Goods & Services Tax (GST)
April 1 2015, Malaysia will be imposing GST and since it’s a new concept for Malaysian business and consumers, there might be a slight confusion on the implementation. In order to properly implement GST, businesses have to convert the billing system, and restructure payment method in order to be transparent.
All businesses with annual sales turnover of RM500,000 and above are liable to be registered under GST. Businesses having an annual sales turnover of less than this amount are not liable to be registered under the GST.
Before panicking, we must first understand what is GST. GST is known as value added tax (VAT) in many countries is a multi-stage consumption tax on goods and services. Tax will be levied on the supply of goods and services at each stage of the supply chain from the supplier up to the retail stage of the distribution.
Malaysian Government is taking cautious steps in imposing GST so that consumers will not be burdened by higher costs. Therefore Malaysians won’t be paying GST for certain essential goods like unprocessed meat, cooking oil, sugar and essential services like public transportation electricity, education, healthcare, toll, financial transactions and life insurance.
Why GST?
The main reason we need to pay taxes is to enable the government to finance socio-economic development; which includes providing infrastructure, education, welfare, healthcare, national security etc. 90% of the world’s populations are exposed to GST, including China, Indonesia, Thailand, Singapore and India.
GST is part of the Government’s tax reform programmed to enhance the effectiveness of the existing taxation system. Its serves as a more effective, transparent and business friendly system if implemented correctly. This could spur economic growth as well as increase competitiveness in the global market.
GST prevents double taxation as Streamlined sales tax (SST) could lead to double taxation that can prove to be a demerit to consumers.
Various benefits that GST can offer to consumers and businesses:
• Improved Standard of Living
• Lower Cost of Doing Business
• Nation-Building
• Fairness and Equality
• Enhanced Delivery System
• Increase Global Competitiveness
• Enhanced Compliance
• Reduces Red Tape
• Fair Pricing to Consumers
• Greater Transparency
Comparative with the present sales tax, consumers would benefit under GST as they will know exactly whether the goods they consume are subject to tax and the amount they pay for.
To further encourage international business, exports of goods and services are not subject to GST (subject to tax at zero-rate).The government is very clear about this to ensure that exports are more competitive in the international market.
GST will be imposed at every level of the supply chain; the tax element does not become part of the cost of the product because GST paid on the business inputs is claimable. Therefore, it does not matter how many stages where a particular good and service goes through the supply chain because the input tax incurred at the previous stage is always deducted by the businesses at the next step in the supply chain.
What is input tax, output tax and input tax credit?
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/supplies of goods and services. Input tax credit means tax input claimable by businesses registered under GST.
GST will generate additional revenue of RM 1.0 billion compared with the existing sales tax and service tax. Basically, the imposition of the GST at the rate of 4% will not bring about increase in revenue of RM1.0 billion. The increase in revenue will be realized by having an effective GST system where there is increase in tax compliance.
(Source http://www.gstmalaysia.co/what-is-gst-malaysia/4/)
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