GST: Experience of other countries

Posted on September 5, 2012, Wednesday

THE Malaysian government will soon be implementing the long awaited goods and services tax (GST) which will replace the existing current sales tax five per cent to 10 per cent) and the service tax (six per cent).

If the percentage of GST is determined at four per cent or five per cent then, it will be lower than the current sales tax of 10 per cent or service tax of six per cent. This series of seven articles will be publised on Mondays, Wednesdays and Fridays and highlight the purpose of the GST and why the public should support it.

Part 2

This second article deals with the experience of GST in various countries that have already implemented it.

GST or otherwise known as Value Added Tax is a form of tax that is designed to eliminate cascading tax – often practiced in sales tax. This form of tax is more effective in that it is refunded to all parties in the chain of production other than the final consumer.

The VAT/GST tax system is better than other models because it reduces hidden taxes. The system is non-regressive and fair to the final consumer. Any negative effect on low-income people due to the flat tax rate can be compensated by the government through various measures as VAT/GST provides the government with a steady flow of revenue.

Already adopted in more than 140 countries, it has been tested and proven to work well with the public and the government.

To illustrate this point, it’s best to look at examples in the countries that have adopted GST. Take for example, Australia where GST was introduced in 2000. When GST was implemented, there was corresponding reductions in personal income taxes, state banking taxes, federal wholesales tax and some fuel taxes, leading State Treasurer Peter Costello to claim that people were effectively paying no extra tax.

Likewise, Curtin University of Technology, Perth in 2000 made statements that the real estate market would be impacted with an eight per cent increase in the cost of homes with the introduction of the GST.

This proved to be false as the real estate market boomed between 2002 and 2004 and demand saw a dramatic increase. This is an example of negative perception of GST which in reality is merely assumptions that are far from the truth.

In Canada, the GST replaced the Manufacturer’s Sales Tax and came into force in 1991. The tax did not apply to products such as groceries, residential rent, and medical services, and services such as financial services.

New Zealand introduced GST in 1986 and unlike most countries, there are few exemptions: for example, all types of food are taxed at the same rate. However, there are a few exceptions including rents collected on residential rental properties, donations, precious metals and financial services. The laws in New Zealand ensured that prices on headlines must be GST inclusive, except when businesses claim to be mainly wholesale client-based.

In the European Union, the GST, better known as the Value Added Tax, are known as ‘output VAT’ (VAT on its output supplies) and ‘input VAT’ (VAT that is paid by a business to another business on the supplies it receives). A business is usually able to recover the tax it paid either by setting it against the output VAT of if in excess by claiming a repayment from the government.

Malaysia is thinking of introducing the GST soon as a better and more effective tax to replace the Sales Tax and Service Tax. Since it is already well received and implemented in more than 140 countries, there is no doubt that should this come to Malaysia, the system will prove to be effective and efficient.

Read more: http://www.theborneopost.com/2012/09/05/gst-experiences-of-other-countries/#ixzz2WC7ravav