Last week on one occasion when I met up my uncle, we have a talk regarding to Good and Service Tax (GST) in Malaysia, as this is new to Malaysia although it was newly acquainted in 2005 Budget. GST was implemented in Singapore since 1st April 1994. GST had been implemented in countries such as New Zealand, United Kingdom, Republic of South Africa, Canada, Pakistan and etc.
On that time I thought, what for we have so many taxes, since we have personal income tax, if those who own vehicle need to pay road tax, those who own house need pay Land Assessment Bill (cukai tanah) and etc. Is this GST makes us pay more? A burden to the people? Enough!!! The people (rakyat) is having a hard time, did government know this? With GST, it will replace the existing sales & service tax, that seem not much affection to us in certain points.
After listened to my uncle points of view, I think that implementation of GST is not really a "bad" things, as long as government spends the money wisely and re-distribute the money fairly, and this is the 1st time I agree that government pay back the money, previously I object that government should subsidise or pay money to rakyat. Why I will say so, I will explain in details in the this article later. In fact I think the earlier implementation of GST, the better to Malaysian.
GST (also known as Value Added Tax) is a multi stage tax, unlike the the current sales tax which is the single stage tax. Although GST involve multiple stage tax but it only cost to the final consumer.
For example, a consumer would like to purchase a wooden table, and standard GST rate apply:
1. Woods supplier:
Sales price : RM50.00
GST 5% : RM 2.50
Total : RM 52.50
Payment to Government:
GST Charged : RM 2.50
Less GST incurred: RM 0.00
GST Payable : RM 2.50
2. Furniture Manufacture:
Sales price : RM 150.00
GST 5% : RM 7.50
Total : RM 157.50
Payment to Government:
GST Charged : RM 7.50
Less GST incurred : RM 2.50
GST Payable : RM 5.00
3. Furniture Wholesaler:
Sales Price : RM 200.00
GST 5% : RM 10.00
Total : RM 210.00
Payment to Government:
GST Charged : RM 10.00
Less GST incurred : RM 7.50 (2.50+5.00)
GST Payable : RM 2.50
4. Retailer :
Sales Price : RM 250.00
GST 5% : RM 12.50
Total : RM 262.50
Payment to Government:
GST Charged : RM 12.50
Less GST incurred : RM 10.00 (2.50+5.00+2.50)
GST Payable : RM 2.50
5. Consumer :
Sales Price : RM 250.00
GST 5% : RM 12.50
Total : RM 262.50
As we can see for the above example, the GST will only cost the final consumer to pay the tax of RM12.50. If we assume woods supplier cost is RM 0, the woods supplier make RM 50.00, the furniture manufacture profit RM 100.00, the wholesaler profit RM 50.00 and the retailer also make RM50.00.
The discussion paper of tax review paper mention a few terminologies which we need to understand:
1. Input tax
2. Output Tax
3. Standard-rated supplies
4. Zero-rated supplies
5. Exempt supplies
That I will not elaborate much, as I would more concern is, how will this benefit to Malaysia. I strongly believe when GST implement the personal tax may be reduce, will this a good news to us?
The implementation of GST is good to us. As we know, currently we are using tax return form to file our annual income tax. If a person under declare his income, how efficient the LHDN to detect or in detecting the under declare? We earn is to spend. If the govt. guards the tax revenue on the consumer spending, it is more difficult for the people to evade paying the tax. You can't go to KFC tell them, I am not going to pay the sales tax, they will kick you out.... Haha...
But the problems are, if we reduce the income tax, the rich will pay less income tax. With the implementation of GST, the sellers will not care whether the consumer is rich or poor, they will just bill you with the GST. According to tradition, we have the idea of the rich pay more, the poor exempted from paying tax... haha... this one should be no argument.. LOL... maybe some of the rich guy will not happy, but they have to do so, or else LHDN will come after them. In general (rakyat) will object the GST, they will say with GST they need to pay more on goods, while the rich can save for income tax, poor become lesser money since they pay the GST, they will complain how can the government do so? But if with the government proper control and wise management of the tax, the government can actually pay back the money to the poor.
How come I will say the government pay back money to the poor, with the proper control of GST, we can cut down the tax evasion. The rich, who make a lot of money they sure would prefer luxury life, buy big bungalow, condominium, cars, jewellery, branded wears and etc. Then we tax them from there. Of course for the super duper rich people, they will also incur in income tax as the government will not totally expel off.
Government may set certain rules, under certain income the government will pay back some money to them in order to reduce their burden of GST.
From the example that I give, if the woods supplier under declare the income tax definetly the furniture manufacture will not agree. Why?
1. Woods supplier sell the woods to Furniture Manufacture RM 50.00, but if it declare it at RM 30.00.
2. Woods supplier will pay only RM30.00 at 25% corporate tax, the other RM20.00 evasion.
3. Furniture manufacture will object for that, why I pay RM50.00 you declare RM30.00, sooner furniture manufacture will sell the product in RM 150.00, it seem that it make profit of RM 120.00 in stead of actual RM 100.00. And the input GST incurred is lesser, Furniture manufacture customer have to pay more GST. Now the Furniture manufacture have to pay the tax for the Woods supplier.
4. So in this example, it seem that the buyer will check & balance for the purchasing. Rather than current tax system, the buyer just buy the goods, how you declare is your matter.
My opinion is that, if we implement the GST the government tax revenue will increase due to the efficient of collecting the tax, it is a good news. With the extra money, will the government spends wisely and making sure it brings benefits to us as the nation people?
