Goods and Service Tax

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

References: Bank Negara Malaysia. 2008. Annual Report. Retrieved 30 Mar.2011, from http://www.bnm.gov.my/files/publication/ar/en/2006/ar2008_book.pdf Barker, P. A. 1972. “Value Added Tax, the cost to the businessman’, Journal of Accountancy”, September, pp. 75-79. Black, K. 2001, Business Statistics: Contemporary Decision Making. 3rd Ed. Ohio: South-Western College Publishing. Bryman, A., and Bell, E. 2003. Business Research Methods. Oxford: Oxford University Press. C. Adams, P. Webley. 2001. “Small business owners’ attitudes on VAT compliance in the UK’, Journal of Economic Psychology”, 22 : pp. 195212. Desai, M. A., and Hines, J. R. Jr., 2005, Value added taxes and international trade: the evidence, Mimeo, Michigan: University of Michigan. Ebrill, L. P., Keen, M., Bodin, J., Summers, V., 2001. The Modern VAT. International Monetary Fund, Washington D.C. Emran, S. M. and Stiglitz, J. E., 2005. “On selective indirect tax reform in developing countries’, Journal of Public Economics”, 89, pp. 599–623. Godwin. M. R. 1978. “Compliance costs - the cost of paying taxes’, Omega International Journal”, Vol. 6, no. 5, pp. 389-398. Hock, C.T. and Yew, T. E. 2010. “GST the technical aspect’, Tax Guardian”, vol. 3, no. 1, pp. 20 – 24. Hudson, J., Godwin, M. 2000. “The compliance costs of collecting direct tax in the UK: An analysis of PAYE and National Insurance’, Journal of Public Economic”, 77, pp. 29-44. J. M. Keynes. 1936. The General Theory of Employment, Interest and Money. London: Macmillan. Johnson, D.T., Freebairn, J. and Scutella, R. 1999. Evaluation of the Government’s Tax Package, Melbourne Institute of Applied Economic and Social Research, University of Melbourne, Melbourne. 15 Junainah, J. 2002. Self assessment system: A case study on perception of personal taxpayers in Kota Kinabalu, Sabah. Master of Accounting dissertation, Universiti Kebangsaan Malaysia. Keen, M., Lockewood B. 2010. “The value added tax: its causes and consequences’, Journal of Development Economic”, 92, pp. 138-151. Keen, M. and Smith, S. 2006. “What do we know about VAT evasion?’, National Tax Journal “, LIX, pp. 905–928. Nellor, D. 1987. The effect of value-added tax on the tax ratio. IMF Working Paper, vol. 87/47. International Monetary Fund, Washington. Palil, M.R. 2010. Tax compliance determinants in self assessment system in Malaysia. PhD. Thesis. University of Birmingham. Parker, S. K. 1976. “Compliance costs of the Value Added Tax’, Taxes”, June, pp. 369-380. Piggott, J., Whalley, J., 2001. “VAT base broadening, self supply, and the informal sector’, American Economic Review’, 91, pp. 1084–1094. Pope, J. 1993. “The Compliance Costs of Taxation in Australia and Tax Simplification: The Issues’, Australian Journal of Management”, pp. 69-90. Hafer, R.W. and Trebing, M. E., 1980. "The Value-Added Tax-A Review of The Issues’, Review”, January, pp. 3-17. Sandford, C. T. 1976. “Tax compliance costs matter’, British Tax Review”, 4, pp. 205-212. Sandford, C. T., Godwin, M. R., Hardwick, P. J. W., and Butterworth, M. I. 1979. Some preliminary findings on the compliance costs of VAT. Bath: Bath University Centre for Fiscal Studies, Occasional Paper no. 7. Sandford, C. T., Godwin, M. R., Hardwick, P. J. W., and Butterworth, M. I. 1981. Costs and benefits of VAT. London: Heinemann Educational Books. Sekaran, U. 2000. Research Methods for Business; A Skill Building Approach. 3rd Ed. New York: John Wiley and Sons. Sekaran, U. and Bougie, R. 2010. Research Methods for Business; A Skill Building Approach. 5th Ed. New York: John Wiley and Sons. Singh, B. 2010. “Introduction of GST in Malaysia – Short and long term impacts’, Tax Guardian”, vol. 3, no. 2, pp. 18 – 21. Warren, N., Harding, A., Robinson, M., Lambert, S. and Beer, G, 1999. Distributional Impact of Possible Tax Reform Packages, Report to Senate Select Committee on a New Tax System, National Centre for Social and Economic Modelling (NATSEM), University of Canberra, Canberra. World Bank Symposium. 1990. Value-Added Taxation in Developing Countries. Edited by Gillis, M., Shoup, C.S. And Sicat, G.P. Washington D.C: The World Bank. 16