GST to streamline consumption tax

Publication: NST

Date of publication: Oct 26, 2013

Section heading: Supplement

Page number: 011

THE government's move to introduce the goods and services tax (GST) is to streamline the present consumption tax structure to be more efficient, transparent and business-friendly.

The GST will simplify the current consumption tax system by improving equity, reducing the number of separate taxes while broadening the revenue base.

In formulating the GST model for Malaysia, the government seeks to be more socially equitable and economically efficient. This is because the lower income group will be shielded from the full brunt of theGST.

Among foodstuff that will be tax-exempted are rice, sugar, meat, fish, chicken, vegetables, flour, cooking oil and eggs. Households which record low usage of electricity and water as well as livestock breeders will also be exempted from paying GST.

Public services at the federal and state levels will also be exempted from GST.

The GST will not be imposed on public transport, private education services, financial services and life insurance, private health care, land for agricultural, residential and other general use such as burial grounds.

In ensuring an orderly implementation of the GST, several laws have been enacted to enforce against profiteering and ensure fair trade practices. These are the Price Control and Anti-Profiteering Act 2011 and the Competition Act 2010.

The government plans to publish a shoppers' guide list covering 944 items in the consumer price index (CPI) basket to reflect their respective prices before and after the implementation of GST.

The GST, which is also known as value-added tax in some countries, is a broad-based consumption tax. It is imposed on the value-added of goods or services at each stage of the production and distribution chain.

In this system, the tax element is not part of the product cost as GST on business inputs is claimable.

The GST is implemented in more than 160 countries at between five per cent and 27 per cent of rates. All Asean countries have implemented GST except Brunei, Myanmar and Malaysia.

If GST is implemented, the current 10 per cent sales tax and six per cent service tax will be abolished.

The current two separate tax systems of sales and services in the country have weaknesses, such as when certain items are taxed twice. For example, food and beverages that are subjected to 10 per cent sales tax, if sold again at restaurants, face a further six per cent service tax.

The current tax systems also discourage further development of local industries from forward integration. For example, certain marketing functions are outsourced to a subsidiary so as to pay sales tax at a lower value. Although the Sales Tax Act 1972 allows for determination of sales value at "arm's length price", the practicality of ascertaining such value is difficult.

Additionally, the current systems do not provide mechanisms to relieve exports from hidden taxes. Under the GST scheme, such overlap in taxes can be fully-identified and are eligible for rebates. All exports would be truly tax-exempted.