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Friday, November 1, 2013

`It's a replacement tax, not a new one'

Publication: NST
Date of publication: Oct 26, 2013
Section heading: Main Section
Page number: 007

KUALA LUMPUR: THE proposed Goods and Services Tax (GST) by the government is simply a tax to replace the current sales and service taxes, and should not be viewed as a new tax being imposed, said KPMG Tax Services Sdn Bhd executive director Bob Kee.

"Many people are not aware that embedded in the prices of certain goods and services that they have been paying for all this time, there are elements of tax.

"The proposed GST may actually see some savings, as the government intends to zero-rate certain items, such as food items.

"But, the question now lies in whether businesses will pass on the savings to consumers," he told Business Times.

Zero-rated supplies are taxable supplies that are subject to a zero rate and are not liable to GST at the output or input stage. Businesses are eligible to claim input tax credit in acquiring these supplies and charge GST at a zero rate to consumers.

GST will replace the sales tax and service tax, introduced in 1972 and 1975, respectively. Sales tax rates are five per cent, 10 per cent and at specific rates, whereas the service tax is at six per cent, while specific rates are charged for credit cards.

GST was first announced during the 2005 Budget for implementation in 2007. But, in February 2006, the implementation was deferred, as the government wanted more time to obtain public feedback. The GST bill was tabled for first reading in late 2009 for implementation in the third quarter of 2011. The bill was supposed to go for second reading in March 2010, but was withdrawn after facing opposition.

If the GST bill becomes law, Malaysia will join some 160 countries that have GST, or value-added tax (VAT), by 2015.

The country will join the seven of the 10 members of Asean that have either GST or VAT.

Prime Minister Datuk Seri Najib Razak, when tabling the 2014 Budget yesterday, said with the proposed implementation of GST by April 1, 2015, the government would be able to address weaknesses in the current taxation system.

"As an example, if we were to buy a carbonated drink in a restaurant today, we would not notice that we are paying double taxes, which are sales tax and service tax.

"Put differently or explained in simple terms, with the GST system, consumers will only need to pay tax once and the prices of goods should be cheaper."

Pointing to the fact that more than 160 countries have already implemented GST, Najib said: "This clearly demonstrates that GST is proven to be a transparent, effective and fair tax system.

"The vast majority of nations in the world would not have implemented GST if it was disadvantageous to the people and country.

"Most of the developed nations have long implemented GST or VAT.

"Even Asean countries, such as Indonesia, the Philippines, Laos and Cambodia, as well as countries like Burkina Faso, Burundi, Zimbabwe, Rwanda and Kenya, have implemented GST."

The six per cent GST rate being proposed by the government is considered to be the lowest among Asean countries, compared with 10 per cent in Indonesia, Vietnam, Cambodia, the Philippines and Laos, and seven per cent in Singapore and Thailand.

Najib said on the part of the government, GST legislation, computerised systems, training of officers, GSTinfrastructure and a comprehensive communication plan had been completed.

Kee said to ensure that consumer rights were protected and that any savings accrued by businesses were passed on, the government would need to see to the enforcement of mechanisms, such as the Price Control and Anti-Profiteering Act 2010 that was enforced in 2011, meant to prohibit traders from indiscriminately raising prices of goods.

"Mechanisms like the act and other policies are in place to ensure that the people are not burdened as a result of GST."

On helping the people better understand the implications of the proposed implementation of GST, Kee said apart from stepping up on road shows and conducting them regularly in public places, like shopping malls, the government should also make public the results of its simulation exercise on how GST would impact prices once it was implemented.

"This will help the people better understand the new tax and mitigate fear of the unknown.

"There must also be a definitive time frame given, so that businesses can get themselves GST-compliant.

"In order to help businesses, there must be clarity in terms of policies and procedures for them to license themselves before the GST is implemented."

On whether the proposed GST would have any inflationary impact as a consumption tax, Kee said: "Basically, there is no doubt that GST will affect prices. But, whether there will be inflation hinges on the threshold limit announced by the government on the licensing scope of what goods and services are taxable, zero-rated and so on.

"I would expect the impact on inflation to be minimal, if any."

Apart from tourist refund schemes resulting from the introduction of GST, which will place Malaysia on par with many countries, the Approved Trader Scheme (ATS), meant for export-oriented manufacturing companies, will make the nation more competitive as a preferred investment destination.

"The ATS will boost foreign direct investments into the country, as it will ensure that Malaysia remains competitive for those with manufacturing operations."

Under the ATS, a suspended GST will be introduced to alleviate cash flow problems faced by importers, who mainly re-export supplies.

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