Published: Sunday October 6, 2013 MYT 12:00:00 AM
Updated: Sunday October 6, 2013 MYT 1:33:27 PM
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| Lightening the burden: The writer feels that basic services needed by people in the low and middle classes for their everyday lives should be exempted from GST. |
Part 2 of the article on GST shows that with its implementation, Malaysia would be in a better position to unleash our entrepreneurial talents to attract more investments.
HOW would the GST regime work in Malaysia? Basically, it will be based on a self-assessment system similar to the current income tax system. As such, every enterprise needs to make its own assessment and submit returns with random audits to be conducted.
All businesses need to register an account with the Malaysian Customs Department, with exemption of companies with annual sales revenue of less than RM500,000 each.
The registered companies would then need to collect GST from their customers on all relevant transactions and submit monthly returns together with the taxes collected. The government will refund the taxes paid to the suppliers in the subsequent month.
If the businesses have disagreements with the authorities, these can be brought to the “GST Dispute Tribunal” specially set up to handle disputes related to GST speedily.
Businesses will also be allowed to employ tax agents to perform GST submissions on their behalf if they feel the need to do so.
However, before GST is to be implemented, I strongly feel that the system needs to be modified to avoid burdening the poor and the middle class.
The Finance Ministry (MOF) has already agreed that certain basic necessities should be exempted from GST. These are listed in Table 1.
Besides these exemptions, I suggest that basic services needed by people in the low and middle classes for their everyday lives also be made zero-rated items.
These should include:
> Domestic transportation for public by rail (KTM, LRT, ERL and Monorail), ships, boats, ferries, express bus, stage bus, workers’ bus, school bus, feeder bus and taxis
> Toll highways up to an amount of RM100 per month
>Rental of residential properties up to a maximum of RM500 per month;
> Medical care up to RM500 per month
> Education fees up to RM 1,000 per month
Sales threshold
The MOF has also recommended that only companies with annual sales above RM500,000 be subjected to GST. This implies that 78% of total business establishments or 433,558 SMEs will be exempted from GST.
I would also suggest that, similar to the Singapore model, enterprises with annual revenue between RM500,000 and RM1mil be given the option of voluntary compliance to GST system.
It should be noted that GST compliance, with its transparent billing and rebates, is a big attraction for SMEs in getting sub-contracts from multi-nationals and big corporations. It is expected that as a result of these exemptions and the thresholds from GST, the average consumer would save money and have higher purchasing power.
It is further estimated that Consumer Price Index would fall by about 0.10%.
In order for the GST to gain wider public acceptance, I suggest that the government begin the GST implementation with a minimal of 2% for a trial period of one year. This would allow for teething problems to be resolved before full implementation.
I would also advocate that the submission system be given an option of interval submission such as three months (or half a year) per submission, just as in Singapore.
This will help the SMEs to save costs and reduce their needs to hire permanent staff for the purpose.
I would also argue for the lowering of personal and corporate taxes a year after the trial period. More specifically, the existing personal tax increment band should be made wider.
The current income tax brackets are too narrow. For example, a person earning RM8,500 per month (or US$2,600) would hit the top 26% income tax bracket.
In reality, especially in the Klang Valley, a middle-income household (say with two children) earning RM8,500 per month would be very stretched to make ends meet.
Such narrow tax brackets are burdensome to the low and middle-income groups, under which they will have to face rising costs of living but also face GST chipping at their income.
I would suggest that one year after GST implementation, current personal tax bands be widened as in Table 2.
The government should also consider lowering corporate income tax rates further to the levels prevailing in Singapore and Hong Kong, so that Malaysia can be equally competitive in attracting foreign and domestic investments.
Lastly, I would argue for an efficient and convenient refund system to be set up for foreign tourists (and investors exporting our goods) so as to enhance the international competitiveness of our economy.
With the GST implemented in place of our present opaque sales and service tax system and the lowering of our personal and corporate income tax rates, Malaysia would be in a better position to unleash our entrepreneurial talents to attract more investments.
These would ultimately make the Malaysian economy more competitive and create more high-value jobs for our people.
> Dr Fong is a former professor of Applied Economics and Dean of Faculty of Economics and Administration, Universiti Malaya and former Human Resources Minister. He aspires, unrealistically, to be a single-handicap golfer.
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