What is GST Tax? How GST Impact our Life?

What is GST and How GST Impact our Life? Here is some information about GST - The Understanding. “In this world nothing can be said to be certain, except death and taxes” – Benjamin Franklin. Of course, nobody likes taxes, what more unjustifiably high tax that put a squeeze on your already tight finance. But new tax can be good? Yes it can, if it is effective, transparent, and business friendly than the one it replaces, as is the case with the proposed Goods & Services Tax (GST). So, what is this GST thing?

In simple terms, GST is a consumption tax based on the value-added concept. GST is imposed on goods and services at every production and distribution stage in the supply chain including importation of goods and services. GST will replace the present consumption tax comprising the sales tax and the service tax (SST). The difference between GST and the present consumption tax is in terms of its scope of charge. The new consumption tax is more comprehensive, inclusive of the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on business inputs.

At present, the sales tax is imposed only at the manufacturing stage that is at the time when the goods are manufactured or when the goods are imported. Meanwhile, the service tax is imposed on specific services at the time when the services are provided to the consumer.

“I am already paying 6% Service Tax for a lot of things. I don’t want to be charged another tax on top of that!”

Aha! You missed what I said earlier, the implementation of GST will replace the present Sales Tax and Service Tax. As such, both types of taxes will be abolished on the date of the implementation of GST. After that, there will only be one tax – the GST.

“So why the need to replace the SST then? What is the catch?”

Well, the implementation of the GST can overcome the various weaknesses inherent in the present consumption tax system. Maybe most are not aware of the inherent weaknesses under the present tax system such as the cascading tax, double tax and pyramiding tax, tax erosion as well as leakages through transfer pricing and other means. Most importantly, GST is expected to increase tax compliance and is easier to administer in view of its self-policing method. Businesses are required only to submit simplified tax returns based on prescribed formats. All records and documents relating to the relevant transaction are required to be kept in the business premises for audit by the GST auditor. Sounds simple enough right?

One of the popular misconceptions is that the GST will be an additional burden to Malaysians of the lower income group, even those who are not liable to pay income tax. This misconception is perpetuated by those who may have ulterior motives, looking to undermine any government initiatives, or just plain ignorant. This is of course, not true. Presently, even those not liable to pay income tax are still paying sales tax and service tax on goods and services that they consume. The issue is, most consumers are not aware that the tax element has been embedded in the price of goods and services sold by the retailers. As such, the imposition of GST will make a difference to the tax burden of those not liable to pay income tax, but in a positive way, as consumption tax that they will be paying for those goods and services would be lower.

“I don’t believe it. Why would the Government proposes a GST rate which is lower than the current tax rate?”

The purpose of the government in proposing the GST at a lower rate is to neutralize GST impact on the rakyat and consumers so as not to unduly burden the rakyat especially the lower income group. By imposing GST at a lower rate, it is expected that the consumers will benefit from the price reduction in most of the goods and services.

Will GST impacts all goods and services in a good way? Most probably not, some categories of goods and services will stay the same, and some might even experience price increases, but overall, the new consumption tax will bring greater benefits for consumers, businesses and the government.

“OK, sounds like having GST is better for the consumers then. When will this thing be implemented?”

While the exact date of implementation is not announced yet, once it is announced, it will take about 14 months to be implemented, according to the Finance Ministry Secretary General of Treasury, Tan Sri Dr Mohd Irwan Serigar Abdullah. Will it be announced in the upcoming Budget 2014? Well, nobody can say for now, but it could be said that we are already very late to the party, as over 170 countries have already implemented similar consumption tax, including the majority of our neighbours in ASEAN. 

(This article credit to Tuan Haji Abdul Aziz Abu Bakar, the President of Malaysian Association of Tax Accountants)