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Wednesday, November 6, 2013

GST is not a new tax

Published: 2013/11/05

KUALA LUMPUR: The proposed goods and services tax (GST) by the government should not be viewed as a new tax as it will replace the current sales tax and service tax, KPMG Tax Services Sdn Bhd executive director Bob Kee said. 

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

"The proposed GST may actually see some savings as the government intends to zero-rate certain items such as food, but the question now lies in whether businesses will pass on the savings to the consumer," he told Business Times. 

Zero-rated supplies are taxable supplies which are subject to a zero rate, which 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 zero rate to the consumer. 

If the GST Bill becomes law, Malaysia will finally join the 146 countries which have GST or value added tax (VAT) by 2015. The country will also join the seven out of the 10 members of Asean which have either GST or VAT. 

The 6 per cent GST rate, proposed by Malaysia, is considered as the lowest among Asean countries, compared with 10 per cent in Indonesia, Vietnam, Cambodia, the Philippines and Laos, and 7 per cent in Singapore and Thailand. 

Kee said to ensure that consumer rights are protected and that any savings accrued by businesses are passed on, the government will need to see to enforcement of mechanisms such as the Price control and Anti-Profiteering Act 2010, which is meant to prohibit traders from indiscriminately raising prices of goods. 

"Mechanisms like the Act and other policies," he noted, "are in place to ensure that the public is not burdened as a result of the GST." 

On making the public better understand the implications of the proposed implementation of the GST, Kee said that besides stepping up the roads shows and holding them regularly at public places like shopping malls, the government should also make public the results of its simulation exercise of how the GST would impact prices once implemented. 

"This will help and inform the public in better understanding the new tax and mitigate the fear of the unknown. 

"There must also be a definitive time-frame given so that businesses can get themselves GST-compliant and in order to help business, there must be clarity in terms of policies and procedures in order for businesses to license themselves before the GST is implemented," he added. 

On whether the proposed GST would have any inflationary impact as a consumption tax, he said: "Basically, there is no doubt that the GST will affect prices but whether there would be inflation or not, hinges on the threshold limit announced by the government on the licensing scope of what are the goods and services which are taxable, which are zero-rated and so on. I would expect that the impact on inflation should be minimal, if any." 

Tourist refund schemes that comes hand in hand with the introduction of the GST will place Malaysia on par with many countries around the globe, while a scheme for approved traders or Approved Trader Scheme (ATS) will make Malaysia more competitive as a preferred investment destination. 

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

Under the ATS, which is meant for export-oriented manufacturing companies, a suspended GST will be introduced to alleviate cash flow problems faced by importers who mainly re-export their supplies.

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