Goods and Service Tax

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THE IMPACTS OF GOODS AND SERVICES TAX (GST) ON MIDDLE INCOME EARNERS IN MALAYSIA MOHD RIZAL PALIL1 MOHD ADHA IBRAHIM 2
Abstract The introduction of GST in Malaysia has called many arguments from various parties including academics, professionals and the nation (would become the taxpayers) on how GST affect goods pricesincrease or decrease. The consumers are worrying of the significant price increases on basic needs when the GST has fully implemented. With the relatively high living costs particularly in main big cities like Kuala Lumpur, Penang and Johor Bahru, significant price increases due to GST is considered as another burden for middle income earners. Therefore, the main objectives of this study is; first, to obtain a comprehensive overview on consumer readiness, perceptions and acceptance of GST; and secondly to analyse the households’ potential consumptions (purchases) behaviour if GST is introduced. Data was collected through a structured survey among middle income earners. The proposed monthly income threshold is between RM2,000 (USD667) to RM4,000 (USD1,333) as suggested by Bank Negara Annual Report 2008. Respondents were chosen randomly from various organizations including government and private sectors from various locations in Kuala Lumpur, Malaysia. This study is expected to suggest a proposal to the relevant authorities on the social and economy impacts on those groups so that the authorities could develop strategies in order to reduce the financial burden of middle income earners in Malaysia if GST is implemented. This study is also expected to make a contribution to the tax administration and policy developments literature by demonstrating the impact of a new tax policy in a developing country in order to facilitate low income earners to survive in competitive environment. This study further contributes by providing comprehensive overview on consumer readiness, perceptions and acceptance of GST in a developing country, particularly in Asian countries that were previously under researched.

Ph.D., Senior Lecturer, School of Accounting, Faculty of Economic and Management, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia. Email: mr_palil@ukm.my, paleel@hotmail.com Postgraduate student, Faculty of Economic and Management, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia. Email: keris.03@gmail.com 2

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INTRODUCTION

Goods and Services Tax (GST) is a consumption tax imposed on the sale of goods and services. In some countries it is also called Value Added Tax (VAT). It is a new tax instrument introduced by the Malaysian government soon, estimated in 2012 would be the soonest year of implementation (Customs Department, 2010). The introduction of GST in Malaysia has called many arguments from various parties including academics, professionals and the nation (would become the taxpayers) on how GST affect goods prices-increase or decrease. The onus of GST is to replace the current Sales Tax and Service Tax in line with the government policy of conforming policies of AFTA. Sales tax is a form of indirect taxation imposed on consumers, collected by business entities and accountable to the Royal Customs and Excise Department and would be imposed on manufacturer upon sale and importer of taxable goods (Fatt, 2010). The rates are 10% for all taxable goods; 5% for fruits, food and building materials; and 20% for alcoholic drinks. Service tax is also an indirect tax 5% imposed on customers who consume food or services in places such as restaurants, hotels, or engaged on professional services such as audit and legal firms (Fatt, 2010). The International Monetary Fund (IMF) has long recommended the introduction of GST as a way of raising the efficiency of the Malaysian tax system and ultimately increase the tax collection. Malaysia plans to introduce a 4% goods and services tax in 2012, in a bid to diversify national revenues (IRBM Annual Report 2008). The GST is intended to...
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