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Question: Critically evaluate the statement that Malaysian will benefit from a change from sales and services tax to GST. Every country has their rules and specific law to maintain or increase country’s income. In Malaysia, government has projected the current SST to GST which means to regenerate tax collection. GST can define as multi-stage tax for goods and services on domestic consumption. It also can be known as value added tax which is a type of consumption based on the tax charged to all taxable supply of goods. Those goods and services tax are providing revenue to the government. The effectuation of GST will get rid of the weakness of current tax system in Malaysia. In addition to this, SST are differs with GST. Sales tax is a single stage tax implemented at the import or manufacturing levels and it normally will take the 10% while the service tax is implemented on specified services and it known as taxable services. Service tax cannot be imposed on any service which is not included in the list of taxable service. Generally it will take as 6%.
As the information showed, GST is charged at every supply chain on the industry. For example, GST calculation based on 6% and the first, manufacturer need to pay RM6 of GST when buy the materials at RM100. The RM 6 would be the total input tax which is claimable from Customs Department. After that, those materials process into good which is sold to the suppliers at RM 200 and charges a 6% GST of RM 12. The RM 12 would be the total output tax which payable to the Customs Department. Thus, RM 12 (output tax) minus RM 6 (input tax) equal RM 6 (Net GST)is payable to Customs Department. In supplier side, they pay RM 12 (input tax) of 6% based on RM 200 goods that was acquire from manufacturer. They sell the goods to consumer at RM 300. The supplier will collect RM 18 (output tax) of 6% based on RM 300 goods. Thus, RM 18(output tax) minus RM 12 (input tax) equal RM 6 (Net GST)is payable to Customs Department. And last, consumer will pay total of RM 18 GST of 6% based on purchased price RM 300. This is meant that consumer will have no option to claim back input tax.
There have a lot of benefits do businesses get from GST when it compares with the SST. Firstly, lower cost of doing business is one of benefits to the businesses. GST just through its input tax credit system leads the business can benefit from recovering the input tax and then it can reduce the cost of doing business. If in the SST, businesses need to pay multiple taxes and higher levels of tax-on-tax that called cascading tax.
In parallel, GST helps the businesses increase their competitiveness of global which is strengthen their export business and enhance the country progress. It is because GST incur on inputs may be recovered with the supply chain while there is no GST imposed on exported goods and services. So, the Malaysia’s export prices will become competitive on the global stage. Besides that, justice and equality are also provided by the GST in the businesses. Regardless of they are in the wholesaling, retailing, manufacturing or service sector, all the businesses that involved in are imposed equitable taxes. In addition, businesses can reinforce delivery system as it uses GST. Due to GST will be applied in a fully computerized environment, so it less to operate by human resource. Thus, causes it accelerates delivery, especially for the refund request. So, GST makes it faster, more efficiency and more trustworthy.
Businesses are also gain the benefits from GST such as reduces red tape. As it follows the present SST, if businesses need to obtain particular exemption for capital goods and tax-free materials, it must go through approval procedures. But this system is repealed under the GST; hence businesses can offset the GST on inputs in their returns. In comparison with SST, the introduction of GST also brings consumers benefits. The reason for introducing GST is to make the taxation system more effective, efficient, transparent, and business friendly and capable of generating more stable revenue. Taxes have been the country’s source of revenue for development purposes. And the Government will eventually return the revenue collected to the people in the form of health, education, security and improved standards of living.
When formulating the model, the Government is very much concerned that it will not burden the people especially the low and middle income group have been proposed not to be subjected to GST. GST system can differentiate the standard and exempted items and charge these accordingly, for instance basic items such as rice, flour, cooking oil, residential and agricultural properties, and education and health services will not be subjected to GST. Besides that, tax and non-tax package are be given and GST is a fair tax, because people will only have to pay it when they make purchases. The implementation of the GST can help to prevent money laundering and black money. This is because the GST was transparent and that all items paid and charged would be printed out in an invoice which will benefits consumers and let consumers have a brighter and clear idea about where the taxes paid goes. Previous in the SST, the items paid do not show how much tax was charged for each item as the sales tax is already embedded in the sales price. With the GST, the printed invoice will show which items have been charged the 6% tax.
GST is different from the existing sales tax and service tax. First, unlike the existing sales tax and service tax, GST is generally charged on the consumption of goods and services at every stage of the supply chain, with the tax burden ultimately borne by the end consumer. This multiple tax levels feature of GST is the fundamental change from the present single stage sales tax and service tax levied at only one stage of the supply chain. From this, GST can also be said to provide an efficient tax collection mechanism for the Government as the payment obligation is dealt with directly by every stage of the supplier chain.
Sales tax applied the same concept with GST which all goods and services are subject to GST unless specifically exempted. It is anticipated that the number of exemptions under present sales tax regime would be significantly reduced. Service tax operates on a positive concept where only services that are specifically prescribed are taxable. Under a GST regime, the opposite will apply and a much wider range of services will fall within he GST net than before. The potential of a wider tax base under a GST regime is attractive to Government, as it offers greater flexibility as a revenue measure and promises simplicity compared to the task of administering exemptions and indentifying taxable services under the current sakes and services tax respectively.
Under the current indirect tax system, SST is embedded production cost which may be reflected in higher prices. GST in comparison, through its input tax credit system, can reduce the cost of production for business. In parallel, the zero rating of supplies to persons outside Malaysia would increase the competitiveness of Malaysian exports. Thus, when there is an increase in Malaysian exports, the indirect tax such as export duties will also increase. As a consequence, the Government would be benefit from a more certain revenue stream.