The Malaysian government has announced its mission in implementing the goods and services tax system (GST) starting from 1st April 2015. As part of the government’s tax reform programme, it will replace the current sales and service tax (SST), with a fixed rate of 6%.
Difference between GST and SST
GST is a consumption tax based on the value-added concept which is imposed on goods and services at every production and distribution stage in the supply chain as well as importation of goods and services. In comparison with the current SST, GST is expected to be more comprehensive in terms of its scope of charge, inclusive of the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on business inputs. The SST, however, has its sales tax imposed only at the manufacturing or importation stage, and particular services have their service taxes imposed at the time when they are provided to consumers.
Reasons to why SST needs to be replaced by GST
GST is believed to be more comprehensive, transparent, effective, and friendly to businesses especially. This is essential in overcoming the weaknesses of the current SST –cascading tax, double tax and pyramiding tax, tax erosion, leakages through transfer pricing, and many more. Businesses are also required to submit simplified tax returns based on prescribed formats only whilst the rest of the relevant records should be stored in the business premises for audit by the GST auditor.
GST benefits to consumers
The government aims to neutralize GST impact on the consumers. Therefore, a lower rate is introduced in order to not burden them, especially the lower income group. With GST, consumers get to benefit from the price reduction of the goods and services. People whose income is less than RM4, 000 are also not exceptional to paying tax for all goods and services consumed.
GST is chaged on all taxable goods and services produced in a country, and only businesses registered under the system can charge and collect GST. Although GST collected on output has to be remitted to the government, businesses are allowed to claim the input tax credit through these methods:
(i) Output tax is deducted against the input tax
(ii) Should there be any excess, the amount shall be remitted to the government within the stipulated period
(iii) Should there be any deficit, businesses can request for a refund from the government
Note: Input tax is the GST charged on the purchase of goods and services used in the business activity whilst output tax is GST charged and collected on sales or supplies of goods and services.
To learn more about GST, please read more on our next post 🙂