Much ado about GST

The GST is ‘fairer’ as it widens the tax base

By Vinodhani Nair

We first heard about the idea of a goods and services tax (GST) back in December 2009 when it was first tabled in Parliament after close to half a decade of discussions.

GST, which was supposed to be implemented in Q3 of 2011, is expected to replace the current sales and service taxes in the country.

While still in the offing, the GST is said to have far-reaching implications for businesses. In a media statement released by KPMG Malaysia prior to the supposed implementation, it reportedly said: “It is not just a tax issue; it is a ‘whole of the business’ issue.”

In fact, it went on to state that no one will be exempt from the GST regime, from multinational companies to small- and medium-business owners; therefore, the business community must start to plan and manage this tax transition.

Akin to the concept of a value-added tax (VAT) practised in many countries, the GST is said to be a broad-based tax of a fixed percentage on most goods, services and other items sold or consumed in a particular country. Britain and Australia have already introduced VAT or GST, and nearer to home, Singapore has implemented GST for a while now on most goods and services.

Simply put, a business or person who has registered and incorporates GST in the sales pricing to his/her customer, can claim credit for the GST included in the prices of business purchases. Therefore, a retailer, for instance, will remit the net GST on the value-added element of the goods or services. However, it is the end user or customer who will be bearing the ultimate GST and, in fact, a business concern does not bear the economic cost of the tax.

KPMG said that “to achieve an effective GST implementation, it is vital that each business must understand how GST will impact at pre- and post-implementation levels. In this respect, not only must businesses pay attention to achieving compliance with the GST law and regulations, but it is also pertinent to consider whether there are any opportunities that should be pursued. GST is here to stay and risk management of GST issues must be part of the organisation’s risk management process.”

Jennifer Lopez, ACCA Malaysia country head

ACCA Malaysia country head Jennifer Lopez also believes that while there are many benefits to a GST system, the timing for implementing it is also vital.

“Time is the keyword here. There are many benefits to a GST system which, if implemented properly, can benefit the people and nation as a whole. For one, this will make our taxation system more transparent in that consumers will know what they are paying a tax on and how much. GST is another source of revenue, which the government can use to reduce the national debt.”

However, she does believe there have been many concerns raised by consumers and corporations on the implementation of GST here and the concerns are valid. “For this reason, the implementation of GST has been deferred since 2007. Timing is of utmost importance, until all parties are ready for this new system, implementing GST prematurely would not benefit anyone.”

So will GST ever see the light of day and when? For this, Lopez shares that systems are being put in place by the government to ensure that the GST regime is implemented successfully to benefit all parties. Indeed, corporate Malaysia has had five years to prepare for this and the economy has been resilient amid challenging global conditions.

The main challenge in the implementation of GST is in making sure that all parties are well informed. For this reason, many parties, ACCA included, have dedicated much effort over the last few years to enhancing awareness and education about GST to prepare for the imminent change, she adds.

There is a need to dispel some of the misconceptions about GST since many believe consumers will be taxed twice – but this is not true.

Lopez clarifies that GST is a broad-based tax that distributes the burden of taxation among a larger section of the population based on consumption. It states the types of taxes consumers will be paying for goods or services and how much.

Another concern, she adds, is that companies think GST will be an added cost.

“GST is a tax paid by the end-consumer. All GST-registered entities would pass on the GST to their customers through their prices (output taxes). If anything, the costs would relate to preparation costs to ensure their business is ‘GST ready’, such as personnel training and IT systems update.”

She encourages everyone to learn about the GST at various seminars and talks.

While in the short term, certain goods and services may be affected by the GST, everyone should understand its benefits. When in doubt, just look at other successful GST cases worldwide and know it can be done here, too.