1.0. Introduction
Goods and Services Tax (GST), also known as Value-Added Tax (VAT) in many countries is a multi-stage consumption tax on goods and services.
Fundamentally, GST is 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. Even though GST is imposed at each 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. Hence, 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.
GST is a broad based consumption tax covering all sectors of the economy i.e. all goods and services made in Malaysia including imports except specific goods and services which are categorized under zero rated supply and exempt supply orders as determined by the Minister of Finance and published in the Gazette.
The basic fundamental of GST is its self-policing features which allow the businesses to claim their Input tax credit by way of automatic deduction in their accounting system. This eases the administrative procedures on the part of businesses and the Government. Thus, the Government’s delivery system will be further enhanced.
We need to pay taxes so that the government can finance socio-economic development; which includes providing infrastructure, education, welfare, healthcare, national security etc.
"Over the past few decades, the worldwide trend has been for the introduction of a multi-stage GST system. Today, almost 90% of the world's populations live in countries with GST, including China, Indonesia, Thailand, Singapore and India."
Conclusively, GST is a consumption tax that is based on the value-added concept which will replace the current sales tax and services tax. Put in differently or explained in simple terms, with GST, consumers will only need to pay tax once and the price of the goods should either remain the same or in fact be more affordable.
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A multi-stage tax on domestic consumption, GST is charged on: | ||
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1.1. Understanding of GST
GST shall be levied and charged on the taxable supply of goods and services made in the course or furtherance of business in Malaysia by a taxable person. GST is also charged on the importation of goods and services.
A taxable supply is a supply which is standard rated or zero rated. Exempt and out of scope supplies are not taxable supplies. GST is to be levied and charged on the value of the supply.
GST can only be levied and charged if the business is registered under GST. A business is not liable to be registered if its annual turnover of taxable supplies does not reach the prescribed threshold.
Therefore, such businesses cannot charge and collect GST on the supply of goods and services made to their customers. Nevertheless, businesses can apply to be registered voluntarily.
Almost all countries collect income tax, which is a percentage of what you earn as an individual. Another way the government gets revenue is by collecting tax from business operations, like sales tax and duties on items that are bought or sold.
We need to pay tax so that the government can operate. GST is one method of collecting taxes which works better than others.
1.2. Why GST Introduced and Implemented
GST is proposed to replace the current consumption tax i.e. the sales tax and service tax (SST). The introduction of GST is part of the Government's tax reform programmed to enhance the efficiency and effectiveness of the existing taxation system.
GST is proven to be a better tax system as it is more effective, efficient, transparent and business friendly and could spur economic growth as well as increase competitiveness in the global market.
GST is capable of generating a more stable source of revenue to the nation because it is less susceptible to economic fluctuations.
It is important to replace the existing SST in order to eliminate its inherent weaknesses such as cascading and compounding effects, transfer pricing and value shifting, no complete relief on goods exported, discourage vertical integration, administrative bureaucratic red tape, classification issues and etc.
Various benefits that GST can offer to Malaysian consumers and businesses are:
GST is proven to be a better tax system as it is more effective, efficient, transparent and business friendly and could spur economic growth as well as increase competitiveness in the global market.
GST is capable of generating a more stable source of revenue to the nation because it is less susceptible to economic fluctuations.
It is important to replace the existing SST in order to eliminate its inherent weaknesses such as cascading and compounding effects, transfer pricing and value shifting, no complete relief on goods exported, discourage vertical integration, administrative bureaucratic red tape, classification issues and etc.
Various benefits that GST can offer to Malaysian consumers and businesses are:
Improved Standard of Living
The revenue from GST could be used for development purposes for social infrastructure like health facilities and institutions, educational infrastructures and public facilities to further improve the standard of living.
Lower Cost of Doing Business
Under the current system, some businesses pay multiple taxes and higher levels of tax-on-tax (cascading tax). With GST, businesses can benefit from recovering input tax, thus reducing cost of doing business.
Nation-Building
GST is a better and more efficient method of revenue collection for the government. More funds can be channeled into nation-building projects for progress towards achieving a high income nation.
Fairness and Equality
With the GST, taxes are levied fairly among all the businesses involved, whether they are in the manufacturing, wholesaling, retailing or service sectors.
Enhanced Delivery System
GST will be administrated in a fully computerized environment, therefore speeding up the delivery, especially for refund claims. This makes it faster, more efficient and reliable.
Increase Global Competitiveness
Prices of Malaysian exports will become more competitive on the global stage as no GST is imposed on exported goods and services, while GST incurred on inputs can be recovered along the supplies chain. This will strengthen our export industry, helping the country progress even further.
Enhanced Compliance
The current SST has many inherent weaknesses making administration difficult. GST system has in-built mechanism to make the tax administration self-policing and therefore will enhance compliance.
Reduces Red Tape
Under the present SST, businesses must apply for approval to get tax-free materials and also for special exemption for capital goods. Under GST, this system is abolished as businesses can offset the GST on inputs in their returns.
Fair Pricing to Consumers
GST eliminates double taxation under SST. Consumers will pay fairer prices for most goods and services compared to SST.
Greater Transparency
Unlike 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.
2.0. How Does GST Impact Your Business?
For companies, the immediate challenge would be the integration of GST into their operations. Companies must now assess the impact of GST on their operations and pricing strategies. Although the mechanics of GST are relatively straightforward (that is output tax less than input tax), the challenge is in the details as companies must also consider the capability of their IT systems to cope with the demands of GST, the need to educate employees and customers as well as the impact on employee benefits. The Board of Directors must also be extra careful to ensure that pricing strategies are accurately modeled as a wrong decision could impact the company's performance.
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