The Goods and Services Tax, when implemented, may cause a one-time price increase; though on long haul its benefits outweigh the drawbacks.
Budget2014 Feature
PETALING JAYA: Goods and services at present are subject to a one-time sales and service tax thus a low rate Goods and Services Tax (GST) may have differing impact on prices of goods and services offered, says Tan Eng Yew, executive director of Deloitte Kassim Chan Tax Services Sdn Bhd.
According to Tan, there are many factors to consider including if an item is presently taxed along the supply chain; on the basis of the present sales tax which is at 10% and service tax at 6%.
“Some prices may increase, some may remain and the zero rated items may get cheaper; provided the savings obtained with the implementation of GST is fully passed on to the public,” said Tan.
The GST is being proposed by the government to replace the current consumption tax i.e. the sales and service tax (SST).
The introduction of GST is seen as part of the government’s effort in reforming its tax structure towards a more efficient and effective taxation system.
GST will be imposed on all taxable goods and services consumed locally. Imported goods and services will also be subject to it.
Exemptions may be made by the government for essential items and the current proposed rate being speculated is 4% on the supply chain.
Tan also added that in reality, prices may show a one-time increase as experienced in countries that have implemented the GST system.
“The price increase should be at the full rate of GST as there should be savings in sales and service tax which will indeed be abolished with the introduction of GST,” said Tan
When asked whether GST will burden Malaysians, Tan stated that GST should be understood for what it is, as it is a more efficient consumption tax regime compared to sales and service tax.
GST does not discriminate
“GST is applied across a wide spectrum of goods and services, without discriminating who the consumer is. Nevertheless one may argue that it can burden the lower income group; which may be a reasonable argument,” said Tan
Tan also added that it is reasonable to say that the higher income group consumes more, meaning that they would be contributing to a larger proportion to the GST collections eventually.
“This would provide the government an opportunity to channel the larger contributions by the higher income group to helping the lower income group,” he said.
The tax expert also reminded that the success of GST should be assessed from the way the funds are collected and utilised to assist the lower income groups and fulfilling other governmental spending needs.
Tan also believed that the government is looking at restructuring the entire tax system and GST is part of the ongoing effort.
He also stated that the optimal time frame will be 12 to 18 months for preparation by businesses to prepare them to comply with GST requirements and believes Malaysia will follow the same strategy.
“The critical importance for businesses is to understand that GST should not be a tax on businesses; for GST paid can generally be claimed as credits against GST charged on sales made,” he said.
Therefore businesses should not increase prices unreasonably and equally important is a strong public education program to promote acceptance of GST, added Tan.
Tan also illustrated that prices of some non-essentials may reduce and as an example, a meal at a restaurant is presently subject to service tax of 6% and if GST is introduced at a rate below 6%, the public will pay less for the same meal.
Apart from introducing GST, Tan believes that it depends on the government’s objectives whether they’re merely looking into collection in short term; as from the tax consumption viewpoint, the government could simply increase the rate of sales tax or even broaden the scope of service tax.
Implement GST fairly
Meanwhile Malaysian Indian Business Association (MIBA) vice president (FT Chapter) and chartered secretary, S Kumarasen said that the introduction of GST will certainly affect the consumers, and the government should introduce a mechanism to check on the implementation of the GST.
According to him, certain goods’ prices need to be maintained at a ceiling rate and not allow suppliers to increase prices steeply and transfer the burden to consumers.
Kumarasen mentioned India as an example; when they introduced similar tax, they had a mechanism in place by putting the price as part of the package in the goods and services.
Apart from that Kumarasen also suggested that the government should announce the types of goods and services that will be subjected to the GST beforehand.
“Another important thing the government should remember is to provide clear awareness or education in terms of GST to the public or else they will have a misconception on how it’s being implemented,” he said
Kumarasen stressed that in order to have a level playing field; income tax should also be lowered for a more balanced tax system.
[This is part of a continuing series in the run-up to the Budget 2014 to be tabled by the Finance Minister on Oct 25.]
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