It is generally perceived that the introduction of the Goods and Services Tax (GST) can facilitate a significant improvement in the overall tax administration and enable revenue authorities to introduce modern procedures based on voluntary compliance. GST is a consumption tax charged on a wide range of domestic & international products, goods and services. GST covers all types of goods & services sold to Malaysian & non-Malaysian residents also known as consumers except for common commodities such as rice, flour & sugar. It is a broad-based tax imposed on every level of a product, from raw materials all the way to finished goods. Goods and services tax (GST) is one type of indirect taxes. GST is also known as value added tax (VAT) (Abood Mohammad Salmeen Alebel, n.d). On the other hand, indirect tax is a tax that can make people difficult such as export duties, import duties, excise duties, sales tax, service tax and others. (Juliana A. Kadir, Mustafa Idris, Zulkifli Mohamed, n.d). Although GST and VAT have different names, they represent the same system where the cost of tax is actually borne by the end user. It affects all layers of business and consumers and whether consumer realizes it or not, you’re being taxed for almost everything. It is a tax based on consumption. GST had been introduce to Malaysia on January 2007. Thailand and Indonesia are among the country whom introduce GST to Asia. Since GST is new to Malaysians, many have questions about its operating mechanism, for example how it applies to each level of the goods in a supply chain and eventually how it affects the end consumer. Business owners would be more interested to find out how it affects the production costs and its impact in running the businesses. In the technical sense, GST is divided into input tax and to understand the GST operating mechanism we can see this analogy. A cotton planter sells cotton to cloth manufacturer at RM100 and collects 4% GST that is RM4 and pays to the government. When the cloth manufacturer sells cloth to garment manufacturer at RM200, he collects 4% GST at RM8. Earlier on, he had paid RM4 input tax to the cotton planter. He can then use the RM4 input tax from the purchase to offset the RM8 output tax from the sale and eventually pays the net GST of RM4 to the government. At every level, a business can use the input tax to offset the output tax. This can avoid double taxation. Even though GST will be charged at every level, the consumer is the one who finally bears the GST. So decreasing on import and sales tax can be known as sales tax holiday which is means there are some period of times selected goods are exempted from state sales tax. II. LITERATURE REVIEW
In 1972 Malaysia is using sales tax followed by service tax in 1975. Sales tax is essentially levied on imported and locally manufactured goods while service tax is levied to any taxable service provide by any taxable persons. The sales and service tax are complex system. They are complicated procedures for obtaining tax relief and there are conditions for licensing and qualifications. In order to balance the budget deficit government needs to increase its tax revenue and raising direct taxes such as corporate and individual income tax rate. This is not really a wise move. GST is a form of indirect tax collected at various stages of the production-distribution chain. The introduction of it will provide the government with opportunity to reduce corporate and individual income tax rates Evonne Chen (2010) said that:
“GST may or may not increase cost of production. It depends on whether the business already practices the imposition of sales or service tax. Moreover, they can use input tax to offset output tax or they may choose to pass on the additional costs to its consumer. However the businesses will incur additional compliance costs, for example they will need to upgrade their accounting and recording system, information...
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