GST IS ON ???

Saw this from FB post.... really? 

https://www.facebook.com/photo.php?fbid=10151693947384845&set=a.443579844844.240259.618389844&type=1&theater

An old news on GST from BT....  Published: 2009/10/15

When should Malaysia implement GST?

Read more: When should Malaysia implement GST? http://www.btimes.com.my/articles/kipmo/Article/#ixzz2ScfIF3Sx

As Budget D-Day draws near, anticipation is high as to whether Goods and Services Tax will be heard again.

OVER 140 countries already have it. Practically all our Asean neighbours have it. We had planned to have it too. Originally proposed as Sales and Services Tax (SST) in the early 90s, it was postponed at the eleventh hour.

Adopting a more internationally recognised name, the Goods and Services Tax (GST), it was again proposed in the 2005 Budget. It too suffered the same fate, allowing more time for preparation. As businesses debated the move, the consuming public rejoiced.

As Budget D-Day draws near, anticipation is high as to whether GST will be heard again. Let us consider.

Current state of play

Looking at the economic numbers, many are arguing that something has to be done. The national budget deficit has been forecast to hit 7.6 per cent of gross domestic product in 2009.

Slow economic conditions and uncertain global outlook are not contributing favourably to the government's direct tax revenue, whether corporate or individual income taxes.

The government has responded by announcing expenditure cuts of up to 15 per cent to manage the national budget deficit.

Malaysia as a member of the World Trade Organisation has committed itself to reducing its import tariffs.

Additionally, with the proliferation of Free Trade Agreements that Malaysia has signed, collection of Customs duties and indirect taxes are also down.

Our current indirect tax regime on goods and services has also been regarded as inefficient.

Both sales tax and service tax are single stage taxes. Once paid, these taxes are embedded into the cost structure in the production and supply chains, causing a cascading effect.

If tax collection is missed at that single point, the revenue is practically lost for good to the government. Coupled with challenges associated with enforcement, this has resulted in a sizable grey economy which pays little, or no tax.

A revamped tax system, which is efficient and having a broad base is seen to be the desirable answer to the situation we now face.

GST anyone?

GST is a multi-staged consumption tax that has been proposed to replace the current single stage sales tax and service tax.

Being a broad based tax, GST can be charged on practically all supplies of goods and services.

This fits well with the announcement made by the Prime Minister recently that Malaysia's tax base needs widening to manage the national budget deficit.

GST adopts a credit offset mechanism whereby tax charged on supplies made by a taxable business may be net off against tax paid on inputs to production.

Only the difference is remitted to the government. The netting off goes on along the production and supply chain until the household consumer purchases the goods or services. The household consumer, not qualifying to claim the net off under GST, bears the burden of the tax.

GST is also known to encourage compliance and can be viewed as a self-policing tax. This is because the credit offset mechanism encourages businesses to register themselves to claim the input tax credits on purchases.

Combined with the broad base nature of the tax, it would be fair to say that a large portion of the grey economy will not be spared too.

Wish list

The question that remains is "When should Malaysia implement GST?", and not "Should Malaysia implement it?".

Whatever the date, an early announcement would be welcomed so that sufficient time is allowed for businesses to prepare for the tax.

A single, low rate of tax should be a good start. As an indication, the current service tax rate is 5 per cent and sales tax is generally at 10 per cent.

A high turnover threshold for registration to catch larger businesses will be helpful to reduce confusion and enhance compliance. Small businesses should be given the option to elect to be subject to GST.

Opponents usually cite inflation as their main objection against GST. However, experiences from other countries have shown that design adjustments could be made to mitigate the rakyat's burden.

Measures including reduction of personal income tax rates and exempting basic necessities from GST could be considered.

Also, Malaysia already has a price control list for certain essential goods that is meant to lessen the burden of the lower income group.

The early announcement and good design of GST should be complemented by a good public awareness and education campaign to ensure the acceptance and smooth introduction of the tax. Indicative price effect lists should also be considered to allay inflationary fears.

While the need seems pressing, one might ask if now is the right time to introduce a new, or even a revamped replacement tax? Well, by early evening on 23 October 2009, all doubts should be dispelled!

The writer is the executive director of KPMG Tax Services Sdn Bhd

Read more: When should Malaysia implement GST? http://www.btimes.com.my/articles/kipmo/Article/#ixzz2Scf9Gql2