A new tax will be implemented soon which is the goods and services tax (GST). It is rumored that the GST will take place somewhere around mid 2011. A new change into Malaysia tax system.
To be honest, most Malaysians are still confused about the GST. Let me share some basic knowledge that we need to know when GST is implemented in Malaysia.
What is GST?
It is a tax that the buyer pays instead of the seller. Consumers still need to pay income tax as GST and income tax is totally different.
It is a consumption tax charged on imports and also value added to goods and services provided by a business to the end user.
It is a mark up price. Selling price = Cost of materials + profit charged to customers
How much will the GST be?
If our government never flip flop, it will be at 4%. It is set by the Finance Minister.
Difference between GST and Sales tax?
GST is a multi stage tax while sales tax is a one go tax. With GST, you won’t have cascading effect meaning you won’t need to pay tax which are not relevant.
What are the advantages of GST?
More efficient with more tax collected. The rate will be lower also because it is broad base. The tax will be collected from the very first transaction to the consumer. That is why it’s broad base.
Tax evasion will be harder and more income tax can be collected for the government. Good for the government but not good for the citizens.
Are you eligible to charge GST?
One year business which amounts to RM 500000 must register to charge GST. Busiess lesser then 500k can volunteer to charge GST and claim input tax credit.
GST on imports
Imported goods will be tax at the time of importation
Will there be GST on domestic products?
Yes. GST will be collected within one month for businesses supplying goods and services. Period taxable will be three or six months depending on the classification of the business by the GST authorities.
Not all goods and services will be charge GST. There is 3 categories for GST, Taxable, zero rated and exempt.
Taxable goods and services
Consumers will be charge 4%. If your business is registered to charge GST, the rate will be the same on the sale of the taxable goods and services and pay GST on its purchases.
End user will pay 0% GST. No tax will be charged on the item on the consumers. Will be able to claim a credit for any GST paid on the inputs.
Exempt goods and services
No tax will be charge to the consumer same as zero rated but will not be entitled to claim any input tax credit on purchases.
Will GST be a pain in the ass to the consumer?
GST is set at 4% while the current sales and service tax is much higher then the GST. So there will not be any significant rise on the increase on prices.
For goods with lesser sales and service tax, consumers have to pay slightly more with the GST at 4%.
GST might looks simple but consumers should understand it properly. Not only consumers but business people should not take GST lightly as they need to apply the GST to their business.
Failure to do so, will result in the loss of the set off or credit for input taxes suffered. Not only that, business might have to pay penalties for not following the law.
How effective the GST will be, only time will tell. I am sure there will be many loop holes for people to exploit it. Only time will tell. We shall see how efficient our government will be in implementing GST.
To be honest, we have very good rules and law but implementation is very poor by the authorities. I don’t put high hopes in GST as well. Hope they can prove me wrong!