Posted on October 22, 2013, Tuesday
KUCHING: There is much speculation that goods and services tax (GST), which is an indirect tax, will be formally introduced in Malaysia in the near future that will replace the much narrower Sales Tax and Service Tax (SST).
According to a KPMG press release, the GST is particularly useful as a revenue-raising tool given its wide indirect tax base.
By designating certain supplies as zero rated or exempt, the impact of GST can be softened in line with government policies.
“As GST is levied on supplies (typically sales) of goods and services the number of people paying tax is far higher than under SST or Income Tax. There is therefore, a more equitable sharing of the tax burden,” KPMG highlighted.
It further noted that the introduction of GST, government revenues will be less reliant on direct tax and instead there will be greater funding from the wider indirect tax base.
This reduction in government revenues from direct taxes and greater yields from indirect taxes, is a global phenomenon.
Being a broad based tax, GST can be charged on practically all supplies of goods and services, although this is tempered with some supplies being designated zero-rated or exempt where GST will not be charged.
Although the introduction of any new tax may be viewed with some degree of trepidation, a number of arguments can be advanced to support the introduction of GST, said KPMG.
This includes the fact that unlike income tax, GST does not depend on profit but rather is based on consumption.
As a consequence, the government would benefit from a more certain revenue stream.
Additionally, the income of many individuals falls below the threshold for income tax.
As a result, the footprint for income tax is relatively small and the tax burden is arguably inequitable.
As GST is based on spending there is the potential for many more individuals and businesses to contribute to the government’s tax coffers.
“Under the current indirect tax system, SST are embedded production costs which may be reflected in higher prices. GST in comparison, through its input tax credit system, can reduce the cost of production for businesses. In parallel, the zero rating of supplies to persons outside Malaysia would increase the competitiveness of Malaysian exports,” KPMG added.
In countries where it is has been implemented, GST is said to have increased tax compliance.
This is primarily because of the need for businesses to be able to provide ‘GST Invoices’ which requires that they be registered with, and known to, the tax authorities; hence there is greater transparency.
GST can also be said to provide an efficient tax collection mechanism as the payment obligation is dealt with directly by the supplier Additionally, there are arguments that the GST is regressive as the lower income group may pay more tax in proportion to their income.
This argument can, however, be countered as essential items like basic food stuffs, will be zero rated or exempted.
Consequently a greater proportion of the lower income group’s spending would be on zero-rated or tax-exempted goods as compared to the higher income group.
“Consumers will not need to pay GST for critical services such as healthcare, public transportation, education and residential property to name a few.
“As a safeguard, the government is likely to monitor prices closely. Action can be taken under the Price Control and Anti-profiteering Act against those who try to profiteer from the GST by not passing on their cost savings to their customers.
“In the lead up to the introduction of GST, it is important to understand GST as a concept and to keep updated with the latest proposals and developments,” KPMG said.
It underscored that GST will undoubtedly impact businesses in terms of cashflow, manpower and reporting requirements.
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