Is GST more bark than bite?

October 25, 2013

For a long time, we have been paying double taxes and are happy to pay for it because we are ignorant of the 5%-10% paid at the sales counters.

By Omar Mokhtar

The Goods and Services Tax (GST) buzz is causing so much confusion, apprehension and anger among the educated urbanites and it makes me wonder if consumers are aware that they are already paying double taxes.

The consumers are paying one at the manufacturers’ stage, called sales tax (5%-10%) and the other at the outlet called service tax (6%). For many, the Sales Tax and Service Tax (SST) is unheard of or barely understood.

The beauty of the sales tax, which is imposed on most manufactured goods, is that we do not see it on the sales receipts.

It is hidden in the price of what we buy and that is why we are less disgruntled by the SST.

So much so, that the talks of introducing the GST have brewed hot and empty debates among Netizens.

The sales tax has a cascading effect just like the waterfall – it begins at the manufacturers level, then goes down to wholesalers, then to the suppliers and lastly to consumers.

At the end of the day, the cost is all passed down to end users. And if we happen to consume at a restaurant or café, another 6% is added on top of that 5-10%.

But what you see in your receipt is just the 6%. The 5%-10% is nowhere to be traced because the tax is already embedded in the price.

For a long time, we have been paying double taxes and are happy to pay for it because we are ignorant of the 5%-10% paid at the sales counters.

On the other hand, the GST is a transparent taxation system that will strike off the double taxes and replace it with just one single consumption tax.

Under SST, by the time the goods reach the consumers, the sales tax that is paid at the manufacturers level would have cascaded at each level of distribution and supply chain and result in a higher price.

With GST, businesses at every stage are able to get a refund on the tax paid on the goods and services acquired or used for the purpose of their business.

This will eliminate the cascading effect suffered under the current SST, provided that the company is registered with the Customs Department and their annual sales turnover exceed RM500,000.

GST is transparent

Say for example a can of Coke at the manufacturers’ level cost RM2. When the manufacturer sells it to a wholesaler, he adds on the 10% sales tax that he has to pay to the government.

Therefore, the Coke is now sold at RM2.20. Then, when the wholesaler sells to the distributors, he adds on his cost and the Coke is now priced at RM2.50.

By the time we consume it at restaurant, the can of Coke is sold at double or triple its original cost and on top of that we pay an additional 6% for service tax.

The combination of 10% and 6% is what we call SST.

No doubt, the introduction of GST has been postponed many times and one of the reasons is because consumers need to be properly educated and this of course takes time.

Although the GST is transparent and consumers will know what tax they will be paying and how much, we are still adverse to its implementation.

It is wrong to say that the GST is a new tax. It is a tax to replace the current SST.

We are already paying a sales tax of 5%-10% and services tax of 6% on goods and services. Now, with GST, suppliers and manufacturers can get a refund on what they pay as GST to produce their goods. (Also called Input Tax).

With the GST in place, they will have to remove those elements from their cost and pass down the savings to the consumers.

This is why GST is dubbed as business-friendly. When manufacturers, wholesalers, and suppliers get a refund on their input tax, it is good for business, as it brings their production cost down.

When their costs are reduced, they can sell their products at a cheaper price to customers.

At customer level, since we have already been paying an embedded tax of 5-10%, on many items before the GST, prices should not vary much.

However, for certain goods and services that are now not subject to any sales or services tax, there will be an increase in price with the GST.

Profiteers can be punished

As the GST covers a wider range of products, some prices will go up, some will drop and some will remain the same.

Should manufacturers, suppliers or traders try to profiteer from the GST by not passing on their cost savings to the customers, action can be taken under the Price Control and Anti-Profiteering Act that has been in place since April 2011.

The enforcement comes under the Domestic Trade and Consumer Ministry which is looking into establishing a price-monitoring council to combat profiteering.

But the most important thing is that essential food items and key services will not be affected. So far, the government has identified a basket of 40 essential items which will be exempted from GST.

A shoppers’ guide will be distributed to the public so that they will know on how much they should be paying and not be cheated by traders or merchants.

So is the GST really more bark than bite?

We do not know. What we do know is that the GST will come as a shock to us in the beginning, as we see the line of tax on each and every bill.

Like everything new in life, it will take time to adjust and accept reality when it kicks in.

But personally, I believe that if we educate ourselves sufficiently, shop intelligently and modify our habits, we should be able to cushion the impact a little, if not a lot!

Omar Mokhtar believes in setting the record straight. He has a curious mind that helps him search for factual truth and once found, he loves sharing them with the public.