GOODS AND SERVICES TAX, PROBLEMS AND EFFECTS OF IMPLEMENTATION ABOOD MOHAMMAD SALMEEN ALEBEL
In taxation, taxpayers are taxed in two forms: whether through direct taxes such as income tax and road tax or through indirect taxes such as the sales tax and the services tax. For direct taxes, taxpayers will definitely realize that they are facing the tax burden since taxpayers are required to declare their income and to pay tax accordingly to the government. However, for indirect taxes, taxpayers usually don’t realize that they are being taxed since the amount of tax is already accounted for with the selling price. Goods and services tax (GST) is one type of indirect taxes. GST is also known as value added tax (VAT) (Behan & Jenkins, 2005). Although GST and VAT have different names, they represent the same system where the cost of tax is actually borne by the end user. However, each step in the supply chain will collect the tax and will be remitted to the government. The supply chain can also claim back the GST included in the products they buy. According to Singh (2007), it is well documented that a GST can be an effective form of indirect tax. Currently, many countries such as the United Kingdom, New Zealand, Australia and Singapore have already implemented the GST. The VAT has been adopted as part of a package of trade liberalization, compensating for the revenue loss from the reduction of tariffs whilst preserving the gains in production efficiency from moving producer prices closer to world prices. At a more general level—and especially in developing countries—adoption of the VAT is often seen as the central element in a program of modernizing tax administration, developing the use of methods of self-assessment whose generalization is expected ultimately to ease administration and compliance in relation to other taxes too (Keen & Lockwood, 2007). However, there are many issues and questions raised on indirect tax reform in developing countries that favor a reduction in trade taxes with an increase in VAT to raise revenue. Specifically the issue of whether the VAT now in place in some developing countries is always the best way to respond to the revenue problems arising from trade liberalization. Emran and Stiglitz (2005) implied that substituting VAT for broader taxes is likely to reduce rather than improve social welfare because developing countries have large informal sectors. They argued also that the key problem with the literature supporting the use of VAT in developing countries is that it neglects that these countries have large informal sectors. The purpose of this paper is to examine the factors or the problems which delay the implementation of GST and the effects of implementing VAT on the revenue, trade and equity. According to Singh (2007), various matters
Business e-Bulletin Vol. 1, Issue 1, 55-64
need to be considered carefully before a comprehensive GST system can be introduced. The discussion is divided into problems related to taxpayers and problems related to administrator/government. Next, this paper discusses the effects of implementing GST on the revenue and trade and equity, and the final part of the paper concludes the discussion.
PROBLEMS IN IMPLEMENTING GST
This section discusses several problems or factors that might retard the development of the GST system which should be taken into account by the government before GST become into the force as problems can occur on both sides of taxpayers and administrators. PROBLEMS RELATED TO ADMINISTRATORS Computerization and trained personnel
Implementation and enforcement of GST will need administrators to have an efficient computerization system which could carry out the task of checking and auditing the revenues from GST. James and Zheshi (2004) proposed three things to enhance the management and supervision of the VAT invoices. Firstly, the printing of the VAT invoices must...