conventions, and cultural and fashion shows; health services, and provision of accommodation and food by private hospitals.

The tax also applies to professional and consultancy services provided by accountants, advocates and solicitors, engineers, architect,  surveyors (including valuers, assessors and real estate agents), advertising agencies, consultancy firms and management service providers.

It also includes insurance companies, motor vehicle service and repair centres, telecommunication services companies, security and guard services agencies, recreational clubs, estate agents, parking space services operators and courier service firms.

However, professional services provided by a company to companies within the same group will be exempted from the current service tax of six per cent. Courier services provided from a point within Malaysia to a destination outside Malaysia will also be exempted from the service tax of six per cent.

Sales tax is a single stage tax imposed at the import or manufacturing levels. Sales tax that is practiced in this country is a single stage tax levied on certain imported and locally manufactured goods, either at the time of importation or at the time the goods are sold or otherwise disposed of by the manufacturer.

In Malaysia, manufacturers of taxable goods are required to be licenced under the Sales Tax Act 1972. Companies with a sales turnover of less than RM100,000 and companies with Licenced Manufacturing Warehouse (LMW) status are exempted from this licencing requirement. However, companies with a sales turnover of less than RM100,000 have to apply for a certificate of exemption from licencing.

Tax on goods imported is assessed and paid at the time the goods are cleared from customs control. It will be calculated and shown on the import declaration together with the customs duties to be paid (if any).

Tax on goods manufactured in the country is to be charged and levied by the licenced manufacturer at the time goods are sold or disposed of otherwise than by sale. Any disposal of goods by a licenced manufacturer otherwise than by sale or first used otherwise than as materials in the manufacture of taxable goods by the licenced manufacturer, is also chargeable to sales tax. Disposal can include self-use, to destroy, to give away, to donate and to supply free of charge, etc.

Sales tax is generally at 10 per cent. Certain non-essential foodstuffs and building materials are taxed at five per cent, general goods at 10 per cent, liquor at 20 per cent and cigarettes at 25 per cent.

There are some exemptions for certain primary commodities, basic foodstuffs, basic building materials, certain agricultural implements and heavy machinery for use in the construction industry. Certain tourism and sports goods, books, newspapers and reading materials are also exempted.

Recently, the government in Malaysia seems to want to do away with the sales and service tax and replace it with the more effective GST. This is because these two taxes are ineffective and inefficient in collecting taxes due in an equitable manner. The sales tax is often charged again and again through many cycles of the supply chain.

The government is thinking of introducing a new tax system, GST, which is already adopted in 140 other countries. As the GST may be a more efficient system and the proposed tax is only at four per cent to five per cent, this may be a relief to all Malaysians.

The GST will be a more fair and equitable tax for all Malaysians and will provide a better source of income for the government for its development projects. It is truly a win-win situation for all.

For further inquiries, please refer to www.gst.customs.gov.my.

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