The GST is proposed on the basis of improving existing tax systems that are said to have various weaknesses such as double taxation on consumers and the absence of full tax relief on exported goods. These weaknesses have resulted in losses not only to consumers but also to the government as a result of these losses. GST is seen to yield more stable sources of revenue as GST is based on consumption and is not influenced by external factors. GST is also a more efficient and effective system. GST uses self-policing method and has a cross-checking system. These two methods are not only able to increase tax compliance rates, but also reduce bureaucratic red tape. Additionally, the underlying economic sector will also be tempted to join GST as the GST imposed on business inputs can be reclaimed. All kinds of taxes are difficult to make sure they are transparent to all parties. GST implementation is more stringent as everyone who pays GST needs to maintain a clear record. If the records are unclear, they cannot get a refund on the tax already paid. Generally, we can say that this GST has a check and balance system because in order to get a refund we must write a record in a transparent manner.
The benefits of GST to the country and the people are GST will bring higher returns to the country. While the people only rely on what the government will do with higher tax revenue. People will be lucky if the government uses tax collected for their good. In the event of a national financial waste, it will not bring any benefit to the people and will have to bear the heavier burden in the face of inflation. The main purpose of introducing the GST is to reduce and mitigate the economic leakage caused by a traitor in the economy. The government constantly improves the country’s economy and taxation system so that economic leakage, corruption and economic irregularities can be overcome with a more efficient and transparent management system. The government is of the opinion that the national rate of inflation is now below 2% lower and it is indeed the best time to implement the GST. This is to ensure the people are not burdened with the implementation of GST if inflation rates are high.
The findings show that GST will burden the lower income people. GST seems unfair to those with low income because they have to pay taxes at the same rate as those with high income. Therefore, the government as well as implementing the GST need to introduce a package or program such as cash payments or rebates to those with low incomes. To reform the tax system in Malaysia, the Malaysian government adopted a social welfare policy by listing over 900 items in the zero-rated GST tax category, the grant of the “Bantuan Rakyat 1 Malaysia” (BR1M) to the lower income group (B40), and the income tax deduction incentives for the income earners simple (M40). Nonetheless, high-income groups comprising 20% of the Malaysian population are responsible for paying more individual income taxes and super rich taxes as income to the country. The proposed aid package is an addition of the “Bantuan Rakyat 1 Malaysia” (BR1M) of RM300 in the first year of implementation of GST, additional BR1M to RM650 for those earning fewer RM3,000 and BR1M of RM450 for those earning between RM3,000 and RM 4,000.
The concept of consumption tax (such as GST) is the more you buy goods or use more and more tax services paid. That means you can control your expenses prudently and frugally. Those with high income will pay higher taxes when they spend more than those with low income will only spend according to their ability. The government’s cash aid program will reduce the impact of GST on low-income people. Their poor people will not have difficulties because the goods used by them are not taxed by the government. While for those with high income, they have no problem because they have enough financial resources to buy taxable items.
Implementation of GST is in line with Malaysia’s aspiration to achieve high-income and higher income status by 2020. However, on June 1, 2018, Malaysia’s 6th Prime Minister’s leadership, Tun Dr. Mahathir bin Mohamad and his new government have abolished the goods and services tax (GST) and turned into sales and service tax (SST) to be introduced on September 1, 2018.
Since the GST has been reduced to 0% on 1 June 2018 to pave the way for Sales and Service Tax (SST), which will only be re-introduced on 1st September 2018. Indirectly, during the period time conversion of GST to SST, prices are expected to fall during the ‘Tax Holiday’ which will last for three months. Shoppers are taking full advantage of discounted sales taking place in the initial days of the period from June 1 until Aug 31, 2018. A situation like this has almost never happened before and consumers should really utilise this rare opportunity to stretch their ringgit Malaysia.
With the zero- percent of GST, demand would increase for goods and services because of the prices of goods and services will getting lower. Sales of large items such as cars, furniture and electronics rose by 30% as consumers took the opportunity to buy expensive items which had become cheaper after the zero Rating of Goods and Services Tax (GST). For example, Volkswagen Passenger Cars Malaysia Sdn Bhd MD Erik Winter also projected sales to rise by 50%, taking signals from encouraging sales and bookings since June 1. Other than that, the reduction of the selling price of new residential properties made the demand of commercial and residential units increased. This is due to lower cost of construction following the zero-percent of GST for building materials and construction services.
During the tax holiday period, the festive season will take place. Therefore, the buyer will use the opportunity to spend more while the price is still low. Indirectly, the seller also takes the opportunity to increase its sales by providing discounted prices and wholesale prices without any taxation taken. People think it is the best time for consumers and businesses to buy certain high-value items now as the goods and services tax (GST) is zero-rated and the sales and services tax (SST) is yet to be implemented.
Additionally, Consumers should aware that it will be the status quo of goods and services previously categorized as zero-rated (0%) supplies during the GST period, as their prices do not change much. Consequently, consumers should not rely on all goods and services to lower prices.
NAME SALES AND SERVICE TAX (SST) GOOD AND SERVICES TAX (GST)
CHARGED TO MANUFACTURER OF OUTPUT LEVEL FROM PRODUCTION TO CONSUMER
RATE SALES TAX – 10% SERVICES TAX – 6% 6%- EACH LEVEL
CHARGED ITEMS MOST OF ALL GOODS SPECIFIC GOODS AND SERVICES ONLY
ADVANTAGE CAUSE GOVERNMENT TAX REVENUE DROP ABLE TO OVERCOME LEAKAGE
DISADVANTAGE ENABLE THE PRODUCTION PARTY DOES NOT DECLARATE THIS CHARGES THROUGH PRICING TRANSACTION CAUSED HARDSHIP FOR THE PEOPLE WITH COST OF GOING UP
GST was introduced in April 2015 and it was said to be more transparent, effective, efficient and business friendly tax system as compared to SST. The 6% tax system is imposed on goods and services at every level of production in the supply chain which is manufactures, wholesaler, retailors and consumers. This input tax is claimable by businesses. SST is a single stage consumption tax for the sales tax, the government only collects tax at the manufacturer level and element of sales tax will be charged in the price paid by consumer. The sales tax rates is between 5% to 10% while the service tax is imposed on certain services such as takaful, insurance, and hotels as well as food and beverage services which the rates is set at 6%. Fewer items to be taxed under SST compare to the GST system. Overall, the SST is more of a direct taxation, and can be treated as an added cost to business. In conclusion, SST will be paid by end customers while GST is paid by all companies. Consumers pay SST only when consuming goods while GST is a tax payable on every transaction between companies before the customers get served.
EFFECTS OF SST ON PRICE GOODS
Presently, Malaysia has consumption taxes in the form of sales tax and service tax (SST), which are imposed on specifically identified classes of goods and services, respectively. These taxes are levied at a single stage, i.e. at the manufacturer’s or importer’s level (for sales tax) and service-provider’s level (for service tax).
On the other hand, SST is a broad-based consumption tax on all supplies of goods and services, with minor exceptions. It is a staged tax where each level is taxed in every production of goods and services. A credit is given to each taxable person in the supply chain, for the SST paid on his purchases against SST due on sales made by him. Thus SST is paid on the value added.
The abolishment of the Goods and Services Tax (GST) and the reinstatement of the Sales and Services Tax (SST) might translate into a 1% revenue loss of Malaysia’s gross domestic product (GDP) assuming that the new tax system will effect in July, according to Moody’s Investors Service. They are assuming a stable share relative to GDP and taking into account seasonal patterns, they estimate that the revenue loss from the voiding of the GST at around 1.9% of GDP this year. We estimate that if the SST, which yielded revenue of around 1.6% of GDP before the GST replaced it, takes effect in July, the revenue loss would narrow to 1.0% of GDP in 2018.
The advantages of SST are numerous. The first would be having in place a more efficient tax system, to replace the present sales tax and service tax, which have inherent weaknesses and hence revenue leakages. For the SST system to function, proper documentation has to be kept. Importers will not have any incentive to under-declare the value of their imports because the credit they get would be less. In the case of smuggled goods, there would be no proof of payment of SST to claim any credit.
For example, the prices of hotel rooms and services will depend on whether or not the hotel industry needs to charge Service Tax as they did prior to GST, according to Malaysian Association of Hotels president Sam Cheah in a report by The Star. There are also those who view the 10% SST rate as too high. Recently the Malaysian Retailers Association (MRA) has urged the government to set the rate for the upcoming SST at less than 6%, according to The Edge Markets. So far, many experts are expecting prices of goods to be lower in general, though potential price hike is expected on some items, and also the charges or cost for services rendered if SST covers a wider range of services.
For example, the services rendered could be from a company to an individual, like professional services, or from a company to another company. There are many more advantages of SST, which would not be appropriate to canvass within the scope of this article.
The detractors of the tax will claim that there would be an increase in the price of goods. Admittedly, yes. The mere fact that the incidence of tax on goods is moved from the manufacturer’s level to the retail level, and therefore create two extra stages of tax collection (at wholesale and retail), would cause a slight increase.
Again the experience of other countries have shown that, with proper intervention from the Government, like reducing other forms of taxation, educating the traders and the public, any inflationary effect can be contained.