Tax-free
necessities: People are still not aware that their basic needs will be
protected under the proposed GST regime because essential food items
like rice, meat, fish, seafood, chicken, vegetables, cooking oil and
salt will be ‘zero-rated’, which means there will no GST imposed.
When
the Finance Minister tabled Budget 2013 and reduced personal income tax
rate by 1%, some quarters have asked if this brings us one step closer
to the GST.
EVER grumbled about having to pay the RM50 government tax for your credit card each year?
Well,
the good news is there will be no more such tax if the proposed GST
(goods and services tax) is implemented. And you will pay GST on the
credit card only if your bank charges you for the card.
“These
days, banks are offering credits cards for free and giving waivers on
annual subscription. If the card is free, there will be no GST on it,”
says Customs Department director-general
Datuk Khazali Ahmad in an interview.
He
stresses that key sectors like the financial services, public
transport, healthcare, education and residential housing will be exempt
from GST.
This essentially means that education, medical care,
bus and train tickets as well as highway tolls will still be just as
affordable as today. Thus, the lower income groups will not be burdened
by the GST.
When it comes to insurance, Khazali says, if it is a
life policy (including education, investment-linked and endowment), no
GST will be imposed. But if it is a general insurance policy for
medical, fire, motor, burglary, then the normal GST rate (proposed at
4%) will apply.
Despite the GST being a fairer, more effective
and transparent taxation system and one that has been successfully
implemented in 146 countries, it has not been easy to push the idea
through in Malaysia.
In fact, the government has been talking about the GST for more than two decades now (even when
Datuk Seri Anwar Ibrahim was the Finance Minister in the 1990s).
In
December 2009, the GST bill was tabled in parliament for first reading
but it was withdrawn on April 19 this year for amendments.
The Finance Ministry on its website has asked the public for views and feedback on the proposed GST.
With public awareness still very low on how GST works, it might be years before it actually comes to fruition.
People
are still not aware that their basic needs will be protected under the
proposed GST regime because essential food items like rice, meat, fish,
seafood, chicken, vegetables, cooking oil and salt will be “zero-rated”,
which means there will no GST imposed.
Critical services like
schools, financial services, hospitals, roads and public transport will
be “GST-exempt”, which means the consumer will be exempted from paying
GST on them.
And if you buy a flight ticket to a destination abroad, you will not have to pay GST.
“You
will be charged GST only on goods and services (which are not zero or
exempt-rated) that you consume in the country what you consume outside
the country will not be subject to a local GST. A flight ticket abroad
and overseas travel is consumption outside Malaysia, so you don't pay
GST here on it,” says Khazali.
The GST is a consumption-based tax where the tax is borne by the person who consumes the goods or services.
Ultimately,
it should reduce business costs because manufacturers, distributors and
suppliers are able to claim back the GST they paid on goods and
services acquired for the purpose of their business.
And these businesses are supposed to pass those savings down to the consumer, which should result in lower prices.
Khazali says people find it hard to accept the GST even though it benefits them because “tax” is never a popular subject.
“Generally, nobody likes to be taxed or, rather, the word “tax” is taboo to many.
“However,
governments all over the world need to impose tax to get the revenue to
provide their citizens with their social needs, employment, security
and so forth.”
Educating consumers on the GST, he admits, is not
easy because the moment you say that GST is a form of tax, “you will be
faced with a wall of resistance”.
“So we have to explain the GST
and its benefits to the people continuously to avoid or eliminate
whatever misconception they have about it,” he adds.
Khazali also
notes that most people do not know that the GST actually replaces the
current sales and services tax which they have already been paying on a
lot of goods and services because it is embedded in the price of what
they buy.
Under the current system, by the time the goods reach
the consumers, the sales tax that is paid at the manufacturers level
would have cascaded at each level of the distribution and the supply
chain, and this results in a higher price.
But with the GST,
since businesses at every stage are able to get a refund on the GST paid
on the goods and services acquired or used for the purpose of their
business, this will eliminate the cascading effect suffered under the
current sales and services taxes.
And because of this, an
immediate reduction in prices should be seen for goods and services
where people have all along been paying an embedded sales tax.
He
also stresses that the government has repeatedly emphasised that the
people will have to understand the GST first before the government
actually implements it.
“The public should not have any fear over
GST. It is a form of consumption tax which has been implemented in
nearly 150 countries in the world, whether developed or developing, so
there must be something good about it. “
He says the GST is also
supposed to result in cheaper prices for imported goods. At present,
unless exempted, imported goods are subject to an import duty and sales
tax.
People
find it hard to accept the GST even though it benefits them because
‘tax’ is never a popular subject. - Datuk Khazali Ahmad
With
the GST replacing the sales tax (5% to 10%), imported goods will still
be subject to an import duty and a GST; but because the proposed GST
rate is lower than the existing sales tax, consumers should be paying
less.
Before implementing the GST too, he says, the government
will also educate businesses on the need to pass down the savings they
get from the GST refund, and set up a mechanism to stop businesses from
trying to profiteer from it.
For him, the GST is a good thing
because it will reduce business costs, lead to more competitive pricing,
make exports more competitive because exports will be zero-rated
(meaning no GST), increase gross domestic production and reduce grey
economy activities.
Khazali also believes there might be a change
in consumption pattern with the GST because the GST works on the
affordability concept.
“Consumers have to decide which goods or
services to buy. They pay GST only when the goods or services are
consumed. So they may divert more of their expenses towards essential
goods and services rather than on luxury goods.”
Khazali also
points out that if the GST is implemented here at the proposed rate of
4%, it will be the lowest rate in the region.
Indonesia, Thailand, Cambodia, Vietnam and Laos charge a 10% GST rate, Philippines 12% and Singapore 7%.
But what is to stop the government from hiking the rate after it has been implemented?
Khazali
cites past experiences, saying Malaysia increased its sales tax rate
only once from 5% in 1972 (year of implementation) to 10% in 1983 and
service tax rate too increased only once, from 5% in 1975 (year of
implementation) to 6% in 2011.
There are still nuts and bolts to
sort out with implementing the GST here, including tabling a new bill
for it, putting an anti-profiteering mechanism in place, getting public
understanding and acceptance on it. For now, it looks like it is still
quite a long journey away.
Is GST the way to go?
No
burden: The people can be assured of zero tax on basic essential items
like rice, cooking oil, meat, chicken, vegetables, sugar, salt and
water.
The Goods and Services Tax has been
successfully implemented in 146 countries but many Malaysians are still
unaware of its benefits.
JAYCEE Sim (not her real name) is a
self-professed shopaholic who loves nothing more than spending her
weekends at shopping malls. She is thus pleased with the one per cent
cut in income tax rate announced in the Budget 2013 (for chargeable
income up to RM50,000) because some extra money in the pocket is always
welcome, especially when prices have been on the rise.
But she dreads the much-talked about Goods and Services Tax (GST) which has yet to be implemented in the country.
“I
think it will cause a further hike in prices,” says Sim who teaches at a
private college. But her friend, Debbie Lim, who owns her own business
supplying component parts, is all for the GST.
“I think it is
only fair. You pay for what you consume. You consume more, you pay more
tax. If you don't spend, then you don't pay
lah,” says Lim, who has family members in Singapore and has seen how the GST works there.
Lim too loves to shop and enjoys trying out new food places with friends.
She
believes that post-GST, she can continue to do this without feeling the
pinch, because there will be zero tax on essential food products like
meat, chicken, fish, seafood be it locally produced or imported.
“Hey, without tax, maybe food prices can even come down. I can live with that!” she laughs.
So far, 146 countries have imposed the GST which is seen as a more efficient form of tax.
In
Malaysia, which has a population of 28 million, there are approximately
12 million people in the workforce but only 1.7 million pay taxes.
PricewaterhouseCoopers Taxation Services Sdn Bhd senior
executive director Wan Heng Choon refers to the GST as a fairer tax.
“I
fall under the unfair' category of paying taxes. Out of our population
of 28 million, I am one of the 1.7mil paying taxes. The rest of the
population do not contribute but consume the same goods and services
(like roads, schools, hospitals, public transport etc.) that the
government provides for every single one of us. How can that be fair?”
People here generally fear the GST, he says, because they do not
understand how it works.
“Tell me which country will introduce a
tax that drives prices up? It doesn't make sense. The GST has been
successfully implemented in 146 countries. The difficulty here is that
the simple mechanism is not understood,” he adds.
The people, he
says, can be assured of zero tax on basic essential items like rice,
cooking oil, beef, mutton, pork, chicken, fish, prawns, squid,
vegetables, sugar, salt and water above.
They
will also be exempted from paying GST on critical services such as
public transport, toll, taxis, hospital and healthcare, schools,
residential property, land for agriculture use, and financial services.
Thus, the lower income group will not be burdened by the GST.
“If
you conduct a poll, two out of 10 people will not know that essentials
will be tax-exempted or zero-rated. That is a worrying statistic to me,”
says Wan.
As for other consumer items like clothes, shoes,
non-essential food items and furniture, Malaysians have in fact already
been paying tax without realising it, because sales tax (sometimes as
high as 10%) has been embedded in the price of the goods.
The GST
system, on the other hand, will make the taxing system more
transparent. The consumer will know what he is paying a tax on and how
much.
Under the GST regime, the sales tax and services tax that
people have been paying all this while, will be removed and replaced
with a one-time consumption tax the GST.
So, it is not a case of consumers paying tax twice for what they buy.
Malaysia
is looking at a GST rate of about 4% which actually works out to be
cheaper than the present 5% to 10% sales tax and 6% service tax.
Refunds
A
significant difference too under the GST regime is that the
manufacturer, supplier and wholesaler get a refund from the Government
on the GST (which in their case is an “input tax”) they have paid to buy
raw materials, parts and utilities used, to produce their goods. So, it
is the end user or customer who pays the 4% GST.
When
manufacturers, wholesalers, suppliers get a refund on their input tax,
it is good for business because it brings their production costs down.
And when their costs are reduced, they can sell their products at a
cheaper price to their customers.
At the customer level, since
one has already been paying an embedded tax (of 5% to 10%) on many items
prior to the GST, prices should not vary much.
As the GST covers
a wider range of products (including those previously without a sales
and service tax), some prices will go up but others will come down. But
the important thing to bear in mind is that essential food items and key
services will not be affected.
Wan says the Finance Ministry and Customs department have done years of extensive work on the GST.
They
have come up with a Shopper's Guide, a list of 350 items in the CPI
basket showing the estimated prices after the GST is implemented and the
percentage of increase and decrease for each of these items, and shared
this list with a number of trade associations including the Federation
of Malaysian Manufacturers and the Chartered Tax Institute of Malaysia
(CTMB).
“It astounds me that the list is not made available to
the public. People want to know if their cup of coffee or roti canai
will go up,” he says, adding that people need time to become aware of,
accept and prepare for the GST.
Australia, he notes, took a year to prepare the public, explaining how the GST works and addressing concerns.
“If you release the list and information to the public only about three months before the implementation date, that's madness.”
Because
the price of some non-essential goods might be higher, Wan suggests
that the Government consider identifying the lower income group and
offering them a one-off BRIM-like direct financial assistance to help
them cope with the GST.
“Thus, the Government gives them support to deal with the GST but leaves it to them to decide how to spend that money.”
Dr Veerinderjeet Singh, chairman of Tax and
Malaysia Sdn Bhd
and former president of CTMB, believes that because Malaysia already
has a sales tax embedded in the price of goods, it should be easier for
people here to accept the GST than a country that never had similar
taxes.
“People never really understood the objective and as a
result, some sections are not for it. The GST is good for a country and
this has been proven worldwide. We already have a sales and service tax;
what we are doing is to merge and tweak it into the GST which is a more
effective tax system,” he says, adding that the Government has done
five years of solid work on the GST and spoken to every association.
Now, they only need to go down to the ground to speak to the
man-in-the-street.
Should manufacturers, suppliers or traders try
to profiteer from the GST by not passing on their cost savings to the
customers, action can be taken under the Price Control and
Anti-profiteering Act that has been in place since April last year.
Enforcement comes under the Domestic Trade and Consumer Ministry which
is looking into establishing a price monitoring council to combat
profiteering.
Dr Veerinderjeet points out that with the GST
regime, there are more checks and balances in place as manufacturers,
suppliers and wholesalers have to get their documents in order to claim
their refunds on their GST (input tax).
He says it would also
help uncover the underground economy because these businesses would now
have to be registered to recover their input tax. And when they register
their businesses, they will have to pay income tax, thus the government
gains by collecting more taxes.
Wan notes that in the past, when
the country's economy was growing at 7% to 9% annually and Foreign
Direct Investment (FDIs) were coming in at a healthy rate, the
Government did not worry too much about revenue because “the growth in
the economy generated income that took care of things.”
“But
remember 1997 and 1998 when corporate profits plummeted and PNLs
(profits and losses) turned red? Where does the Government get its money
from then?
“That's why the GST as a tax is a much better source
for the Government. Regardless of whether there is an economic boom or
recession, the GST can ensure a steady revenue to the Government .”
Wan
suggests that people take a macro view of the economy, given the fact
that the country has had a budget deficit for 16 consecutive years.
“People
should not underestimate the impact of a budget deficit. If the
government is spending more than it earns in revenue, a direct impact is
that the value of the Malaysian ringgit will fall. What happens if that
happens? We import inflation. A falling ringgit has greater far
reaching implications on the overall economy and recession than the GST
will ever have.
“The GST, on its own, is not going to be the
silver bullet that cures deficit but it is definitely one of the
strategies to help balance the books,” he says, adding that Malaysia
should also tighten its subsidies and do something about its bloated
civil service because a country as wealthy as it is should not slide
down the slippery slope of the likes of Greece and Spain.
Dr
Veerinderjeet admits that the one per cent cut in personal income tax
rate took him by surprise and he feels it has been “overly-generous”.
“It
benefits everybody in the taxable threshold, including the higher
income group. People will save RM25 to RM475 in taxes. It is a good
measure because it reduces liability and puts more money in your pocket.
But I would have preferred for it to be held back for a rainy day,” he
adds.
Currently, the maximum corporate tax in Malaysia is 25% but
for personal income tax, the maximum is 26% which is something odd,
given that individuals now pay a higher tax rate than companies.
Dr Veerinderjeet says it wasn't like that years ago.
“Personal
taxes have always lagged behind corporate taxes. But countries have
been lowering corporate tax rates over the years (to stay competitive)
and we too have lowered ours.
“Many of us, including professional
bodies, have been lobbying for the top margin tax rate for personal
income tax to be aligned with corporate tax rate of 25%,” he shares,
adding that the income tax bands too should be widened so that someone
who works hard and earns an additional RM10,000 to RM15,000 a year will
not find himself pushed up into a higher tax rate bracket.
Tax system
Dr
Veerinderjeet favours a revamp of the entire tax system, including
personal income tax, corporate tax, petroleum tax, real property gains
tax, customs duties, sales tax, service tax, the GST and fixing the
anomalies and income tax laws that may be burdening business and
introducing incentives that encourage innovation and business while
reviewing those that have not achieved their objectives.
“It is
not as simple as introducing the GST, then think of lowering personal
and corporate tax rates. Is this system sustainable for the future? We
are looking at 2020 who are we benchmarking ourselves against in terms
of our tax system? Are we benchmarking against a developed nation?”
On
views that the GST should be deferred to give back to the rakyat, Dr
Veerinderjeet says Malaysia needs far more development and it needs to
fund this development.
“We are giving back to the rakyat in different forms like better roads, better schools and better hospitals,” he says.
With
146 countries already implementing the GST, it is perhaps only a matter
of time before the Government here follows suit. But for this, they
must really go down to the ground to allay the fears, address the
concerns and explain to the people why GST is the way to go.
Consumers assured of a fairer tax system
“YOU know that shirt you are wearing? You've paid tax on it,” Customs Department director-general
Datuk Khazali Ahmad points out during a recent interview on the proposed Goods and Services Tax (GST).
What
people do not realise, he adds, is that the Customs Department has been
collecting sales and service taxes over the years. This is because the
taxes have already been included in the prices consumers pay at the
check-out counters.
And the amount collected is significant. Just
take this year alone, till Oct 4 even without the GST the Customs
Department has already collected RM7.3bil in sales tax and another
RM4.36 bil in services tax.
Last year, it took in RM8.57bil in
sales tax and services tax came up to RM4.98bil. In 2010, its collection
for sales tax was RM8.17bil and RM3.92bil for services tax.
“Some
people are not happy with the GST because they think the Government is
introducing a new tax to add to the tax that is already in place.
“But
the GST is not a new tax. The GST is only a replacement tax (to replace
the sales and services tax) to make our taxing system more efficient
and transparent,” says Khazali.
He understands the people's fears
that the GST will affect prices of goods, services and their
consumption pattern. But these fears are unfounded, he says.
“There
is a zero tax on a lot of basic necessities (see chart) and we are
giving exemptions on critical services (schools, hospitals, public
transport, tolls, banking),” he explains.
“Consumers should be better off as essential food like rice, vegetables, cooking oil and fish are not subject to GST at all.”
Currently,
the people are already paying a sales tax of 5% to10% and services tax
of 6% on goods and services. With a proposed 4% GST rate, prices of
these goods and services would in fact, be down.
He says this is
because suppliers and manufacturer get a refund on what they pay as GST
to produce their goods; so with the GST regime, they would now have to
remove these elements from their cost.
“We have gone around to
meet the suppliers to make sure that whatever cost savings they get
(from their refund), will be passed on to the clients and consumers. We
will ensure the public do not pay more when the GST is introduced.”
However,
for certain goods and services that are now not subject to any sales or
service taxes, there might be an increase in price with the GST but the
rate should not be more than the GST proposed rate.
Khazali says
the Customs Department will work closely with the Finance Ministry,
Domestic Trade, Co-operative and Consumer Ministry and consumer
associations to monitor prices and release a shoppers' guide to the
rakyat so that they know how much they should be paying.
They will also get hypermarkets to co-operate and be the price-setters.
By SHAHANAAZ HABIB, The Star/Asia News Network
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