Malaysia needs GST

 |May 8, 2017

The government of Malaysia implemented 6% goods and services tax (GST) since April 1, 2015, and numerous explanation had been given since then by various quarters including the media on its implementation and benefits.

But the opposition bloc has been politicising the GST to mislead and confuse the people merely for political mileage.

The opposition has propagated GST as an additional tax to burden the people.

Mind you again, GST is not an additional tax to burden the people but in fact, it is the replacement tax for the abolished sales and service tax (SST), which was 10%.

The purpose of abolishing SST, which had been used in the country for several decades, was to seek additional revenue to offset national budget deficit and reduce federal government dependence on oil revenue from Petronas, Malaysia’s state-owned oil company.

The GST implementation was also part of the government’s tax reform programme to enhance the capability, effectiveness and transparency of tax administration and management.

Many out there are still being carried away with opposition’s propaganda and questioning why SST was replaced with GST.

GST is a more comprehensive, effective, transparent, and business friendly tax system, which was designed to overcome various weaknesses inherent in the present consumption tax system.

The inherent weaknesses under SST are the cascading tax, double tax and pyramiding tax, tax erosion and leakages through transfer pricing and other means.

Besides that, GST is expected to increase tax compliance, besides being easier to administer in view of its self-policing method.

The business entities 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 on the business premises for audit by the GST auditor.

Well, that is as simple as ABC, but why is it being cried foul and perceptions being created as entities were closing down due to the implementation of GST?

This boils down to the cascading taxes that been practised by business entities to pocket more which led the government to be poorer by approximately RM41 billion per annum.

It was reported early this year that Deputy Finance Minister Othman Aziz said the Customs Department had collected RM41 billion for 2016.

In fact, the government proposed the lowest 6% rate to neutralise GST impact on consumers as not to unduly burden the people especially the lower income group.

By imposing GST at a lower rate, it was expected that the consumers will benefit from the price reduction in most of the goods and services.

But we didn’t see any price reduction due to the demonising behaviour of certain business organisations.

This could be a mischievous attempt by these business groups to validate the opposition bloc negative propaganda on GST.

It has been thoroughly explained on how GST was being charged and collected.

Only businesses registered under GST can charge and collect GST.

GST collected on output must be remitted to the government.

However, businesses are allowed to claim the input tax credit through the following mechanism and method:

  1. GST collected on output (output tax) is deducted against the GST paid on input (input tax credit).
  2. If there is excess, the amount shall be remitted to the government within the stipulated period.

iii. If there is a deficit, businesses can claim for refund from the government.

Input tax is the GST charged on the purchase of goods and services used in the business activity.

Output tax, on the other hand, is GST charged and collected on sales and supplies of goods and services.

Input tax credit means tax input claimable by businesses registered under GST.

The government has conducted proper studies so no one will be on the losing end.

But the opposition has been misleading the people all the while.

Now, the opposition has come up with another new political gimmick saying that if it came into power, GST will be zero rated.

One with a right thinking mind will wonder what will happen if the country goes into zero rated GST.

Who are the opposition trying to hoodwink?

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Murali is a contributor to MO. He advocates the principle of practising human rights with responsibility.