Goods and service tax were first deliberated in 2005 with the intention to introducing it in 1st January 2007. However, it was withdrawn in the following year. In 2009, GST was revived with a proposed rate of 4% to replace current Sales Tax of 10% and Service Tax of 5% in a bid to diversify national revenues. However, the idea of GST still end up floating around as it has now been officially deferred.
2. Concept of GST
Goods and Service Tax (GST), also known as Value Added Tax (VAT), is a broad consumption tax. The purpose of the introduction of GST is to spread the burden which borne by consumer in some particular areas into a wide range of goods and services with a lower tax rate. Thus, government’s revenue income will eventually increase to enable the further development and budget control to the country, other than just relying on petroleum and income tax revenues.
GST is a multi-stage tax as it is levied on the “value added” created at the various stages in the importation‐production‐distribution chain of the product to which the tax is applicable. This tax structure helps to avoid the cascading effect embedded in current Sales Tax and Service Tax (SST) which are single-stage tax.
It adopts a credit offset mechanism whereby tax charged on supplies (called output tax) made by a taxable business may be net off against tax paid on inputs (called input tax) to production. Only the difference is remitted to the tax authority. Nevertheless, the cost of GST is actually borne by final customers. However, not all supplies are standard rated supply, which are subject to proposed rate of 4%.
Malaysian government has announced that some 40 items, mostly essential consumables and commodities will be free of GST, that is, either the items are exempted or given a zero-rating. The only difference is that input tax credits can be claimed by registered suppliers of zero rated supplies but not the exempted suppliers. Thus, lower income groups are protected.
Furthermore, GST is a form of indirect tax as it is not a statutory obligation of a person to pay the tax unless certain GST taxable goods and services are consumed.
Besides, the Malaysian government has indicated that Mandatory GST registration for suppliers will be based on a threshold of sales. Current indications are that the threshold will be set at RM500, 000.00 per year.
Thus, with the introduction of GST, government is able to shift the reliance on direct tax to indirect tax for sources of revenue income to maintain its competitiveness as well as sustain long-term growth of the country.
3. Fate of GST in Malaysia
The passage of GST in Malaysia has not been an easy sailing. As mentioned above, the idea of GST was first announced in 2005. However, it was shelved in 2006. Again, after the GST bill tabled in 2009, the second and third reading for GST is now being deferred again.
Over-reliance on the direct tax and depleting petroleum are actually the major concern of government that contributes to the imposition of GST. Furthermore, the government is of the opinion that Sales and Service Tax (SST) has reached its threshold. To increase it the country’s exports uncompetitive. Under SST, exporters were incurring as much as RM1.4 billion annually. Therefore, the only way is to institute GST. GST is considered an equitable and comprehensive system of taxation that minimizes evasion and ensures a broader revenue stream.
3.1 Judgments from Macro-economic aspect
By replacing the Sales and Service Tax with GST, the government is able to diversifies its sources of taxation to avoid being dependent on any particular tax base and the stability of tax revenue is ensured. As revenue from imports and taxes from the corporate sector may fluctuate, GST will not fluctuate, thereby bringing in a steady and sustainable revenue stream that is locally generated.
However, the immediate outcry is that GST will cause the...