How does GST affect you?
As the Budget 2014 (tabled on
the 25th of October 2013) announcement draws near, Malaysians await with bated
breath on whether the government of the day will or won’t finally introduce a
Goods and Services Tax (GST) in Malaysia.
How does GST work in Malaysia?
In the current tax regime,
the 10% Sales Tax (on manufacturing and imports) and 6% Service Tax (on the
F&B and professional services industry) is collected by one party (usually
the seller) and passed on to the tax authorities.
For example, in the previous
6% Service Tax regime, when you buy a cup of coffee from Starbucks that says
RM15 on the menu, you pay RM15.90 (including the current Service Tax of 6%).
Starbucks will keep RM15 and pass on RM0.90 to the tax authorities.
In a GST regime (assume 4% GST
in this calculation), the following happens:
1. Starbucks buys the coffee
beans from the wholesaler to make your cup of coffee for RM10 (RM10+ 4% GST).
The Wholesaler keeps RM10 and passes on RM0.40 from Starbucks to the tax
authorities.
2. You buy that cup of coffee
from Starbucks which the beans were used to make, and pay RM15.60 (RM15 + 4%
GST). Starbucks now keeps RM15 and passes on RM0.20 to the tax authorities
(RM0.60 – RM0.40). The reason why Starbucks only passes RM0.20 to the tax
authorities is because they have effectively already ‘paid’ RM0.40 in tax
earlier on the first RM10, and only RM0.20 tax is left to be paid on the RM5
“value-add”.
We have graphically shown
this example below.
How will the implementation of GST affect me?
As mentioned, the replacement
of Sales and Service Tax with GST is intended to be revenue-neutral to the
government’s coffers, so in theory, to consumers this may represent a minimal
effect to the aggregate prices of everyday goods and services. Lets look at 3
scenarios to see what it means for prices, (1) for items charged with Service
Tax, (2) for items charged with Sales Tax, and (3) for items with no Service or
Sales Taxes:
6% Service Tax Abolished, 4%
GST introduced – Pay less
While most consumers don’t directly see the current
10% Sales Tax (its mostly a business to business tax), many of us experience
the 6% Service Tax (when we eat at food outlets and restaurants like McDonald’s
and Starbucks, and when we engage a lawyer for services etc.). As per our
earlier graphic, if the rate of GST is below 6% (say at 4%), we may end up
paying less than we did before.
10% Sales Tax Abolished, 4% GST introduced – Pay less
Similar to the earlier example, you may end up paying
less if a product manufactured or imported now is subject to 4% GST rather than
10% Sales Tax.
SST Exempt Items, 4% GST introduced – Pay more
With that in mind, sectors of the economy which were
not covered under the Sales and Service Taxes may now be under the coverage of
GST, as it is a broad based tax measure. Unless these things are zero-rated (ie
GST is applicable, but at a 0% rate), prices of goods not previously covered
under those 2 tax systems will now be affected by the broad based GST and cost
more.
So there you have it! Some scenarios that may occur if
the SST is replaced with a 4% GST. However, the obvious concern here is to make
sure that businesses do not take advantage of just the fact that GST has been
introduced as a reason to raise prices of goods and services indiscriminately.
To this end, the Anti-Profiteering Act has been tabled to enable enforcement
against such practices.
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