Gst Implementation in Malaysia

Contents

Introduction        

Content        

Conclusion        

Reference        

Introduction

Good and service tax (GST) has been implemented in few country before Malaysia does, countries such as Singapore, Japan, Australia has been implemented long ago and proven that good and service tax is an efficient tax system which allow the country to have better management over the income of the country. (Accountant, 2015) During 2015, Malaysia implemented good and service tax system which taxed at 6% of all value added sales product. There are certain field of product will be waived for GST such as agricultural and essential food stuff. Along the supply chain, each party that create value in the supply chain will be entitle for offset GST charge prior to the previous entity. (Investopedia, 2015) Therefore, each party in the supply chain would require to register their business for GST in order to gain their GST rebate. At each stage of the supply chain, GST will be charge and each stage will be entitle for rebate of GST charged by the previous stage, until the supply chain end at consumer and all GST will be bared by consumer. The final tax payer will be the consumer which they will not be entitle for GST rebate. The GST is charged based on the sales made but not based on the payment received date. Government will be charging the business at the monthly basis which every month will require the business to conclude the total sales and pay accordingly. On small business will be entitle exemption of GST and that would be huge increase of cost to the business due to the increase of GST charge on the cost and it is nonrefundable to the business because they are not registered. GST will be charged at 4 different rates and they are standard rate, zero rate, exemption and out of scope. First, standard rate will be representing the normal rate which chargeable to the whole supply chain and the rate will be fixed at 6%. Second, zero rate refer to business which do not add value to the product for example the water supply which do not add value to the product and they most likely will be getting full refund on the GST. Thirdly, there are certain industries which getting the waiver of GST by the government in order to ensure the affordability in certain field such as education and medical. Fourthly, out of scope refer to government going concern product such as changing passport, renewing license, these product do not require to charge GST. The replacement of GST has decrease the sales tax of 5 to 10 percent to the implementation of GST of 6 percent. In order to provide sufficient aid to help individual cope with the new tax system, government of Malaysia introduce Bantuan Rakyat 1 Malaysia (BR1M) which giving subsidy in term of cash for low income group. Besides that, the income tax chargeable to individual has been lowered 1 to 3 percent as well to compensate sudden implementation of GST. Below will further discuss more about the effect of GST towards the budgetary deficit of the country.

Content

During year 2014, there is a rating agency called Fitch, they have come to review Malaysia bond and currency. The Fitch rating that Malaysia used to have was “A” and during the year 2014, they are giving a negative outlook on Malaysia economy. Due to the budgetary deficit which happening in Malaysia, the federal government debt has been increasing dramatically, and the government income was not increasing at all. (Tax, 2014) Since year 2008 to 2013, Malaysia debt ratio has increase 14.9 points and there is no proper action was taken in order to gain government income or reduce the expenditure. GST was one of the key to increase the federal government income which the government of Malaysia has been planning for implementation since long ago. However, Fitch rating has given a push to encourage the drastic change to the country. (Reuters, 2014) According to Fitch analysis, Malaysia budgetary deficit was due to high expenditure of the country and the income of the country was solely dependent on single industry and that is petroleum. The country economy was not well diversify and the tax income of the country was not well develop to standardize the tax on good and service. Therefore, Fitch was planning to downgrade the rating from “A” to “BBB” or even “C”. Fitch rating was the key indicator for foreign investor to determine whether the country was worth investing or not, therefore downgrading of Fitch rating will cause investor to lose confident towards the country and withdraw their investment from the country. Not only that, new investor will avoid risk in investing into low rating country. The impact of downgrading the Fitch rating will not only reducing the investment from foreign country but also create a multiplier effect on the deficit issue due to the low cash inflow to the country. Therefore, implementation of GST has been a great move to reduce the risk of the country by diversify the economy and increase the income from tax. (ECONOMICS, 2015)

GST was an effective, efficient and transparent tax system which accurately charge based on the value of the product. All value added to the product will be charged accordingly, and each party in the supply chain could efficiently help business to have better taxation system in long run. On the hand, the transparency of the tax system will helps the country to gain confidence from investor with a proper definition in the tax income. Besides that, the consumption tax was replaced by a more efficient tax system and avoid leakage in consumption tax collection.

However, GST did not able to gain confidence from the people of Malaysia although the tax system was benefited everyone in long run. There are few factors which affecting the concern of the Malaysian. (Ibrahim, 2011) First, the price of goods will be increase due to GST. This concern was brought out to the Malaysian because there a multiple tier charges on the product after going through each party in supply chain. However, the concern was right although the GST has replaced consumption tax of 5 to 10 percent, the multiple level in supply chain will add in more GST when the supply chain get longer. There are some field will be affected and some of the field will be benefited, for example, agricultural field which could get zero rate of GST will eventually get lower price compare to the time before implementation of GST because there is consumption tax charge before GST. Therefore, the government has targeted the industry which would directly affect the low and middle income group in order to reduce the commitment of the group. GST would be mostly affected by the high income group which luxury good will be affected by the GST. Second, GST implementation require technology knowledge to handle the point of sale, therefore, traditional business with older age of business operator would be difficult for them to handle the new system. After the implementation of GST, there are business which closed down due to high cost of implementation of GST system and lack of knowledge on handling the system. Although government has provided specialist in tax to guide everyone on the GST system but there is insufficient to oversee the whole Malaysia. Therefore, this has created a negative impact to some of the business owner and reduce the source of income of the older people. In a positive manner, there is room for younger people to replace economy in which they will have better knowledge towards the system compare to other, therefore, young people could gain competitive advantage in meeting the minimum business requirement. Third, Malaysian has lack of knowledge towards GST and caused them to raise so much objection towards the implementation of GST. People do not understand how does it impact the economy in long run but in short run, people are affected by the hiking of product price. Although some of the product reduce in price but there is high chance of other product will be increase in price. Therefore, the concern of people towards the implementation was due to lack of knowledge towards the benefit of the long run effect. The federal government has provided training and courses to clear the mind of the taxpayers and also to improve their knowledge and current position of Malaysia in the world wide economy. Last but no least is the sense of security of the Malaysia Citizen. Everyone tend to have uncertainty thought in their mind because this is something new and have never introduce into the economy before. Although there are country has been implemented with the system since long ago but that could not convince Malaysia citizen because the economy base of the country is different between each other. Therefore, people will be panic when new thing kicks in even though the system might help them in the long run. People has been living in a comfort zone for long period of time and that already establish since the independent of Malaysia. Therefore, sudden change may be result in negative reflection in the beginning but only time could tell the effectiveness of the system. Change is necessary to helps the country economy to adapt with the rapid changing world. Although Malaysian could not foresee the future of the GST implementation but with the good management of the government will shows the Malaysian the true value of GST. (Lian, 2005)