GST rollout in Malaysia effective from 1 April 2015. It replaced the current existing 10% sales
tax and 6% service tax respectively. It’s the main part of the government’s tax
reform programme to enhance the capability, effectiveness and transparency of
tax management.
The 6% value added tax is levied on
most transactions in the production process, with exception of blocked Input
Tax. Many domestically consumed goods i.e. fresh foods, water, electricity are
zero-rated, while some supplies like education and health services are
exempted.
According to the first series of the
Auditor General’s report 2016, GST revenue collected from local goods showed an
increase of 85%, from RM14 billion in 2015 to RM25.97 billion last year. Meanwhile,
GST on imported goods rose 17% from RM12.9 billion to RM15.2 billion.
Based on experiences in other countries, at the implementation year, the
inflation rates were 2-3% above the normal rates registered in prior years once
the GST was implemented.
As a result, the Ministry of Finance
had conducted a price impact studies to find out the effect of GST
implementation on 729 types of consumer goods and services from 95 industries. Although
the result showed that the Consumer Price Index is expected to decrease by
0.10%, instead GST caused higher inflation in 2015.
According to the projection by the
authority, the Consumer Price Index (CPI) might have an
on-off lifting the inflation as high as 3.5% to 3.8% in 2015 when GST was
implemented.
The price of many of the targeted
consumer goods may increase but should go down later on. Theoretically, the
Ministry of Finance Secretary-General Tan Sri Mohd Irwan Serigar Abdullah hope
that this is a one-time price spike after GST implementation, follow by the moderate
downwards of the inflation rate. He believes that within a year to one and a half year after the
implementation of GST, inflation will taper and eventually resume to its normal
rate.
In addition, the
experiences of countries in implementing GST together with pre-GST simulation
in Malaysia highlight positively the effect of GST on Consumer Price Index and
reduction of prices. But, in fact, it’s the other way round.
The uptrend
of rising prices for consumer goods occurred since 1980s. In other words, the
continuing of rising prices has started to take place 35 years ago long before
GST is implemented. CPI report further indicated that there are other
contributing factors besides GST which cause price hikes.
Nonetheless, the public are
noticeably uneasy in response to the escalating price hike despite the
government efforts in keeping the prices of goods and services to remain stable
or cheaper but it fails. The price hike keeps on and do not show the signs of
decline or stabilization. This worsens the public perception towards GST and
aggravated the anger as they are burdened by the rising prices and thus high
cost of living.
The public can’t stop complaining about the continuously of price hikes
in goods and services, despite the assurance and various efforts of the government
in keeping the prices of goods remain the same after GST the prices continue to
increase.
Deputy
Prime Minister Datuk Seri Dr Ahmad Zahid Hamidi said the National Cost of
Living Action Council which was chaired by him on two occasions recently found that the rise in prices of goods is not caused by the imposition of the Goods and
Services Tax (GST) but due to the action of the middlemen
in manipulating the prices of goods had burdened the people who had to bear the
rising cost of living.
Although
there are some increase in price due to increase production cost, rise in
import, due to weaken ringgit, but why the value of ringgit has risen but the
price of goods and services do not go down, instead keep going up? This is
where the cartel plays a role as middlemen who make a hefty margin.
The
Minister in the Prime Minister Department Idris Jala, who in 2010 had warned
that Malaysia could go belly-up by as early as 2019, which is ahead the 2020
deadline for the country to become developed nation.
The social
media have also reported on this matter, which made the headlines in Nov 26,
2013 that “Desperate for GST, Najib admits it – Malaysia can go bankrupt”.
The Malay
Chamber of Commerce Malaysia on Oct 20, 2017 said that the goods and services
tax has caused many businesses to close. On the other hand, Prime Minister
Datuk Seri Najib Tun Razak said the implementation of GST was necessary as the
country risked becoming bankrupt like Greece if it resorted to borrowing.
The introducing
GST is because the existing taxation system was not efficient as only 1.34
million workers out of 14 million paid income taxes and GST is the only
equitable taxation system. The additional revenue would allow the government to
finance future development and improving the weak financial position especially
the debt level of close to 55% of GDP.
Although GST being seen as a fair tax system for all. But
putting all bets on prices hike may seem unfair to the public that ought to buy
the necessities at whatever the prices.
On the
other hand, the negative impact of the implementation of GST is the prices of
goods and services had raised especially the food in the restaurants and road
side stalls.
Undeniably,
the price hike has a larger consequence than the obvious pinch in the pockets
of consumer, so what is your opinion?
However, it’s interesting to note that U.S,
the most economically advanced democracy, is the only major economy that
doesn’t implementing GST; it’s a rose among thorns. Instead, U.S holds on steadfastly on its sales Tax regime, which
states enjoy high autonomy in taxation.
It’s reported that although Canadian Province, British
Colombia has implemented GST, but 2 years later reverted to the previous old
system, i.e. Provincial Sale Tax or PST, due to the broad challenges to
implementation.
On the other hand, the European Union, which is the original
place for implementing Value Added Tax
(VAT), has felt the need to commence a thorough review of the VAT system that
is currently prevalent in its member countries.
Ironically, in term of collecting tax revenue, VAT is an effective
tool. It has become a major source of revenue in these years. By 2008, VAT hit
the highest record by collecting 21.4% of the national tax revenues of EU
member states.
Historically, VAT was first introduced in Europe by France in
1954, thereafter adopted and implemented by the member States of the European
Economic Committee in 1967 due to its practicality and efficiency.
Undeniably, although the operational costs to taxpayers and
tax administration were reduced by the simpler VAT system, but unfortunately, due to the complexity in the VAT
rules in the member States, the EU has become a less attractive place
investment.
In the U.S, the levy of Sales Tax is largely on retail sales
or on supplies to the ultimate consumer and all intermediaries is generally
exempted. In addition, States in the U.S also have the power to levy and
collection on many specified services. Inter-state supplies of goods and
services are not liable to sales tax in the U.S., unless the supplier of goods
or services has a presence in the selling state.
Goods or services that may be exempt from Sales Tax in the
U.S are often liable to a use Tax levied in the State where these goods are
used or consumed. Local Municipal Corporations in each State in the U.S also
impose sales taxes on goods and services, thereby making the sales tax regime
further complex.
The levies of Sales Tax in the U.S are largely on retail
sales or on supplies to the ultimate consumer and all intermediaries are
generally exempted. States in the U.S also have the power to levy and collect
on many specified services.
Local Municipal Corporation in each State in the U.S also
empowered to levy substantial taxes on sale and use of goods and services,
thereby curbing the tendency of States to impose sales tax at a high rate besides
making the sales tax regime further complex.
In order to increase the efficiency of the tax revenue collecting
system, Sales Tax compliance by businesses is generally done with the help of
software packages marketed by many large software companies.
In the U.S, automated software packages and the State support does
alleviate the compliance burden on businesses. Due to the
Constitution impediments are absent in the Sales Tax regime of the US,
hence, it is unlikely that the US will consider introducing a unified GST
across the nation in the near future.
The question remains: Is it not embracing GST is the real reason the American Dream is fading?
