Merits of the GST system

Published: Saturday October 5, 2013 MYT 12:00:00 AM 

Updated: Saturday October 5, 2013 MYT 9:33:41 AM

BY DR FONG CHAN ONN

AFTER more than two decades of stagflation and deflation, the Japan economy finally recorded growth and inflation due to Abenomics’ “Three Arrows” strategy.

These signs are fuelling Japanese hope of an end to the vicious cycle of falling wages that forces firms to regularly reduce prices on everything from chocolate bars to salad.

Amid this newfound hope, Prime Minister Shinzo Abe continued on with the impending legislated increase in GST rate from 5% to 8%, raising fears among some quarters that it may jeopardise all that have worked till now.

Why would Abe take such a huge risk in allowing the increase in GST during this time of Japanese economic recovery? It is because Abe feels strongly that the Japanese recovery cannot be sustained without a more broad-based revenue collection system that can enhance the competitiveness of the Japanese economy.

What is GST?

GST needs no introduction, as most people know that it is a form of tax regime implemented in many countries that would levies a tax at points of consumption. Some say it is a tax on everything. They argue that it will cause inflation, reduce existing income and make the poor even poorer.

But is this really the case?

I would argue that a GST tax system, implemented with zero-rated items for necessities (and threshold for enterprises), can be more transparent than our present opaque consumption-tax system, under which sales and service taxes are levied at intermediate producers and impli­citly passed on to the final consumers.

As GST can reduce the cascading effect of our present sale and service tax system, it is less burdensome on the poor and middle class.

In brief, GST is a multiple stage tax system that taxes the “value-added” of the product, as it passes through the stages in production and distribution. The taxes levied at the various production points before the final consumption can be claimed back by the producers as rebates. Ultimately, only the net GST payment would fall on the final consumers.

Numerous nations have adopted GST because it is viewed as being the fairest method of taxing the general public, its neutral treatment of exports, and its ability to fuel economic growth and competition.

The table shows that GST is adopted by many of our neighbouring countries, as well as the European Union.

According to studies by Orga­nisation for Economic Co-operation and Development (OECD), the conventional tax system that relies on individual income, corporate and sales tax is a deterrent to a country’s competitiveness.

The reason is that high income and corporate tax discourages entrepreneurship, savings and investment and ultimately slows down economic growth.

Further, when analysing the tax burden or impact of a tax regime on the people, tax distribution is commonly referred to whether the tax system is progressive (meaning the rich pay more and the poor pay less), proportional (meaning everyone pay their fair share) or regressive (meaning the poor pay more and the rich pay less).

In a pure GST regime, it cannot be denied that it is regressive; the poor tend to pay more (as a proportion of their income) because the GST is implemented across the board, and the poor have no choice but to spend their limited income on the necessities which are also taxed.

However, the pure GST regime could be made fair and progressive with modifications, such as through the inclusion of zero-rate and exemption items and sales threshold before application of the GST on establishments; and it is with these modifications that the GST is implemented in most countries.

At the personal level then, through this modified GST, people can decide for themselves whether to pay consumption taxes through dining out or avoid tax payments by preparing their own meals with essential items that are exempted from GST. It is also a fairer system for the tax is not based on income but spending.

GST vs Current Sales and Service Tax System

Some argue that the GST system, with its multi-tiered tax regime, and rebates at all except the final consumption points, added extra burden to businesses and consumers.

On the contrary, GST would lift some burdens to businesses and consumers by eliminating the flaws and weaknesses in our current opaque consumption-tax regime, such as cascading of the consumption taxes.

Taking, as an example, the value chain of apparel making (refer to Table 1). The process starts with the fabric supplier selling the fabric material to the garment manufacturer, say a shirt material at RM10.

GST for today, tomorrow and beyond

STORY BY

CHAN QUAN MIN

quanmin@kinibiz.com

FEATURED, ISSUES & OTHERS | OCTOBER 3, 2013 9:00 PM

This is the fourth and final part of a series on the controversial goods and services tax (GST). Fresh from studying the implications for businesses, we take a look at the larger economic impact of GST and question if we can compare the experience of other countries to ours.

GST compliance falls squarely on businesses

STORY BY

CHAN QUAN MIN

quanmin@kinibiz.com

FEATURED & ISSUES | OCTOBER 2, 2013 9:00 PM

The implementation of goods and services tax (GST) will place a compliance burden on businesses. Individuals need not lift a finger, the tax is collected on their behalf by businesses. Today’s issue will look into some GST issues affecting businesses.

Malaysia's exports to get boost in the next 12 months, says chief economist

Published: Friday October 4, 2013 MYT 12:00:00 AM 

Updated: Friday October 4, 2013 MYT 8:58:06 AM

BY LIZ LEE

IHS Global chief economist for Asia-Pacific Rajiv Biswas(pic) said Malaysia 

could afford to introduce moderate measures to narrow its fiscal deficit over several years.

PETALING JAYA: Malaysia is in a strong fiscal position, backed by the country’s stable growth forecast against a backdrop of improving global economy.

The country should, however, look at ways to broaden its tax base as a long-term economic strategy.

IHS Global chief economist for Asia-Pacific Rajiv Biswas said Malaysia could afford to introduce moderate measures to narrow its fiscal deficit over several years.

“However, Malaysia needs to reform when it’s in a strong position because when the global economy weakens, it is harder to introduce changes,” he said after speaking at the World Chinese Economic Forum 2013 yesterday.

On expectations for Malaysia’s Budget 2014, Rajiv added that with global economy on the mend, it was timely for the Government to do some gradual fiscal consolidation to stabilise its debt. One such move was the recent reduction of oil price subsidy.

“Malaysia doesn’t have to take drastic steps because it has got strong growth and an improving global environment backing it,” he said.

“This is a good time to take gradual steps over a number of years to narrow fiscal deficit and to rebalance its revenue streams as I think one of the weaknesses is an over-dependence on oil and gas.”

Rajiv opined that the implementation of goods and services tax (GST) would be economically favourable over the long term.

“The GST reform is a very important strategy as it broadens the tax base,” he said, adding that he was not concerned about the public adjusting poorly to it.

“I think the growth momentum and domestic consumption is strong in Malaysia right now although, of course, there will be introductory impact.”

He noted that countries that had implemented GST also had some transitional measures for its people to soften the blow, in particular on the lower income group.

“In the long term, we will see a strategic positive change as Malaysia needs to broaden its tax base and reduce its dependency on oil and gas (which exposes the country to oil price fluctuation risks).”

The economist added that GST meant global tourists would be contributing more to the local economy.

Rajiv believed that it was not a big challenge for the Government to get its books in order.

With domestic and external economic strength, he noted that the Government’s debt level (at 53%) as a share of the gross domestic product (GDP) was relatively moderate, compared to Europe or even some Asian countries.

He said Malaysia’s GDP growth was estimated at 4.6% this year and 5% in 2014, driven by improving exports as the United States and the eurozone economies gradually picked up, while China remained a strong market.

“I think in the next 12 months we can expect a rebound in the United States and Europe which will help Malaysia in its exports,” he said.

Rajiv also said China’s steady growth heading towards being the largest economy in the world by 2022 would result in positive impact on the world. He said China’s GDP growth forecast in the next decade was 7% to 8% which, although slower than its 10% growth in the previous decade, was still considered strong.

Rajiv believed that with China’s continuing growth food products, property and tourism-related investments would flow into Malaysia.

“Historically, the China economy has been driven by domestic investments but we are going to see the rise of Chinese consumerism,” he said, adding that this meant huge opportunities in sectors like food, education, property – especially holiday homes and the second home segment – as well as tourism.

Asli chief: Tap China more, also hopes for increased Chinese investment in M'sia

Published: Friday October 4, 2013 MYT 12:00:00 AM 

Updated: Friday October 4, 2013 MYT 8:16:40 AM

(From left, foreground): Yeoh, Naumkin, member of the
Academy of Sciences of the Russian Federation
Dr Vladimir Sautov, Mahathir, Russian Ambassador Lyudmila G.Vorobyeva
and WCEF patron Tan SriLee Kim Yew

PETALING JAYA: The Asian Strategy and Leadership Institute (Asli) hopes for more investments from China to flow into Malaysia, according to chief executive officer Tan Sri Michael Yeoh.

He said that since China had a large consumer market, Malaysian businessmen could try to export more to that country.

“At the same time, Chinese investments are also going out of China. We are hoping there will be more Chinese investments that will come to Malaysia,” he said after the opening of the two-day 5th World Chinese Economic Forum (WCEF) yesterday.

Last year, bilateral trade between the two countries reached a historic high of US$94.8bil (RM303.36bil).

Yeoh also said China was a very stable country that would keep growing and benefit South-East Asian economies, adding that economic woes in Europe and the United States actually strengthened China.

The forum, jointly organised by Asli, the International Trade and Industry Ministry and the Chinese council, is expected to further enhance China-Malaysia ties and help create a new economic growth corridor.

Some 600 participants from 34 countries are attending the forum.

During the event, Tun Dr Mahathir Mohamad launched a book, Mahathir bin Mohamad on the Contemporary World (A Conversation with Vitaly Naumkin),which is based on an interview between the former prime minister and the Russian academic.

Yeoh also said a lot of Chinese businessmen were interested in investing in Malaysia. “Two years ago, during the forum, a Chinese company signed an MoU (memorandum of understanding) to invest over US$1bil in Malaysia.”

“I think this forum will create opportunities for networking; for example, the businessmen in Europe may not know businessmen in China. We have people from Russia, Switzerland, France and England and they can network with their counterparts in Malaysia and China as well as other countries in South-East Asia,” he added.

Asked about the deals to be sealed during the forum, Yeoh hoped more deals or investments could be announced.

However, he said there was no indication of such deals yet. “We have not received any specific deals in place but just now an MoU was signed. It is a fairly big deal in the oil business,” he said.

Malaysia Pacific Corp Bhd signed the MoU with China-based Black Sea Horizon Investment Holdings Ltd to promote Malaysia as Asia’s “Economic Corridor” for trade and services with China, Asean, India and the Middle East.

State-owned Black Sea Horizon is principally involved in consumer trade, property development, hospitality, oil refineries and oil trade, while Malaysia Pacific is engaged in property investment and property development.

Both companies will co-ordinate and secure co-operation with appropriate partners, with approvals from the regulatory bodies in China and Malaysia, for the Asia Pacific Trade and Expo City (Aptec) project.

Aptec is a consumer products trade hub and serves as a platform for the China-Malaysia Strategic Economic Partnership.

On another note, Yeoh hoped Budget 2014 would look at how Malaysia could be more competitive.

“We hope there will be a greater expenditure on education, which is important for us.

“We are also hoping that there can be a reduction in corporate and personal taxes if the Government were to introduce the GST (goods and services tax),” he said.

Discovering the dark, mysterious GST

October 3, 2013
COMMENT By Omar Mokhtar

The key to embracing GST is to view it from a positive angle, understand its mechanisms and accept it with an open mind.

Human beings are always subject to the fear of the unknown. We are psychologically built to resist the unknown – hence the frowning on the introduction of Goods and Services Tax (GST), an animal we can hardly describe.

Recent announcements made by the authority are signalling that the enforcement of this unfriendly animal is imminent, yet no details have been unveiled.

Left in the dark, we scream of fear and annoyance, not knowing what to expect, not knowing how it would impact and/or change our lives – we reject, push back and retaliate. Quite common behaviour, actually.

Oh well, I guess for someone who grew up in a country where Value Addaed Tax (VAT) was first introduced in the world – VAT in France during the 80s was around 17.95 percent, GST does not seem to be a shocker at all. Everything I bought and consumed was about 20% more than the displayed price – I got used to it by just rounding the price to 120% instead.

I am guessing too that for frequent travellers, jetsetters and backpackers, GST is nothing new – as more than 170 countries have implemented this taxation system, and we as tourists get to enjoy the tax refunds before we board the plane back.

We then calculate the prices down to 80% instead, especially when purchasing big ticket items. We naturally then, forget to grumble about all the other VATs we paid during the entire sojourn. We forget about the four lines of taxes we paid at a hotel in New York, Rio or Bali. But, we are the first to belly ache about GST in Malaysia.

Most importantly, we ignore the benefits that far outweigh the costs.

Malaysia is indeed one of the last countries in the world to implement GST and being last signals that our taxation system is outdated and needs to be replaced.

However, several postponements to the implementation were made and it is perhaps due to the reticence on public and market reaction. But right now, enough psychological preparation has been done, and time is about right for GST to head on to our shores. We should “Just Do It”!

In reading how the market is reacting to the initial announcements and how some sectors opined that the GST is the remedy for the current fiscal position and public debt – I am reminded of a conversation I had with a friend some three months ago.

He is an established businessman who recently sold all his three houses and now lives in Mutiara Damansara. As we were chatting, he blurted that his tax declaration is only RM24,000 a year, therefore he is exempted from paying taxes.

No more escapism

While he chuckles, I am thinking of his three children’s free education in public schools, and let’s not mention all the other benefits he and his family benefits from the country.

And guess what? I am only citing one example – and don’t we already know that only 1.7 million Malaysians are paying taxes for over a workforce of 12 million – to support a nation that is growing to a population of almost 29 million. My maths is not great – but 1.7 over 29 seems like an unporportionate figure!

Now, with GST – there is no more escapism and no more laughing at how smart you are at evading taxes, right?

I must admit, that at least I am one of those rejoicing at the implementation of GST as I have heard and seen too many people just reaping benefits without having to pay a single cent of tax to the country.

Very unfair, especially to those who have been paying taxes all these years!

Good news first – 40 basic items will not be included. Phew, in principle, our roti canais and nasi lemaks should not be affected. Health, education and toll roads are also exempted. Let’s now wait for the entire list to be unveiled to us.

The GST rate is slated to be between 4-7 percent. Rather low, I reckon, compared to countries who have started off between 17-20 percent. Some countries have gone beyond 20 percent, and here we are ranting and raving about 7%.

Now, let’s get closer to this animal called GST. By definition, GST is said to replace the sales and service tax ( SST) and the main reason it has to come into place is to enhance the efficiency and effectiveness of the existing taxation system.

It is a proven system, definitely business friendly, which will spur economic growth and increase competitiveness in the global market.

Bad news is – like all other changes – there is a cost to development and progress. Consumers will feel the pinch in an increase of price for all other items that’s not included in the basket of 40. But then again, it really depends on our lifestyle and daily habits.

For example, the high taxation of cigarettes and alcohol only affect the addicted ones – and those who have clean lungs are not really bothered about the increasing taxes year after year.

If you don’t drive a fast car – you won’t be subject to a 300% tax. Get my drift? So, the rich won’t be affected – and the underprivileged will be assisted.

Change is never easy

The introduction of the GST will likely lead to a one-off spike in inflation, depending on the level of goods and services in the basket of goods and services, but that will taper off with time.

Certain measures will also be taken into consideration to cushion the effect. In short, No man will be left behind.

The key to embracing GST is to view it from a positive angle, understand its mechanisms and accept it with an open mind. Being one of the last to come on board is definitely not good branding for Malaysia.

Let’s just get on with it and be amongst the forward thinking nations that have cleverly shared the income generated for the well-being of its people.

Change is never easy – but that is the only way to move forward and keep progressing. If we keep doing the same thing over and over again, we cannot expect different results, can we?

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.

Source: http://www.freemalaysiatoday.com/category/opinion/2013/10/03/discovering-the-dark-mysterious-gst/

Putrajaya gets extra RM15b, RM9b for fuel subsidies

BY BOO SU-LYNOCTOBER 1, 2013

KUALA LUMPUR, Oct 1 — Parliament passed today the Supplementary Supply (2013) Bill for RM15 billion ahead of Budget 2014, out of which RM8.9 billion was channeled to fuel subsidies.

A total of RM3.8 billion went to emoluments to the defence ministry and the police force, as well as to the Inland Revenue Board.

“The petroleum subsidies are a huge burden on the government,” Deputy Finance Minister Datuk Ahmad Maslan told reporters at Parliament here today.

“Back then, one tong was US$102, but it increased to US$115 in August. So this supplementary bill allocated RM8.853 billion for subsidies,” he added.

Another RM1.6 billion went to the cost of operations, maintenance, utilities, as well as the Ops Daulat operation earlier this year against Sulu invaders in Sabah.

RM800 million was allocated to pensions and retirement allowances.

Prime Minister Datuk Seri Najib Razak is scheduled to table Budget 2014 on October 25.

All eyes will be on the Budget to see if Putrajaya introduces financial reforms such as the long-awaited Goods and Services Tax (GST) to increase its revenue.

Earlier this month, the government reduced subsidies for RON95 petrol and diesel by 20 sen a litre in a bid to slash its fuel subsidy bill by an estimated RM3.3 billion annually.

Pressure has increased on Putrajaya to trim the country’s debt level and introduce meaningful reforms to widen its revenue base after international ratings firm Fitch cut the country’s debt outlook from “Stable” to “Negative” in July.

- See more at: http://www.themalaymailonline.com/malaysia/article/putrajaya-gets-extra-rm15b-rm9b-for-fuel-subsidies#sthash.4riB4IIc.dpuf

Look to subsidy reforms instead of more BR1M, says MCA man

BY OPALYN MOKOCTOBER 1, 2013

GEORGE TOWN, Oct 1 — The government should focus on subsidy reforms, curb inefficiencies and corruption and strengthen its finances instead of dishing out more cash aid schemes that may not be sustainable in the long run, MCA’s Datuk Chua Tee Yong said today.

The Labis MP expressed alarm over the government’s suggestion of another round of nationwide cash handouts for households drawing monthly incomes of between RM4,000 and RM5,000, and pointed to Malaysia’s budget deficit and high debt levels.

“It is important that the government’s proposal does not result in further rating downgrade and subsequently, depreciation of Ringgit and imported inflation,” he said in a statement.

The country’s budget deficit and debt is reaching its debt ceiling and analysts have warned that the upcoming Budget 2014 is “very crucial” in addressing the fiscal position of Malaysia to prevent further sovereign downgrades by rating agencies.

But Chua, who heads MCA’s young professionals bureau, also said the recent proposal announced for the continuation of the 1 Malaysia People’s Aid (BR1M) by Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah had came at the right time as 66 per cent of Malaysian households stood to gain from the scheme, if Parliament approves it in the Budget 2014.

Ahmad Husni had announced the government’s plans to give out the cash aid twice a year from 2014.

He also said the government is looking to implement the best assistance models for households with income between RM4,000 and RM5,000.

When the Najib administration introduced BR1M in 2012, cash aid was handed to households that drew incomes below RM3,000 per month.

Chua also wants the government to further revamp the fuel subsidy in the upcoming budget, to be announced end of this month, to target those that require assistance.

“Deputy Finance Minister Datuk Ahmad Maslan recently disclosed that only 30 per cent of those who bought RON95 petrol were from households earning less than RM3,000 per month which meant a large portion of the petrol subsidy had benefited those with higher incomes,” he said.

The government needs to encourage direct or targeted assistance in this case to reduce leakage, he added.

On the proposed Goods and Services Tax (GST) to be included in Budget 2014, Chua reiterated his stand that the rate must be below 5 per cent.

“Any rate above five per cent would be detrimental to the economy and burden the people,” he said.

He called on Putrajaya to instigate a clear plan to educate and provide more information to the public, especially those who would be largely affected by the implementation.

“Studies on GST undertaken by the government should also be made public to assure the people that its implementation would not have detrimental effects on society as a whole,” he added.

He then urged Putrajaya to provide information on the measures and costs savings it will undertake to the public in order to improve the finances of the country.

- See more at: http://www.themalaymailonline.com/malaysia/article/look-to-subsidy-reforms-instead-of-more-br1m-says-mca-man#sthash.irTUQpPS.dpuf

Pengurangan subsidi gula belum pasti

ARKIB : 01/10/2013

KUALA LUMPUR 30 Sept. - Kerajaan masih belum pasti untuk mengambil langkah mengurangkan subsidi gula setelah merancang pembayaran Bantuan Rakyat 1Malaysia (BR1M) sebanyak dua kali tahun depan.

Menteri Kewangan Kedua, Datuk Seri Ahmad Husni Hanadzlah berkata, pihaknya pada waktu ini masih memikirkan masalah atau bebanan yang perlu dipikul rakyat sekiranya subsidi gula dikurangkan.

"Kerisauan rakyat adalah kerisauan kami lebih-lebih lagi pertumbuhan ekonomi negara pada suku kedua tahun ini adalah rendah berbanding yang disasarkan kerajaan,'' katanya.

Beliau berkata demikian ketika berucap dalam majlis pembukaan Forum Khazanah Trend Mega 2013 di sini hari ini.

Tambah Ahmad Husni, peruntukan BR1M pada tahun depan sememangnya akan ditambah seperti dijanjikan dalam Manifesto Barisan Nasional (BN) sewaktu Pilihan Raya Umum Ke-13 (PRU-13) lalu.

"Kenaikan kadar BR1M bertujuan membantu golongan berpendapatan rendah menangani kenaikan kos sara hidup mereka.

"Oleh itu, kerajaan akan melihat keperluan secara keseluruhan dalam proses menghasilkan bajet di mana beberapa aspek perlu dinilai untuk mengurangkan perbelanjaan tinggi negara," katanya.

Mengulas lanjut, Ahmad Husni berkata kerajaan kini meneliti intipati bagi Bajet 2014 dan dijangka siap sepenuhnya dalam masa dua minggu lagi.

Jelasnya, kerajaan optimis untuk mencapai defisit sebanyak empat peratus tahun ini berikutan pendapatan negara yang telah mencapai sasaran.

"Defisit negara pada tahun ini berkemungkinan empat peratus dan tahun hadapan dijangka susut kepada 3.5 peratus," katanya.

Sementara itu, semasa ditanya tentang cukai barangan dan perkhidmatan (GST), Ahmad Husni berkata, kerajaan akan melihat perbelanjaan produktif untuk wang yang dibelanjakan.

Artikel Penuh: http://www.utusan.com.my/utusan/Ekonomi/20131001/ek_04/Pengurangan-subsidi-gula-belum-pasti#ixzz2gcxbzGZX 

© Utusan Melayu (M) Bhd 

Nine things you must know about the GST

STORY BY

CHAN QUAN MIN

quanmin@kinibiz.com

FEATURED & ISSUES | OCTOBER 1, 2013 9:00 PM

Clear, concise and thoroughly researched answers to the most pressing and basic questions on the 

goods and services tax or GST. Despite the bad press, economists could not heap more praise 

on this efficient, self-policing form of consumption tax.

-----------------------------------------------------------------------------------------------------------------------

Prime Minister Najib Abdul Razak will make his 2014 Budget speech on Oct 25 and the long overdue GST is highly likely to be a major part of a package of reforms to address the growing fiscal deficit.

In 2009 a Goods and Services Tax Bill made it as far as Parliament only to be withdrawn for reassessment. The same is not likely to happen this time owing to fewer obstacles to the introduction of GST.

Once an announcement on the GST is made, actual implementation of the tax will be subject to a 14-month long implementation period for businesses to familiarise themselves with the new accounting standards.

Here are nine basic GST questions and answers courtesy of KiniBiz:

1. What is GST?

A goods and services tax (GST) is a tax on consumption or in other words, spending. To be more specific, GST taxes only the value-added portion of a good or service and is collected at every stage of the supply chain.

This means GST is enforced on primary industry producers, manufacturers and retailers alike, with the end consumer footing the final tax bill at the point of purchase. The accompanying table provides a simulated supply chain example.

A system of input tax credits ensures GST is only levied on the difference between the sale price and production cost. This is called the value-added portion.

All businesses are authorised to claim input tax credits once they are registered. Individuals on the other hand are not privileged to claim input tax credits. As a result, they bear the full GST burden.

Unless exempted by law, all goods and services (technical term: supply) in the course of furtherance of business in Malaysia are taxable. In international trade, imports are taxable whereas exports are exempt.

The pervasive nature of this consumption tax often leads economists to label it as a broad-based consumption tax

2. How will I be affected?

So long as a person participates in the economy as a consumer – practically everyone does – they will be nett GST payers once the tax is implemented.

Unlike income taxes, individuals will not need to fill in any forms or file returns; GST is collected on their behalf by businesses. As such, GST is considered an indirect tax.

Businesses may face additional paperwork. They will be obliged to maintain payment records in order to qualify for input tax credits as well as file returns on a regular basis. As a result, they may face compliance costs related to GST implementation.

The scope and reach of the GST, according to 2009 draft documents, means almost all goods and services – unless specifically excluded – will be taxed.

In a seminar, Tan Eng Yew, Country GST leader of Deloitte Malaysia shared an interesting analogy to illustrate the pervasiveness of the GST system:

“In Singapore, where the GST was introduced in 1994, taxi drivers often joke that the GST acronym stands for Government Semua Tax.”

If implemented as originally designed the tax would have very few exemptions. Draft documents for the Malaysian system, however, indicate several classes of basic goods and services as exempt from the system.

3. Is the GST a new tax?

The GST unit of the Royal Malaysian Customs maintains the original purpose of the GST as a replacement to the sales tax and service tax. Therefore it is not a new tax, strictly speaking.

Sales tax is currently levied at a rate of 10% and has been in force since the 1970s. Service tax, meanwhile, is levied at a 6% rate.

The government’s intention has always been to replace the sales and service tax regime with GST and to do so at a GST rate that is revenue-neutral.

Sales and service tax will be abolished once the GST is eventually implemented.

Compared to the sales and service taxes, GST is considerably more efficient. Critically, GST has a broader tax base and does not have a cascading or compounding tax problem.

Many countries worldwide have embraced the GST as a replacement to a single-stage sales tax regime.

4. Why do we need the GST?

The GST unit of the Royal Malaysian Customs Department considers GST as a ‘method of collecting taxes which works better than others’ to explain the need for GST.

Economists, meanwhile, believe the government has very rightly approached the GST as a new source of income with a broad tax base as a means to begin to diversify tax revenue sources.

The government is spending more than it earns leading to a 2012 fiscal deficit, which in 2012 was 4.5% of GDP. Introducing a GST could help the government raise additional revenue, as consumption increases, to narrow the fiscal deficit.

News reports suggest the government is aiming to reduce the country’s debt position to below 55% of GDP and cut the fiscal deficit to 3% by 2015; an ambitious target.

5. Will the GST cause inflation?

Yes and no. Studies allowing for a GST rate of 4% predict some goods and services will increase in price while others may see a decrease. The overall impact is expected to be neutral.

Economic modelling studies by a tax review panel of the Ministry of Finance circa 2009 found that at a tax rate of 4% the GST would have little overall impact on the Consumer Price Index (CPI).

Because the GST is a replacement for the current sales and services tax (SST), goods that now carry a heavy SST tax burden will likely fall in price.

Conversely, goods and services not currently taxed under the sales and service tax regime will increase in price.

According to the GST unit of the Royal Malaysian Customs Department, any inflation will be one off, because the increase in prices would occur as single event. Following the spike inflation will return to the normal cycle.

Until an official announcement is made, inflation is difficult to predict, mainly because the government is yet to finalise the tax rate.

6. Will the GST be levied on basic necessities?

Similar to other countries worldwide that have implemented a GST, there will be a list of goods and services that are either exempted or zero-rated.

Draft documents list several classes of goods and services, mostly fresh food as zero-rated.

Tax officers at the Royal Malaysian Customs Department say traders could use the GST as an excuse to unscrupulously increase prices despite the fact that the introduction of the GST will not introduce inflationary pressure to exempt or zero-rated items.

Deloitte’s Tan says the government has powers to prosecute errant traders under the Anti-Profiteering Act, 2011 and may enforce the law during the early stages of GST implementation.

7. Will there be a corresponding fall in income tax to compensate?

News reports suggest that the government will introduce measures to alleviate the effects of the GST on prices for the lower income group.

Ministry of Finance secretary-general Mohd Irwan Serigar has come on record to say the GST will be introduced as a package. However, there are no concrete details pending an official announcement.

Cash handouts in the form of BRIM (the 1Malaysia People’s Assistance Programme) next year have been promised to help soften the blow of subsidy rationalisation and the GST.

But considering the fact that the GST is designed as a revenue-neutral replacement tax, additional measures such as an adjustment to income or corporate taxes are considered unnecessary at this stage.

In the event a decision is made to implement a GST rate higher than the revenue-neutral rate of 4%, then the government may consider lowering income tax rates said Inland Revenue Board (IRB) director-general Mohd Shukor Mahfar in a press conference last month.

8. Will the GST increase the cost of doing business?

First, the short answer. According to Deloitte’s Tan “GST is not a cost of doing business if you are not providing exempt supply.”

Although the tax is collected at every stage of the supply chain, the eventual burden falls upon the end consumer.

Therefore economists do not consider GST to have an effect on business-to-business transactions.

The only cost to businesses will be compliance costs related to GST implementation.

This is of course assuming that the business in question is on the straight and narrow. GST returns will require companies to report on their cost of doing business which will indicate to authorities the scale of their businesses.

9. Will the GST take more from the poor than the rich?

Economists call GST a regressive tax. That is, as a percentage of income, the GST will impact lower income individuals much more than high-income individuals.

The current draft of the Goods and Services Tax Bill has provisions to attempt to avoid this imbalance. Basic goods and services are either exempt from supply or zero-rated. That means they do not attract GST.

To protect small businesses there is a threshold of RM500,000 in annual turnover. Businesses below that threshold do not need to register nor collect GST.

Another question worth asking is if GST equates to double taxation of income. Technically this is true according to tax experts. Disposable income spent on goods and services that attract GST is income that has already been subject to income tax.

Those were the answers to some basic questions on GST. Tomorrows issue will explore in detail the business implications of the controversial tax.

Source: http://www.kinibiz.com/story/issues/52351/nine-things-to-know-about-the-gst.html

GST, the time is right

FEATURED & ISSUES | SEPTEMBER 30, 2013 9:00 PM

STORY BY

CHAN QUAN MIN

quanmin@kinibiz.com

The Goods and Services Tax has been on the drawing board close to a decade. An unfortunate victim of political rivalry, the controversial consumption tax made it as far as Parliament in 2009 only to be withdrawn for revaluation. Three years later, with a general election out of the way and a desire to reduce the budget deficit, the time is right for GST to be introduced.

Harnessing science for wealth creation

Publication: NST

Date of publication: Oct 1, 2013

Section heading: Main Section

Page number: 014

Byline / Author: By Dr Ahmad Ibrahim

NEXT month, the prime minister will unveil the 2014 Budget. As usual, the speech will include estimates of income and expenditure for next year.

Reducing the deficit will continue to be a key target. It is also expected to touch on ways to expand the country's income base. The goods and services tax (GST) is one option being discussed.

However, it should not ignore other potential new growth areas. It has become evident in recent years that the country has to create new sources of revenue as it prepares to move up the economic ladder. The Economic Transformation Programme (ETP) is a good start. But we also need to look for longer-term support for the economy. Some of the industries that feed the nation's coffers are at risk of decline.

The palm oil sector, for example, still struggles to expand production. Land is a limitation. The other obstacle concerns objections by some groups on grounds of sustainability. There is, however, hope that yields may improve as a result of the recent breakthrough in the oil palm genome by the Malaysian Palm Oil Board.

The petroleum sector is also expected to witness a decline in coming years. Oil deposits will not last forever. We are now forced to explore marginal areas where extraction is more costly.

The electric and electronic sector is on shaky ground. We are too dependent on multinationals to drive that sector. Some have moved to other lower-cost countries. The country, therefore, needs to constantly scout for new growth areas.

In an innovation-driven world, economy, science and technology hold the key to many new growth areas. Over the years, the government, through the Ministry of Science, Technology and Innovation (Mosti), has invested in research and development to develop technology.

This is undertaken by universities and research institutes in the country. R&D has delivered some potential technologies and products that may be commercialised.

Commercialisation, however, should not be the only endgame. Instead, such technology should be strategised as a forerunner of new growth areas. Mosti is the ministry for the new economy. It is where ideas on the new growth areas are born and nurtured for the nation's well-being.

The new science, technology and innovation (STI) policy that will be launched soon is designed to deliver that. Among the six pillars identified in the policy, the most critical one is, admittedly, to energise industry. This is the endgame for the policy.

After all, Mosti's vision has always been to harness STI for wealth creation. So, creating new growth industries is within its mandate. And Mosti is doing just that. A number of flagships have been identified for possible mention in the Budget.

The important criteria for such flagships are that they should be technology-driven, new in terms of global business and carry some element of risk which has to be managed. These should not be businesses which are already crowded.

Scanning the global emerging technology business, it has become evident that there are a number of potential growth areas.

As expected, much of the emerging global interest is linked to green technology, halal pharmaceuticals and healthy foods.

Fuel cell-based business, for example, is an area that can be explored as a flagship. Much research has happened in Malaysia on this. It is now time to move the fuel cell technology into a full industry.

In the energy sector, thorium, a safer replacement for uranium, is being researched for nuclear power. Over the long term, experts see a thorium-based nuclear plant as a big energy business.

Regarding halal pharmaceuticals, the world is looking at plants as factories to produce vaccines and medicinal drugs. Incidentally, tobacco is the best candidate crop to host such technology. With the nation's tobacco farming facing threats post-Asean Free Trade Area in 2015, such a project should be welcomed by tobacco farmers in east coast states. All such projects conform well to the new economic model of being high income, inclusive and sustainable. The 2014 Budget should seize this opportunity.

RON 95, rokok dan GST

Amin Iskandar adalah penerima anugerah
zamalah Asian Public Intellectuals (API)
bagi sesi 2009-2010. Kini merupakan
Pengarang Berita bagi The
Malaysian Insider. Beliau "berkicau"
diwww.twitter.com/aminiskandar.

SEPTEMBER 29, 2013

Khabar angin kenaikan harga minyak RON 95 sebanyak 10 sen Jumaat lalu begitu menggusarkan rakyat bawahan.

Dikatakan Kabinet sudah membincangkan perkara itu dan bersetuju untuk memotong lagi subsidi RON 95 yang digunakan oleh majoriti pengguna kenderaan di Malaysia.

Stesen minyak penuh dengan pengguna di sebelah petang dan malam kerana takutkan harga bahan bakar itu benar-benar naik walaupun Timbalan Menteri Kewangan, Datuk Ahmad Maslan sudah menafikan khabar angin itu.

Kegusaran orang ramai ini menyebabkan Timbalan Perdana Menteri, Tan Sri Muhyiddin Yassin terpaksa membuat penafian kerajaan akan menaikkan harga RON 95 dalam jangkamasa terdekat.

Katanya, dakwaan itu tidak benar malah tidak dibincangkan dalam mesyuarat Kabinet pada Jumaat.

Di kedai-kedai kopi rungutan tentang kesan kenaikan RON 95 sebanyak 20 sen awal bulan ini masih belum lagi pudar. Jika dinaikkan lagi, sudah tentu barah akan menjadi lebih parah.

Kegusaran orang ramai tentang khabar angin kenaikan RON 95 memberi petanda kehidupan majoriti rakyat terjejas setiap kali “penyelasaran subsidi” dilakukan.

Rokok

Selain RON 95, di laman-laman sosial tersebar juga harga rokok akan turut dinaikkan.

Dikatakan bermula 30 September, harga sekotak Dunhill akan dinaikkan daripada RM10.50 ke RM12.00.

Khabar angin tentang kenaikan harga rokok ini setakat ini masih belum ada yang menafikan. Mungkin khabar angin itu benar.

Tauke-tauke kedai runcit yang ditemui juga tidak menolak kemungkinan harga rokok akan dinaikkan.

Hari ini golongan perokok sudah menjadi semakin minoriti.

Apatah lagi dunia hari ini ditadbir oleh golongan “anti smoking facist”, maka kenaikan harga rokok tidak ramai yang peduli.

6 September lalu polis merampas 141 karton rokok seludup di Jalan Mersing, Kluang.

Suspek lelaki dan wanita warga tempatan berusia lingkungan 30-an itu dicekup dalam sekatan jalan raya, kira-kira jam 4.40 pagi.

Ketua Polis Daerah Kluang, Asistan Komisioner Abdul Majid Mohd Ali berkata, polis menemui pelbagai jenis rokok dalam bonet kereta suspek, disyaki dibawa masuk ke negara ini tanpa cop pengesahan daripada kastam.

Katanya, kes itu disiasat di bawah Seksyen 135(1)(d) Akta Kastam 1967 dan jika sabit kesalahan suspek boleh dikenakan penjara sehingga tiga tahun dan denda 10 hingga 20 kali nilai rampasan atau kedua-duanya.

Berita sebegini akan terus kita dengari jika kerajaan akan menaikkan lagi cukai rokok.

Rokok seludup akan terus laku setiap kali cukai terhadap rokok “halal” dinaikkan.

Teori ekonomi mudah selagi ada permintaan di situ ada penawaran.

Jadi siapakah yang sebenarnya untung setiap kali harga rokok naik? Kerajaan atau tauke rokok seludup?

GST

Cukai barangan dan perkhidmatan (GST) hampir pasti akan diperkenalkan dalam Bajet 2014.

Apatah lagi selepas Perdana Menteri, Datuk Seri Najib Razak sudah sah tidak dicabar bagi jawatan presiden dalam pemilihan Umno bulan depan.

Maknanya, bagi penggal ini Najib masih lagi sah akan terus menjadi perdana menteri walaupun keputusan Pilihan Raya Umum ke-13 lalu, lebih buruk daripada apa yang Tun Abdullah Badawi lakukan pada 2008.

Media arus perdana seperti TV3 sedang cuba mengolah persetujuan rakyat agar tidak terkejut apabila benar-benar dilaksanakan nanti.

Dalam Buletin Utama baru-baru ini, stesen televisyan berpengaruh itu mengatakan satu struktur cukai baru akan diperkenalkan semasa pengumuman Bajet 2014 nanti.

Bagaimana pula reaksi orang ramai nanti? Sudah bersediakah mereka untuk berhadapan dengan GST? Apakah akan berlaku penentangan besar-besaran? – 29 September, 2013.

* Ini adalah pendapat peribadi penulis dan tidak semestinya mewakili pandangan The Malaysian Insider.

Will Budget 2014 excite?

Published: Saturday September 28, 2013 MYT 12:00:00 AM 

Updated: Saturday September 28, 2013 MYT 12:00:14 PM

BY CECILIA KOK

Govt needs to juggle fiscal issues with helping low-income earners

ADMINISTRATIVE executive Annie L, 35, unabashedly says she hopes there will be more cash handouts or other forms of benefits to help low-income earners like her under the upcoming Budget 2014.

Earning less than RM2,500 per month, and hence, already eligible to receive cash handouts under the 1Malaysia People’s Aid, or BR1M, the single mother says having continuous government assistance to mitigate the rising cost of living is important and would be more meaningful for “desperate” families like hers at this juncture than “sophisticated measures” that could transform the country’s economy.

System analyst JJ Koo, 38, who is not eligible for BR1M, on the other hand, says he hopes middle-income earners like him will not be neglected under the upcoming budget.

While he reckons the need for the Government to implement measures to improve the country’s economic fundamentals as well as to help low-income households, Koo thinks it is also important to consider some form of measures that could benefit middle-class families like his, especially in the current challenging economic environment.

Will Annie and Koo’s wishes come true?

Undoubtedly, most Malaysians from all walks of life tend to look for goodies in the yearly budget to help them improve their living standards and cope with the rising cost of living. With the public pouring out their wish lists on Datuk Seri Najib Tun Razak’s blog at www.1Malaysia.com.my, it is obvious that the Prime Minister is not short of ideas on what to include in the upcoming budget to help the rakyat.

But Budget 2014 is set to be more than a budget to satisfy the expectations or demands of the people.

The upcoming budget, which CIMB Investment Bank Bhd regards as “arguably the most anticipated one in recent years”, is expected to set a new direction for Malaysia, with crucial and tough measures expected to be implemented to reform the country’s economy.

Turning point

Budget 2014, which has been themed “Fulfilling Promises, Accelerating Transformation”, will be tabled in Parliament on Oct 25.

According to analysts, while the upcoming budget will likely include some form of incentives to benefit the low-to-middle income groups, the Government is also widely expected to push through structural reforms and roll out several measures that will prove to be unpopular but necessary for the long-term good of the country’s economy.

As TA Securities Holdings Bhd’s head of research Kaladher Govindan writes in his report, the budget is expected to introduce tough measures to improve the nation’s fiscal credibility, especially after the recent downgrade in sovereign credit rating outlook by international agency Fitch Ratings.

Kaladher, nevertheless, believes the move will come without the Government reneging on its election promises for the people – and certainly not at the expense of the country’s economic growth. The budget, he argues, is expected to have measures that will encourage strong private-sector participation in the economy, while addressing the country’s long-standing fiscal deficit through rationalisation of the Government’s operating costs and lowering of development expenditures.

“With both the general election and Umno party elections over (by Oct 25), Budget 2014 should outline bold measures, akin to swallowing bitter pills, to sustain the nation’s long-term prosperity,” Kaladher says.

As such, he notes, the upcoming budget is expected to address Malaysia’s competitiveness by addressing the long-pending pertinent issues related to subsidy cuts and improving government revenue through, among others, increasing real property gains tax (RPGT) and sin taxes through hikes in both alcoholic and tobacco excise duties, as well as introducing new measures such as the goods and services tax, or GST.

The budget, he says, is also widely expected to see the Government prioritising infrastructure projects by emphasising those with high multiplier effect and low import content to support economic growth and improve the country’s current account balance.

Goodies in store

To cushion the impact of the rising cost of living and the subsidy rationalisation programme on consumer spending and the low-income group, TA Securities believes the Government would announce an extension of BR1M during the budget.

“While no quantum was indicated, Barisan Nasional has committed to increase BR1M up to RM1,200 for households and RM600 for singles in its last election manifesto. This will affect 5.2 million households earning less than RM3,000 per month,” it says.

“Assuming an equal increase over the five years, this could set the government budget back by an extra RM800mil to RM3.7bil, but it would effectively redistribute wealth to the poor who has higher marginal propensity to consume,” it adds.

According to CIMB Investment Bank, it won’t be surprising to see the Government enhancing the social safety net, focusing on the needs of the low to middle-income households. The move is one of five strategies it expects the Government to adopt for the upcoming budget.

The other four strategies it has identified are (i) fiscal reforms, which will see the Government drawing up a timeline of actions to roll out the GST, subsidy rationalisation and cost-saving initiatives; (ii) sustaining private investment growth, which could involve corporate tax cut and incentives for industries; (iii) ensuring a sustainable external balance, which will see the Government sequencing projects with high import content and low multiplier effect; and (iv) ensuring a healthy property market ecosystem, which will involve some property-cooling measures and affordable housing initiatives.

“As part of mitigating measures to ease the financial burden of households earning less than RM3,000 per month, we expect the budget to increase the one-off cash transfer to RM600-RM700 from RM500 under BR1M,” CIMB’s chief economist Lee Heng Guie writes in his report.

He says there is a high probability that the threshold household monthly income for BR1M eligibility will be raised to RM4,000-RM5,000 from RM3,000. This, he says, will then benefit 5.5 million to 6.2 million households.

“Besides that, we also expect the Government to continue with its financial assistance for unmarried single parents (costing RM675mil) as well as book vouchers for primary, secondary and college students (costing RM865mil). Based on the above assumptions, all these additional commitments will offset the fuel subsidy-cut savings of RM3.3bil for 2014,” Lee argues.

Lee expects relief to the “sandwiched middle-income group” would come in the form of widened tax band, accompanied by a 1% tax-rate reduction for all taxpayers with chargeable incomes of RM50,000-RM70,000 or less, as well as higher personal tax relief and child relief.

Lee expects measures to address housing affordability and stem excessive speculative activities in the local property market. He says his team expects the budget to allocate funds for various affordable-housing programmes such as those implemented by 1Malaysia People Housing Programme (PR1MA), Syarikat Perumahan Nasional Bhd and Jabatan Perumahan Negara.

Meanwhile, there is high expectation among economists that the Government would implement targeted measures to rein in property price inflation. These include increasing the RPGT and stamp duties for the third property purchase and beyond. They also expect more stringent measures to curb rising household debt in the country.

Strengthening fiscal position

In general, economists expect the Government to unveil a gross domestic product (GDP) growth target of 4.5% to 5.5% for 2014 for the coming budget. This compares with an expected GDP growth of 4.5%-5% this year.

Economists also expect the Government to set a target of improving the country’s fiscal deficit to 3.5% of GDP by 2014 from the estimated 4% of GDP this year. This is in line with the Government’s earlier-set goal of a fiscal deficit of 3% of GDP by 2015.

According to TA Securities, government revenue collection is expected to increase 1.9% year-on-year to RM212.7bil for 2014, while operating expenditure is expected to remain flattish at RM203.2bil as the savings from the cut in subsidies is redistributed to BR1M to support the lower and middle-income households. It expects development spending, on the other hand, to edge down to RM47.1bil from the RM47.8bil allocated for 2013.

“Malaysia is facing a number of domestic and external challenges, which require the fine-tuning of its macroeconomic policy mix for growth and macroeconomic stability over the medium term,” Lee says.

Domestic tail risks, he points out, include a slowing economic growth momentum, persistent fiscal and rising debt situation, a narrowing of the current account surplus of the balance of payments, as well as rising operating cost for companies and cost of living for households. External tail risks, on the other hand, emanate from the recent sharp volatility in equity, bond and foreign exchange markets due to capital reversals, Lee notes.

“Our current fiscal situation and debt trajectory means that Najib, who is also the country’s Finance Minister, is tasked with making some necessarily tough but thoughtful decisions to reassure investors that the Government has the political resolve to address the country’s fiscal issues without delay,” Lee says.