Date of publication: Oct 30, 2013
Section heading: Main Section
Page number: 018
Byline / Author: By Jensen Lim
WHAT does GST mean to the man on the street? As a middle-income earner and a passive observer on the digital sphere, I've been inundated with information and misinformation over the past few days.
I consider myself fortunate to have a background in finance and business to assist me to make sense of all the noise, and fillet the information, and how it might affect me.
As such, I hope my two sen here might help others understand the implications of this announcement.
It is a broad-based consumption tax that is paid when goods and services are bought or consumed.
Unlike the present sales and services tax (SST), which is a single stage tax, GST is a multi-stage tax.
Payment of tax is made in stages by intermediaries in the production and distribution process.
The tax itself is not a cost to intermediaries since they can claim back GST incurred on their business inputs.
It is imposed on goods and services at every production and distribution stage in the supply chain, including importation of goods and services.
The prime minister, announced, while tabling the 2014 Budget on Friday, that GST would replace the SST, which was introduced in the 1970s. But why now?
The introduction of GST is part of a tax reform programme to make the taxation system more efficient, transparent, business-friendly and capable of generating a stable source of revenue for the country.
Based on the study conducted by the Finance Ministry, GST can overcome weaknesses in SST, such as tax cascading and tax compounding as well as transfer pricing and value shifting.
GST is more self-policing and less bureaucratic.
It eliminates double taxation, which happens under SST.
Implemented correctly, it means consumers can pay fair prices for most goods and services.
According to the prime minister, essential items such as rice, sugar, fish, chicken, vegetables, flour, cooking oil and eggs as well as livestock supplies, such as cows and goats, will not be subject to GST. They've termed these as zero-rated supplies.
The government also proposes to exempt GST on public transport, private education services, financial services, and land for agricultural, residential and other use.
Why six per cent? The GST tax rates for countries in the region are:
INDONESIA - 10 per cent (introduced in 1984 at 10 per cent);
THAILAND - seven per cent (introduced in 1992 at 10 per cent);
SINGAPORE - seven per cent (introduced in 1993 at three per cent);
PHILIPPINES - 12 per cent (introduced in 1998 at 10 per cent);
CAMBODIA - 10 per cent (introduced in 1999 at 10 per cent);
VIETNAM - 10 per cent (introduced in 1999 at 10 per cent); and,
LAOS - 10 per cent (introduced in 2009 at 10 per cent)
During the tabling of the Budget, certain quarters pointed out that Singapore started GST at three per cent, half of what Malaysians are going to be charged.
What they did not mention was that Singapore didn't have a consumption tax system in place like Malaysia before it implemented GST - was the fact that Singapore was starting at a low base.
Malaysia, on the other hand, has had SST, which is a revenue source for the country.
If the GST rate here started at three per cent, while SST is abolished, the country will automatically have a deficit in revenue generated, so it wouldn't have made sense.
Leaving it at six per cent means our base is stable when moving from SST.
Jensen Lim, Ipoh, Perak