Some prices unchanged post-goods and services tax

Published: Thursday October 31, 2013 MYT 12:00:00 AM 

Updated: Thursday October 31, 2013 MYT 9:46:49 AM

PwC budg et team: (Clockwise from left) executive director
Yap Lai Han, manager Quinnie Low, managing consultant
Angie Ng, senior consultant Yvonne Har, senior consultant Lilia Edlina Azmi
and executive director Benedict Francis.

This is the second part of a two-part question-and-answer series by PwC Malaysia on the Budget 2014 provisions. The first part was published yesterday.

Q: The Prime Minister announced in his budget speech that the goods and services tax (GST) will be implemented at a rate of 6%. Does this mean that everything I buy will become 6% more expensive?

A: In a word, no. In announcing the introduction of GST, the Prime Minister also announced the repeal of the current sales and service tax. Currently many of the goods we buy are subject to a sales tax of 10% while several services are subject to service tax at a rate of 6%.

Undoubtedly some items will become more expensive as not everything is currently subject to sales or service tax. However, the comparatively low GST rate means that some goods may remain at present prices and those services upon which we currently pay service tax may not become any more expensive.

In addition, the Prime Minister also stated that essentials such as basic foodstuff, domestic water and electricity, and residential accommodation will not be subjected to GST. Essential services such as healthcare, education and financial services will all be exempted.

I read an article which showed that private healthcare may become more expensive under GST. I thought healthcare was exempted from GST. How does it become more expensive?

Healthcare will indeed be exempted from GST. The Government has made a policy decision to exempt certain essential services from GST to ensure that the rakyat are not burdened by GST unnecessarily. However, part of the conditions of an exempted service is that the service provider cannot recover the GST paid on purchases.

Because of this, the service provider’s costs will increase due to the irrecoverable GST. Proposed exempted services include private healthcare, private education and financial services. Because of the nature of these services, the cost of purchases made by the service provider is generally significantly less than the price of the service. Although the price of exempted supplies may increase, it will do so by a minimal amount.

I have heard that some goods and services could become cheaper under GST. Won’t businesses use GST as an excuse to raise prices by 6% and increase their profits?

The Price Control and Anti Profiteering Act 2011 makes it illegal for businesses to profiteer from the introduction of the tax. The Prime Minister made it clear in his budget speech that prices of goods and services will be monitored by the Government to ensure compliance. In addition, the Government will publish consumer guidance so the rakyat will be able to compare prices charged.

If you think a business is overcharging or is charging the tax illegally, you will be able to report them to the Domestic Trade, Cooperative and Consumerism Ministry.

I am a Malaysian citizen and have been residing in Singapore since 1995. I own a property in Malaysia jointly with my sister, also a Malaysian citizen for more than five years. Do I need to pay RPGT if I dispose of the property based on the Budget 2014 proposal?

As long as you and your sister are Malaysian citizens and the holding period of the property is more than five years, any gain on the disposal of the property is not subjected to RPGT.

I am a foreign investor looking for an opportunity to invest in Malaysian properties. Are there any restrictions on the price of property that a foreigner like me can invest in?

Based on Budget 2014 announcement, the minimum price of property that can be purchased by foreigners has been increased from RM500,000 to RM1mil. However, the effective date is not mentioned in the announcement.

Would there be any changes to the corporate income tax since GST will be implemented in 2015?

Yes, the corporate tax rate will be reduced by 1% to 24% from current tax rate of 25% with effect from the year of assessment 2016. For companies with paid-up capital of up to RM2.5mil, the rates will be reduced by 1 percentage point as follows:

·19% on chargeable income up to RM500,000; and

·24% on the remaining chargeable income.

I am currently the sole breadwinner in my family with two children under the age of 18 and earning a monthly employment income of RM10,000. I heard that the GST will be introduced on April 1, 2015 at the rate of 6%. In tandem with this, will there be a reduction in the individual tax rates?

It has been proposed that, with effect from 2015, the tax rates for resident individuals be reduced by 1% to 3% and the chargeable income bands will be expanded by adding two income bands for the chargeable income exceeding RM100,000. Hence, the new schedule of tax rates for resident individuals is as in the table.

In addition, the tax rate for non-resident individuals is reduced by 1 percentage point, from 26% to 25%.

With the above reduction in tax rates and increase of chargeable income band, your estimated tax payable in 2015 based on your annual income of RM120,000 (RM10,000 x 12 months) after taking into account the relevant personal tax reliefs, will be about RM11,900 compared with RM13,850 under the existing individual tax rates.

Hence, you will have a tax saving of RM1,950 (RM13,850 – RM11,900) per annum under the new tax rates.

Retaining employees have been one of the major challenges faced by companies these days. In view of this, I would like to introduce a flexible working arrangement (FWA) in my organisation. Are there any incentives for me as an employer in planning and designing staff management and retention programmes in relation to the FWA?

Yes, expenses incurred by employers in training of employees, supervisors and managers as well as consultancy fees to design an appropriate FWA to be implemented will be given further deduction. The eligible expenses include costs for training in optimising a work-life balance, technology orientation, managing a flexible workforce and helping managers embrace flexible work alternatives.

The incentive is given for a period of three years of assessment for companies that have obtained FWA status from Talent Corp Malaysia Bhd in respect of applications received by Talent Corp from Jan 1, 2014 to Dec 31, 2016.