Reasons for malaysia to need gst

[PERTANDINGAN PENULISAN ARTIKEL GST] Kategori B: Soalan 2

Why

Malaysia Needs

GST?

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Table of ContentsIntroduction.................................................................................................................................................3

Enhanced Delivery System..........................................................................................................................6

Lower business cost....................................................................................................................................6

Additional Revenue.....................................................................................................................................7

Justified Taxation System............................................................................................................................9

Corrective measure to the current taxation system......................................................................................9

Adds Transparency......................................................................................................................................9

Enhances Malaysian Exports Competitiveness..........................................................................................10

Lower Rates of Direct Taxes.....................................................................................................................10

Increase Investors Confidence...................................................................................................................11

Reduce red tape.........................................................................................................................................11

Encourages Entrepreneurship....................................................................................................................12

Conclusion.................................................................................................................................................12

Reference...................................................................................................................................................13

Appendix A...............................................................................................................................................17

Appendix B...............................................................................................................................................18

Appendix C...............................................................................................................................................19

Appendix D...............................................................................................................................................20

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Introduction

This paper proposes to elaborate on the reasons for Malaysia to need the Goods and Services

Taxation System(GST). (Bradford, 2005) stresses that GST is often a multi-level tax on

domestic usage. Therefore GST is a kind of consumption tax. The particular consumption tax

that was applied before GST incorporated sales tax, and service tax. This is agreed upon by

(Naiyeju, 2009), (Adekanola, 2007), (Jones, 2003), (Leach, 2003), Anderson, 2000, Adesola,

2000, (Myles, 2000), and (Hall & Alvin, 1981). Additionally, according to (Anderson, 2000)

GST, as a new broadly based consumption tax, aims carefully to tax “specifically last

consumption expenditure”. This GST is basically a kind of “value added tax”. This GST can be

paid or remitted in line with the value added with every step over the string of transactions

relating to the goods or services until the buyer can be reached.

A Value-Added-Tax(VAT) can be compared to a sales tax for the reason that finally just the final

buyer must be taxed. That varies from the sales tax for the reason that, with the latter, the tax can

be compiled and remitted to the government only once, on the point of purchase by the final

buyer. In relation, (Adesola, 2000) explained value added tax as a consumer tax and it is imposed

prior to selling the goods. Similar views on VAT have been asserted by (Naiyeju, 2009),

(Gendron, 2005), (Bird, 2005), (Narayan, 2003), and (Whenkrofff, 2003).

According to (Adesola, 2000), value added tax is normally looked as the sum of salaries in

addition to profit. Using the VAT, collections, remittances to the government, and credits for

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taxes already paid take place if a small business in the supply chain purchases products. That's

why, the goals of VAT are to produce tax revenues to the government similar to the corporate

income tax or the personal income tax, and to ensure that consumers pay fairer price ranges for

most goods in addition to services in comparison to Sales and Service Tax(SST), and only the

value added at each stage is taxed.

GST/ VAT has already been applied in 160 countries in the world since 1954, starting with

France in addition to Monaco. (Refer to Appendix C) These places have adopted GST/VAT

because they were dissatisfied with their consumption tax structure. This popularity of the

Value-Added Tax is stressed by (Gendron, 2005) that consumption tax, alike VAT, is

increasingly getting chosen as a tax base over income and allied items. With regards to Malaysia,

the particular introduction involving GST is part of the overall Government tax reform program

towards ensuring the particular taxation program becomes more efficient, effective, transparent,

business friendly and capable of generating a stable source of revenue. In Malaysia, our tax

system involves several different indirect taxes, i.e. import duty on goods brought into the

country, export duty on goods produced for sale outside the country, Government Sales Tax on a

wide range of goods at the point of import or at the manufacturer's level, with four tax rates at

5%, 10%, 20% and 25%, Service Tax on services provided by restaurants, hotels,

telecommunications services, professional services by architects, engineers, lawyers etc., Excise

Duty on luxury products such as automobiles, liquor, beer and tobacco products. The Malaysian

government’s decision to implement a tax reform program towards making the taxation system

more efficient, effective, transparent, business friendly and capable of generating a stable source

of revenue implies that the proposed GST, that is extensively modeled on the British Value-

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Added Tax in accordance with an article published by the International Tax Review on 30

September 2014, will replace the Government Sales Tax and the Service Tax.

This is due to Malaysia having reached the particular important point when the particular

economy ought to survive on the broad-based, efficient and transparent consumption tax system,

i.e. the GST. After years of being discussed about, Malaysia’s Prime Minister, Yang Amat

Berhormat Dato' Sri Mohd Najib Tun Abdul Razak, made an announcement in the 2014 Budget

presentation on 25th of October 2013 that the Government will introduce GST on 1st of April

2015 at a flat rate of 6% to replace the soon-to-be-defunct Sales Tax and Service Tax, which as

we know vary between 5%, 6% and 10%. The Malaysian GST Model has considered the

welfare of the Malaysian public especially the lower income group, zero rating basic foodstuff,

water and electricity, no GST on government services, exempting public transport, health,

education, toll highway, financial and residential property, the proposed threshold exclude small

businesses from GST net, the GST rate to be set at a relatively low rate to minimize GST impact

on prices, and most of the zero-rated items (Refer to Appendix B) prices will be lower. However

many are still in the dark about the reasons for Malaysia to need the Goods and Services

Taxation System(GST), i.e. to enhance the delivery system, lower business cost, increase the

governments revenue, implement a Justified Taxation System of equity, pose as a corrective

measure to the current taxation system, enhance transparency of economic activities, enhance

Malaysian exports’ competitiveness in the international market, lower rates of Direct Taxes,

increase investors confidence, reduce red tape for businesses, encourage entrepreneurship.

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Enhanced Delivery SystemGST will be administrated in a completely digital surroundings, as a result quickening the

distribution, specifically for refund claims. This specifically can make it more fast, more efficient

along with dependable.

Lower business cost

Below SST, several companies pay multiple taxes (double taxation) in addition to greater

degrees of tax-on-tax (cascading tax). With GST, companies can easily gain from recovering

input tax upon raw materials in addition to incurred expenditures, as a result reducing costs.

Input tax would be the GST incurred upon just about any purchase or acquisition of goods and

services by a taxable person for the purpose of making a taxable supply in the course or

furtherance of business. These kinds of acquisitions as well as purchases would include goods or

services purchased or acquired locally. Goods purchased locally would incorporate a business

buying raw materials, components in addition to parts, stock trading in addition to packaging

materials from a GST authorized business where the authorized business would impose GST on

the goods purchased. On the other hand, services acquired for the purpose of business would

include rental, leasing of equipments, maintenance services and accounting and auditing

services.

In addition, the acquisitions as well as purchases pertaining to Input Tax would likewise

incorporate imported goods and imported services, which will include things like machines

imported from Japan, raw materials from Hong Kong and clothes from China, goods removed

from warehouses licensed under section 65 of the Customs Act, 1967, and imported services

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including consultancy services supplied from a consultant based in Australia and rights and

licenses provided by a company based in the United States to a recipient in Malaysia.

Additional RevenueGST is anticipated to provide an additional income around RM3 billion the first year along with

RM9 billion in the subsequent year. This is the result of a more efficient tax productivity(Refer

to Appendix A), as opposed to the current one. We should likewise always be enlightened that

because of the failure of the Doha Round, there's been numerous free trade agreements

worldwide, lowering the traditional walls of tariffs and import duties. In order to remain

competitive, the Malaysian government have followed suit but the resultant loss of revenue to

the Malaysian government's Treasury needs to be replenished. This can be where the GST is

indeed critical to the Malaysian government's financial system. Because GST poses as being a

better and much more useful way of revenue collection for the government, additional funds may

be channeled in nation-building tasks for advancement to obtaining a high income nation status.

This may benefit all Malaysians because income from GST could possibly be used for

advancement reasons for sociable commercial infrastructure including health services along with

organizations, academic infrastructures along with general public services to improve the

standard of living. In addition, it had been reported within a write-up published by the Malaysian

Insider in 9 June 2015 that the implementation of GST has assisted Malaysia in avoiding a

financial crisis. This is iterated by Malaysia’s Prime Minister, Yang Amat Berhormat Dato' Sri

Mohd Najib Tun Abdul Razak. Based on the prime minister, The particular slip in oil prices

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could have routed Malaysia in a financial crisis had Goods and Services tax (GST) not been

imposed, The prime minister explained this GST, which has substituted the former Sales and

Service tax (SST), had assisted to extend this country's income stream to avoid a high reliance on

oil revenues. The prime minister pointed out that the oil revenues contribution to Malaysia's

Gross Domestic Product has been at an average of 10.3% from 2010 to 2014.(Refer to Appendix

D). Yang Amat Berhormat Dato' Sri Mohd Najib Tun Abdul Razak, who is also finance minister,

said with all the transform, Malaysia currently had a more assorted income stream along with

strong fundamentals. In addition, this has enabled the business community and foreign investors

to remain optimistic with the Malaysian economy. This issue was also stated in an articled

published by The STAR: Business News on Monday, 10 November 2014. This informative

article reported that the introduction of the goods and services tax (GST) is timely to cushion any

fall in the Government’s revenue collection amid falling crude oil prices, a report by Alliance

Research says. Their economist Manokaran Mottain published in a document the Government

should commit to trim operating expenditure and strengthen the revenue stream from GST for

future fiscal sustainability. A different article that stressed on this issue was published by The

Malay Mail on Friday of May 15, 2015. In this article, Governor Tan Sri Zeti Akhtar Aziz of

Bank Negara Malaysia stressed that Prime Minister Datuk Seri Najib Razak’s efforts to broaden

the tax base through a 6 per cent goods and services has pushed up prices at supermarkets,

restaurants and retailers. While the experience in other countries showed a moderation in

consumer spending in the first year of such a tax, lower oil prices may be a buffer to an expected

easing in consumption.

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Justified Taxation SystemGST is really a progressive tax system based on the consumption pattern demonstrating on

average that consumers within the monthly income bracket of RM2,000 will pay only RM51.89

for GST, whereas those earning RM12,000 will pay RM372.65. With GST, taxes are leveled

among all of the organizations engaged, whether they are in the manufacturing, wholesaling,

retailing or service sectors. Hence, GST would help the government to reduce the income tax and

corporate tax rates which is currently confined to a particular group.

Corrective measure to the current taxation systemWith such efficiency and effectiveness in collection, GST is efficient at plugging leaks in the

current consumption tax system. Presently, manufacturers can transfer lower ex-factory prices

to the distribution or marketing arms, hence lower sales tax payable, and sales tax is imposed at

the manufacturing level only. Nonetheless, GST will certainly overcome the problem connected

with this sort of tax avoidance through transfer pricing. (Refer to Appendix A).

Adds TransparencyCurrently, shadow or hidden economic activities in some way are present in Malaysia's

economy, which cause tax evasion. Malaysia is facing a uphill task to deal with this issue since

they form approximately 30% of Malaysia's GDP. Nevertheless come the GST execution, every

one of these hidden activities must be registered if their annual sales reach RM500,000 and pay

all taxes due. This efficiency is one of the main reasons why GST will assist increase the

Government's profit.

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Enhances Malaysian Exports CompetitivenessThe exporters will also immensely benefit as their exports of goods or services are not required

to pay GST, as compared to the current system where the prices of some exported goods and

services still carry the elements of sales tax and service tax.(Refer to Appendix A) GST will

make our exporters more competitive in international trade, and consequently contribute to

higher tax revenue as our economy expands. 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 supply chain. This will strengthen our export

industry stimulating further economic growth.

Lower Rates of Direct TaxesFrom the beginning of the 1990’s there were the same contribution to the income of Malaysia

from Direct and Indirect Tax. In 1990, for instance, the contribution from direct tax was 35.2%

and indirect tax was 36.7%. On the other hand, together with trade liberalization policies carried

out by the Malaysian government in the 1990’s this proportion was altered significantly, and in

2012 the contribution from direct tax was 56.4% and indirect tax a mere 17.2%. Research by of

fiscal professionals show that over reliance on a particular tax will have an adverse effect on the

nation’s financial position. At the moment, Malaysia relies seriously on direct tax and petroleum

income. So, it is an appropriate time for the Malaysian government to undertake an overall tax

reform to alter the instability. On the list of procedures is always to introduce GST that is a more

cost-effective method when compared to the current tax system. Once introduced, GST will

present an opportunity for the Malaysian government to lower the rates of direct taxes. Research

show that lower direct taxes encourage both domestic and foreign direct investments and

savings, with the surplus funds channeled into Malaysian domestic capital markets.

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Increase Investors Confidence

In the progressively competitive FDI weather, together with a growing number of nations

integrating independently to the global economy, it is better for Malaysia to present a more

competitive and transparent direct tax treatment with certainty as favoured by investors, doing

less with cumbersome and bureaucratic exemptions, tax holidays and reliefs, which Malaysia is

labouring on at the moment.

Reduce red tape

Based on SST, companies have to apply for acceptance to get tax-free supplies and for exclusive

exemptions for capital goods. Based on GST, this system is actually abolished since businesses

can offset automatically the GST on inputs in their returns.(Refer to Appendix A)

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Encourages EntrepreneurshipGST provides Malaysia with a stable and high-quality flow of revenue while easing Malaysia's

dependence on corporate income tax and non-renewable fossil-based revenue. This efficient tax

system will, in addition, allow Malaysia to re-calibrate personal income tax rates to encourage

greater levels of entrepreneurship and self-improvement.

ConclusionHence, it is essential that GST is viewed within the entire eco-system of our economy, not as a

single fiscal measure in vacuum, isolated from the realities and dynamics of domestic and global

economies, nor short-term political gain for long-term pain of the Malaysian public.

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Reference

1. National Forum On GST: “Preparing For Malaysia GST Implementation

2015” (2015).

In-text reference: (Preparing For Malaysia GST Implementation 2015, 2015)

2. Malaysia Budget 2014 review. (2014)

In-text reference: (Malaysia Budget 2014 review, 2014)

3. The ISIS National Forum on Malaysia’s Goods and Services Tax (GST):

Possible Lessons from the United Kingdom and Singapore (2014).

In-text reference: (ISIS, 2014)

4. Malaysia Budget 2013. (2013)

In-text reference: (Malaysia Budget 2013, 2013)

5. Naiyeju, J.K. (2009). Value added tax. Fact of a positive Tax

in Nigeria Kupas Public Affairs.

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http://savemoney.my/malaysia-budget-2014-review-gst-cost-of-living-br1m-etc/

http://savemoney.my/malaysia-budget-2013-how-the-budget-can-save-you-money/




In-text reference: (Naiyeju, 2009)

6. Adekanola, O. (2007). Taxation as a means of Economic

Revitalization: Limitation and Prospects in a Developing

Economy. Journal of the Institute of Chartered accountants of Nigeria. Vol 40 (4):

p55.57

In-text reference: (Adekanola, 2007)

7. Bradford, D. (2005). A Tax System for the Twenty-first Century.

In-text reference: (Bradford, 2005)

8. Gendron, P.P. (2005). Value Added Tax Treatment of

Public Bodies and Non - Profit Organizations . Bulletin for International Fiscal

Documentation, 59 (11): 514-526

In-text reference: (Gendron, 2005)

9. Bird R. M. (2005). Value Added Taxes in Developing and

Transitional Countries: Georgia State University Working Paper No 05-05.

In-text reference: (Bird, 2005)

10. Jones L.M (2003). Optional Taxation in Models of

Endogenous Growth , Journal of Political Economy 101 (3), 485-517

In-text reference: (Jones, 2003)

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11. Leach, G. (2003). The Negative Impact of Taxation on

Economic Growth. London: UK: reform, institute of Directors.

In-text reference: (Leach, 2003)

12. Narayan, P. (2003). The Macroeconomic Impact of the IMF

Recommended VAT Policy for the Fiji Economic: Evidence from a GCE model.

In review of Urban & Regional Development Studies (Vol. 15, pp.226-237).

Tokyo: Blackwell Publishing Ltd

In-text reference: (Narayan, 2003)

13. Whenkrofff, G.S. (2003). Value Added Tax in the Enlarge Command Market. 1st edition,

Association Business

In-text reference: (Whenkrofff, 2003)

14. Anderson, A. (2000). GST Implementation Manual

In-text reference: (Anderson, 2000)

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15. Adesola, S.M. (2000). Tax Laws and Administration in

Nigeria, Obafemi Awolowo University Press, Ile Ife.

In-text reference: (Adesola, 2000)

16. Myles, G. (2000). Taxation and Economic Growth, Fiscal

studies, 21(1), 141-161.

In-text reference: (Myles, 2000)

17. Hall, R. E., & Alvin R. (1981). A Proposal to Simplify Our Tax

System. Wall Street Journal. Editorial page. December 10.

In-text reference: (Hall & Alvin, 1981)

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Appendix A

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Appendix B

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Appendix C

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Appendix D

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Reasons for malaysia to need gst