Of course, when the existing GST stand for Govt Service Tax (6%) while the proposed GST stand for Goods and Services Tax.
To further confuse the people, when government tried to educate the public on the proposed GST, 4% rate was used in various examples. Now, as if to test the reaction of the people as well as the need to increase tax revenue, 7% has been used.
That our government will introduce GST is a matter of time, in preparation for 'an oil-less future', to quote Ms Tan Siok Choo in her excellent article in The Sun:
GST - The political TNT by Tan Siok Choo
To support the case for implementation, examples of Singapore and Norway are likely to be quoted, because both countries are financially sound yet found it necessary to implement this form of indirect tax as a source of government revenue.
To gain general acceptance from the public, I believe our government will introduce GST together with a reduction in personal and/or corporate tax rates as sweetener.
'Again Singapore provides an excellent role model. From 3% GST, the republic progressively raised its GST to the current 7% level. During the same period, it has slashed personal and corporate tax rates to 20% and 17% respectively – among the lowest worldwide.'
Most essential goods and services are likely to be exempted, so that the majority of people are not burdened by its introduction.
We have been through it all before, when GST was first mooted and we were educated on the mechanism of the tax and how it would affect us, the public.
Basically, the main advantage of GST (or VAT in other countries like UK) is that it affects consumers only when they purchase certain goods or use certain services, which implies choice by consumers, unlike direct taxation which affects all those whose incomes are high enough to incur income tax.
The whole GST system of accounting must be well thought out to prevent unnecessary costs to businesses affected by it; to ensure their proper registration and control to prevent frauds (collecting from public though unregistered or failure to remit due amounts to tax department); only valid bills with proper GST registration number are used in calculation of tax payable or refundable; and so on.
Despite previous public education on GST, I am sure most members of the public are still confused as to the effects on prices of goods and services.
Below is an over-simplified example (GST at 4%) to illustrate the confusion:
A carpenter bought Rm100 of wood. He would have paid Rm104 for the wood to the supplier. After making a chair, he charges Rm156 (Rm150 + GST Rm6). He can claim the Rm4 GST on his Input GST from the Rm6 on his Output GST and remit Rm2 to tax department.
To a member of public who bought the chair, he is paying Rm156 which comprise Rm100 wood + GST Rm4 + Rm50 value added by carpenter + GST Rm2.
The wood supplier needs to remit Rm4 (assuming no Input GST) and the carpenter needs to remit Rm2 (Rm6 - Rm2) to tax department.
I am sure many people are confused by the implication of GST and assume that the 4% (or whatever rate decided) will be added at every value-added stage without deducting the input tax.
In the above example, public perception is likely to be:
Rm100 + GST Rm4 + Rm50 + Rm6 = Rm160 instead of Rm156, a perceived increase of Rm10 instead of Rm6 as a result of GST.
As for general implications of the proposed GST, the following picture is quite close to the truth...
but subject to the following:
1. All restaurants presently covered by Govt Service Tax are likely to be included for Goods and Service Tax, only the rate (to be decided) might be different.
2. If an outlet's sales revenue is to be a determinant, then Mamak stalls which are presently excluded are likely to be excluded for the same reason, but the ingredients used (unless exempted) might have included the new GST.
3. Whether eating at home is affected by the new GST would depend on the food purchased - whether from an outlet which charges GST or items which have included GST.
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