GST, what it means to me: The man on the street — Jensen Lim

OCTOBER 27, 2013

OCT 27 — As a middle-income earner, and a passive observer on the digital sphere, I’ve been inundated with information (and misinformation) over the past two days. I consider myself fortunate to have background in finance, and business, to assist me to make sense all the “noise” and fillet the relevant information — and how it might affect me. As such, I hope this might help others like me, the everyday citizens to understand the implications of this announcement.

After much speculation, our Prime Minister Datuk Seri Najib Razak finally announced during the tabling of the 2014 budget that the GST will be implemented beginning from April 1, 2015.

So what does this mean to the man on the street? Well, to begin with, let’s take a look at what the GST really is.

The GST is a broad-based consumption tax which is paid when goods and services are purchased or consumed. Unlike the present sales or services tax which is a single stage tax, GST is a multi-stage tax.

Payment of tax is made in stages by intermediaries in the production and distribution process. The tax itself is not a cost to the intermediaries since they are able to claim back GST incurred on their business inputs.

It is imposed on goods and services at every production and distribution stage in the supply chain including importation of goods and services.

Najib’s announcement also clarified that the new GST will replace the existing Sales Tax and Service Tax (SST) which were introduced in 1972 and 1975 respectively.

But why now?

The introduction of GST is part of an overall tax reform programme towards making the taxation system more efficient, effective, transparent, business-friendly and capable of generating a stable source of revenue for the country.

Based on the study conducted by the Ministry of Finance, GST can overcome the various inherent weaknesses under the current SST such as tax cascading and tax compounding as well as issues of transfer pricing and value shifting.

GST, on the other hand, is more transparent, efficient, effective, self-policing and less bureaucratic. It eliminates double taxation which currently happens under the existing SST. Implemented correctly, this means consumers will be able to pay fair prices for most goods and services compared to SST.

According to Najib, essential items such as rice, sugar, fish, chicken, vegetables, flour, cooking oil and eggs as well as livestock supplies such as cows and goats will not be subject to GST. They’ve termed these as “zero-rated” supplies.

The government also proposes to exempt GST, among others, for public transport, private education services, financial services and land for agricultural, residential and other general use.

Why six per cent?

Najib announced that GST in Malaysia will be set at 6 per cent. Comparatively, let’s take a look at other GST tax rates around the region:

During Najib’s GST announcement, certain quarters pointed out that Singapore started GST at 3 per cent which is half of what Malaysians are going to be charged. What they didn’t mention is that Singapore didn’t have a consumption tax system in place like Malaysia before they implemented GST — they were starting at the low base.

Malaysia on the other hand has had the SST which is a revenue source for the country — if the GST rate here started at 3 per cent, while the existing SST is abolished, the country will automatically have a deficit in revenue generated so it wouldn’t have made sense. Leaving it at 6 per cent means our base is stable when moving from SST.

So, this is a good start. Now let’s see how it’s implemented. I will be tracking the developments, together with a few friends, and hopefully we’ll be able to provide insight to the “citizen on the street” For more info, follow us onhttp://gstmalaysiainfo.blogspot.com , and Twitter (@gstmalaysiainfo), for updates as well.

Here’s a quick timeline we put together of how GST was first considered for implementation in Malaysia. We think it’s pretty accurate, as far as we can tell (let us know if it’s not, and we’ll have it fixed) Interestingly enough, it’s been 30 years since the idea was mooted. Well, at least it’s finally here officially and we don’t have to wait with bated breath, anticipating the announcement anymore.

Till the next one…

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

- See more at: http://www.themalaymailonline.com/what-you-think/article/gst-what-it-means-to-me-the-man-on-the-street-jensen-lim#sthash.Nzv1IMQj.dpuf