Better latte than never — Cass Shan

OCTOBER 17, 2013

OCT 17 — Ever enjoyed a cup of latte as you read through the morning paper, check Facebook for updates or even prepare the day’s breakfast in the kitchen?

A latte can mean so many different things – from a morning jolt into wakefulness, to a sweet lingering taste to greet the day and a stimulant before embarking on the day’s work day. And now, that cup of latte that you buy from a coffee parlour can mean one more thing – contribution to society and country.

The urban family is may be more modern yet can be as patriotic as families elsewhere. They bustle around with new technologies, yet are acutely aware that their advantages in living must be shared and made available to all. They are educated with a gentle reminder that education is not a privilege but a necessity in the knowledge era. They enjoy some little luxuries like dining in a nice restaurant now and then, yet know that there are many who a less fortunate who did not have the opportunity to enjoy the same.

The urban family wants to pay a part in moving Malaysia into developed nation status and is keenly aware that the government is actively striving to bring benefits to the country and the less fortunate. The urban family wants to help. Now, that cup of latte is how they can help.

With the soon to be introduced GST (Goods and Services Tax) system, the urban family will be glad a newer, better tax system will replace the current Sales and Service Tax. The GST is a more comprehensive, effective, transparent, and business friendly tax system. The introduction of the GST can overcome the various weaknesses inherent in the present consumption tax system, such as the cascading tax, double tax and pyramiding tax, tax erosion and leakages through transfer pricing and other means. Besides that, GST is expected to increase tax compliance and is easier to administer in view of its self-policing method. This is one of the main reasons why GST introduction should be expedited rather than delayed further, as increased tax compliance will lead to better preparations for the nation in order to deal with the challenges of the coming global headwinds.

With income derived from the GST, families in the lower income bracket live their life better. The urban family knows this – and smiles as they sipped through their morning latte, knowing that the GST imposed on a RM10 cup of latte from the coffee parlour are making another family happy. The urban family understands that GST will be introduced at a lower rate than we are paying now for Sales and Service Tax. Hence, depending on the rate, it will probably takes a mere 40 sen from that delicious cup of latte bought by the urban family to ease the financial burden faced by so many in the rural area. The urban family gets to enjoy latte, while ensuring that the rural families smile the same smile when they receive the contribution of that 40 sen.

How does that happen?

It happens because the government collects GST from goods and services purchased by the affluent, in order to implement policies and benefits for the poor. These policies include building of roads, hospitals and schools – hence providing care for all Malaysians. In principle, GST is imposed on all goods and services produced in the country including imports. However, certain basic foodstuff likes rice, sugar, flour, cooking oil, vegetable, fish and meat, eggs and essential services such as health and private education, public transportation, residential property and agricultural land are not subject to GST. Such exemption is to ensure that the lower income group is not burdened by GST.

The urban family has heard that a lot of Malaysians are under the RM3,000 income bracket. The GST does not affect these groups in an adverse way as the scope of charge for both (the income tax, SST and GST) types of tax are vastly different. The scope of charge for income tax is based on income received by an individual whilst the imposition of GST is based on the consumption of goods and services.

Presently, those not liable to income tax still pay sales tax and service tax on goods and services that they consume. The issue is, most consumers are not aware that the tax element has been embedded in the price of goods and services sold by the retailers. As a matter of fact, the imposition of GST will not make any difference to the tax burden of those earning below RM3,000 monthly as they would have paid tax on the consumption of those goods and services.

Hence, GST imposed goods and services is bought by those who can afford it, and contributes back to those who earns less than RM3,000 income through government assistance policies such as cash hand-outs. In essence, all Malaysians benefit from the income derived from GST through government-funded aid, projects, policies and economic reform.

The urban family either works at a business or owns a business. They are aware that 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. Hence, the support by the urban family toward GST implementation means a positive impact on society without the detriment of businesses.

As urban families often work at various businesses rather than in agriculture, the urban family takes into consideration how the GST system affects businesses. GST is charged and collected on all taxable goods and services produced in the country including imports. Only businesses registered under GST can charge and collect GST. GST collected on output must be remitted to the government. However, businesses are allowed to claim the input tax credit through the following mechanism and method: GST collected on output (output tax) is deducted against the GST paid on input (input tax), if there is excess, the amount shall be remitted to the government within the stipulated period, and if there is deficit, businesses can claim for refund from the government.

Hence, the urban family knows that GST is not a hold back to the same businesses they are involved in, whether through employment or the running and ownership of one. Instead, the many benefits and efficiency of the GST is good for business.

The urban family loves the idea of economic development through the implementation of a tax system already in use successfully in more than 170 countries. They embrace change knowing that change is essential to moving forward and trusts that a widely used system such as the GST has been proven to work, will help contribute to society and will not impose a burden on the less affluent such as those in rural areas.

Hence, the urban family will share this post in social media, for other urban families to welcome new methodologies that will benefit the country.

Are you going to click ‘share’ on Facebook as you enjoy that latte?

* This is the personal opinion of the writer and does not necessarily represent the views of The Malay Mail Online.

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