Date of publication: Nov 19, 2013
Section heading: Main Section
Page number: 019
Byline / Author: By Fazila Emir
AN advertisement has been on air daily last week on a radio station. I did not hear the advertisement on other stations, so I am not sure if this particular station's claim that the advertisement is an official release by the ministry concerned is true.
Regardless of whether it was made by an advertising company for the station or the Finance Ministry, this "slanted" advertisement may not have accurate facts in its content. In other words, it is misleading.
The dialogue on consumers having to pay only "six per cent Goods and Services Tax (GST) in the future, as compared with the current six per cent tax plus 10 per cent tax" is not accurate.
Under the Sales and Service Tax Act, the six per cent service tax is for companies providing services (not for goods), such as restaurants and consultancy firms, having certain annual turnover limits, with the tax passed down to customers, as seen in bills or invoices. These companies will have to "return" the six per cent tax to the government under their Customs licence. Hence, this tax element must be shown separately in bills, as it is collected on the government's behalf.
The 10 per cent sales tax is payable if we purchase certain goods or raw materials, in accordance with the prevailing Customs tariff. This tax element can be exempted if the goods are used in certain manufacturing industries or under the sales tax licence by applying to the Customs Department.
So, the two tax elements here are like apples to oranges.
We do not deny that the 10 per cent tax element (and possibly, other import duties) in the raw materials, furniture, equipment, etc used in restaurants are built into the food prices (and further taxed six per cent for service), but it is the cost of doing business.
So, it is correct that GST is more efficient as a single tax regime, avoiding the tedious sales tax exemptions process at the Customs Department, when the sales tax and service tax elements will be abolished when the GST comes into effect in 2015. This is from the government's perspective.
From the consumers' perspective, coming back to said advertisement, what we are paying now when we dine at upscale restaurants or pizza chains is the service tax, which is rightfully the government's tax (previously five per cent), but the additional 10 per cent tax shown in the bill is the service charge (not tax) for what we pay the restaurants or companies that own them for their services, an "official tip" of sorts.
This service charge in the bill is not to be confused with the 10 per cent sales tax that the government charges for certain goods or raw materials. The service charge in our restaurant bills is not "returned" directly to the government, but for the companies as additional earnings, on top of the food prices (this is returned to the government as corporate tax in another mechanism).
As another option, restaurants can choose to not charge the 10 per cent service tax in the bill, other than the service tax, if all cost elements have been built into the prices. The idea to show it separately in the bill is to not make the food prices look expensive.
So, from the customer's perspective, even when GST comes into effect in 2015, we may still see the 10 per cent (or some other figure) in the food bill as service charge, regardless of what the GST rate is.
As such, it is inaccurate, as stated in the advertisement, that "we, as consumers, save money because instead of paying six per cent tax and 10 per cent tax, we pay only six per cent tax when GST comes about".
I hope the station pulls out the misleading advertisement.
Fazila Emir, Bandar Sunway, Selangor