Goods and Service Tax

Topics: Tax, Value added tax, Progressive tax Pages: 22 (7212 words) Published: May 4, 2013
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

1

1.0

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...

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
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • good Essay
  • Essay about good and service tax
  • Goods and Service Tax Essay
  • Essay on Gst: Government Service Tax
  • Goods and Services Tax Essay
  • Good & Services Tax Essay
  • Goods and Service Tax Essay
  • Essay about Goods and Service Tax

Become a StudyMode Member

Sign Up - It's Free