GOODS AND SERVICE TAX (GST).docx

8/14/2019 GOODS AND SERVICE TAX (GST).docx

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much scope to enhance revenue from these sources and there are many reasons forthis.

FIRST , of the 12 million who are gainfully employed only 1.9 million (or 16 per centof the working population) pay taxes.

SECOND, the worldwide trend is to either reduce the corporate levy or keep itunchanged. Singapore (as well as other neighbouring countries) intends to reduce itfurther from the already low rate of 17 per cent. As such, it would be uncompetitivefor us to increase the corporate tax.

THIRD, the high petroleum revenue is unsustainable as petroleum is a depletingresource. If it is gone, so will the revenue from it.

To add to these woes, increasing trade liberalisation will cause revenue from importduties to shrink.

There is a need, therefore, to expand the revenue base. GST offers that opportunity.

For example, Singapore collects 18 per cent of its revenue from GST . The value-added tax, or VAT in Thailand and South Korea, produces 28 per cent and 34 percent of total revenue respectively.

Unlike personal and corporate taxes that distort investment/savings decisions andwhich are susceptible to economic downturns, GST will be capable of generating amore stable source of income and has no discriminating effect uponsaving/investment decisions.

GST is self-enforcing. A business can claim a refund of GST it had paid on its inputsonly if the claim is supported by purchase invoices.

GST will demonstrate the commitment of the government towards greater fiscalrectitude to convince ratings agencies that it is serious in putting fiscal managementin order.

Unlike personal and corporate taxes that are susceptible to economic downturns,GST will be capable of generating a more stable source of income while reducing

reliance on direct taxes and petroleum revenues.

The eventuality of GST is a forgone conclusion. The question that remains is whatthe rate will be. Singapore and Thailand currently impose a seven per centGST /VAT. The rest of Asean has settled for 10 per cent.

The average VAT in the European Union is 20 per cent. At 17 per cent for lease oftangible property, 11 per cent for transport services and six per cent of the rest of thegoods and services, China's VAT is steep. Japan will increase its VAT from thecurrent five per cent to eight per cent next April and 10 per cent by 2015. By then, itsVAT will be the same as South Korea's. On average, most countries have fixed theirinitial consumption tax rate at 17 per cent.


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Our current sales tax is 10 per cent and service tax six per cent. So, we can surmisethat the range within which GST will be fixed will be between 6-10 per cent. Aprecise guess will be seven per cent, on the premise of Singapore's practice.

It has been the norm of one-third of the countries with GST to increase the rate after

implementation. To have a substantive impact on government revenue, GST couldbe increased gradually from the speculated rate of seven per cent by one per cent ateach time of renewal until it reflects the maximum 10 per cent rate in the Asean.

If implemented fully, GST will immediately lighten all pockets. Fortunately, that is notso. Our taxman has chosen to cross the river by feeling for the stones.

To reduce any negative impact on the poorer segment of society, he has proposed asmall-bang reform by zero-rating (that is, no GST is applied at any stage of thesupply chain) or exempting many goods and services from GST .

These include agricultural and essential food items, seafood, public transport, saleand lease of residential property, private education, health, electricity and water andagricultural land. Some 80 business establishments, those with sales of less thanRM500,000, will also be excluded from the GST system.

Prof Datuk Dr John Antony Xavier is the Graduate School of Business, UniversitiKebangsaan Malaysia

New Straits Times , 7 October 2013

http://www.nst.com.my/opinion/columnist/malaysia-needs-tax-reform-1.370605#ixzz2jS6CAOxP

GST BETTER THAN EXISTING TAXES

By Prof Datuk Dr. John Antony Xavier

A value-added tax like the goods and services tax ( GST) has the ability to pump a lot of cash into the

Treasurys coffers.
http://www.nst.com.my/opinion/columnist/malaysia-needs-tax-reform-1.370605#ixzz2jS6CAOxPhttp://www.nst.com.my/opinion/columnist/malaysia-needs-tax-reform-1.370605#ixzz2jS6CAOxPhttp://www.nst.com.my/opinion/columnist/malaysia-needs-tax-reform-1.370605#ixzz2jS6CAOxP


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IT is good that Malaysia is taking a slow approach in the goods and services tax(GST ) implementation as the country is still smarting from the recent petrol pricehike. A big bang could overwhelm the public and businesses.

The fear is that growth might stall if consumers take fright that it outweighs anyrevenue increase from the GST . For example, the two per cent VAT rise in 1997 wasblamed for blunting growth in Japan for a decade.

Companies would be equally overwhelmed if the GST is extended across the boardwithout exemptions. This is because the latter would need to change their invoicingand tax payment and tax credit systems.

Even the government machinery will have to ready its enforcement system to collect

the tax and check for fraud. As such, there must be an adequate gestation periodbetween announcement and actual implementation to get everyone ready for theGST execution.

What will be the impact of the GST on government revenue, businesses and thepublic at large? A value-added tax has the ability to pump a lot of cash into theTreasury coffers. The base (the total amount of goods and services that would besubject to tax) would range from one-third to one-half of Gross Domestic Product(GDP).

Given the massive exemptions from the proposed GST , it is fair to adopt the base ofone-third. So, at today's GDP of RM1,001 billion, a GST of five per cent will raiseRM16.5 billion in tax revenue.

This may seem a lot of money. But offset that against the RM15.3 billion from thesales and service taxes (SST) that will be repealed upon the introduction of the GST ,and administration costs to the GST , at five per cent, will be revenue-neutral.

The authorities have alluded to a possible reduction of personal and corporateincome tax rates to make the GST more palatable to the public.

Personal and corporate income taxes did come down in Singapore upon theintroduction of the GST . If individual and corporate tax rates do fall or thegovernment exempts from all income tax those who earn less than RM100,000, thenthe combined effect will categorically dispel any notion that the GST is a moneymachine for the government.

So where's the beef? The proposed GST model is superior to the existing SST forfour reasons.

FIRST, the GST eliminates the cascading and compounding effects of the SST.

While the SST is charged at each stage of the supply chain, raising the final cost to


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the public, and thereby distorting production, the proposed GST model allows forreimbursement of taxes on inputs by businesses.

The GST , therefore, will reduce the overall cost of doing business.

SECOND, unlike the SST, the GST model offers relief for exports.

THIRD, the imposition of the GST at multiple stages of the supply chain willovercome issues related to transfer pricing. A corporation that pays a lower GST because of an understated transfer pricing can only claim reimbursement for thatlower amount.

FOURTH , as the GST is imposed at multi-stages of the supply chain, it willencourage vertical integration across the supply chain. Such vertical integration willenhance production efficiency.

The GST will be a transparent tax-collection instrument as there are minimalclassification issues and the tax will be shown on the invoice. This transparency, too,will enhance tax compliance.

Japan's three per cent rise in VAT to eight per cent scheduled for next year isexpected to reduce its GDP by over one per cent. However, the impact on our GDPwould be negligible as, at five per cent, the GST is revenue-neutral.

A GST often results in a once-only spike in inflation. That increase usually tapers offas the government contracts the money supply in the economy through the revenueit collects from GST , causing the rate of growth of the general price level to decline.

However, at a five per cent revenue-neutral GST , the impact on the consumer priceindex will be negligible, if at all. There will even be a reduction in taxes (elimination ofSST and exemption from GST ) in 60 per cent of the CPI components, such asclothing and footwear, communications, transport and utilities.

Notwithstanding this, much communications blitz has to be done to gain a widerpublic acceptance of the GST and to ease misperceived fears of hardship as a resultof its implementation.

As the GST is widely expected to be introduced in 2015, time is still on thegovernment's side. Cash handouts under Bantuan Rakyat 1Malaysia may also helpplacate any misgivings among the public about the GST .

If past experience is anything to go by, every tax or price increase creates its ownripple on general inflation, largely through profiteering. So although they areexempted items, expect your roti canai and teh tarik prices to go up uponimplementation of the GST !

Prof Datuk Dr John Antony Xavier is the Graduate School of Business, UniversitiKebangsaan Malaysia


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New Straits Times , 8 October 2013

http://www.nst.com.my/opinion/columnist/ gst -better-than-existing-taxes-1.371033#ixzz2jS97d9e1
http://www.nst.com.my/opinion/columnist/gst-better-than-existing-taxes-1.371033#ixzz2jS97d9e1http://www.nst.com.my/opinion/columnist/gst-better-than-existing-taxes-1.371033#ixzz2jS97d9e1http://www.nst.com.my/opinion/columnist/gst-better-than-existing-taxes-1.371033#ixzz2jS97d9e1http://www.nst.com.my/opinion/columnist/gst-better-than-existing-taxes-1.371033#ixzz2jS97d9e1http://www.nst.com.my/opinion/columnist/gst-better-than-existing-taxes-1.371033#ixzz2jS97d9e1

GOODS AND SERVICE TAX (GST).docx

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