Malaysia’s GST is a progressive model


The Goods and Services Tax (GST) will be implemented on April 1 next year, but many remain unsure whether the GST is a progressive or regressive tax system and its impact on the people.

The GST mechanism and its implications may not be something straight forward for most people, Customs Department’s GST director Subromaniam Tholasy said.

He said things became more complicated when people started talking of progressive and regressive tax systems without knowing what they were.

He pointed out under a regressive taxation system, the medium and low-income group would bear much of the tax burden. Under a progressive taxation system, the high-income earners pay more taxes.

“GST is a broad-based consumer tax based on expenditure and not on income, as misunderstood by some.

“This means if someone spends more on GST imposed goods and services, thus the person will be paying more taxes.

“The confusion happens as some feel GST is based on income. If GST is based on income, every value-added tax (VAT) or GST will appear more regressive and will burden the medium and low-income earners,” he said.

The Customs Department and Finance Ministry have conducted intensive study on GST implemented by160 nations. The study conducted pointed out that Malaysia’s GST model is progressive in nature.

Subromaniam said the International Monetary Fund (IMF) concurred with this finding.

He went on to explain that in the event all goods and services were to be subjected to GST without any exemptions, then it could be considered regressive.

“Nonetheless, when GST is implemented, there will be many exemptions, or zero GST. This is bound to benefit the low and medium-income earners.

“Based on the spending patterns of low and medium-income earners, they hardly spend on non-essential items and services, or items that do not enjoy GST exemptions.”

Elaborating on other factors that contributed to the general public apprehension on GST, he said some feared that GST would be implemented, along with the existing Sales and Services Tax (SST).

“GST will replace SST. There is a general misconception that the GST will be implemented with the existing SST. If this is true, then it will burden the people and appear regressive.”

Speaking on the existing SST, Subromaniam said that while both taxes were progressive in nature, the government wanted to go ahead with GST to restructure the national taxation system.

The restructuring of the national taxation system is seen crucial in overcoming the loopholes with SST and to ensure an effective, efficient and transparent tax system to enhance the nation’s competitiveness.

Among the shortcomings of the existing taxation system are overlapping taxation and multi-level taxation, transfer pricing and value and no tax exemption on exports.

“GST is more effective as it will help to reduce the bureaucratic hassle and enhance tax compliance within the society.

“Apart from that, there would be greater transparency on the pricing as all business transactions would be recorded on invoice receipts that will be audited by the Customs Department.”

Subromaniam said based on the accumulated data, the tax burden on households with an income of RM2,000 per month is only 2.59% while for those with an income of RM12,000 is 4.14% per month.

He said with a GST rate of 6%, the tax paid by households with a RM2,000 income is RM39.16 per month while for the households with a RM12,000 income, it is RM345.06 a month, nine times greater.

“Households with an income of RM2,000 spend about 32% of the total purchases on items with zero GST and 32.63% on GST-imposed items.

“Households with an income of RM12,000 only spend about 12.15% of their total income on GST-exempted goods while 63.90% of the spending is on GST-imposed items.”

Among the things exempted from GST are basic necessities like rice, sugar, salt, flour, cooking oil, lentil, spices, salted fish and shrimp paste.

Government services like the issuance of passport, licence, healthcare services, learning in school; and transport services like bus and train, highway tolls and education services are exempted from GST.

“The public have to seek knowledge on GST to understand the system better and should avoid from listening to hearsay that GST will benefit the rich and burden the poor.

“It is undeniable that GST has an impact on the medium and low-income earners, but the impact is very small on them compared with the impact on high-income earners.

“In spite of the negligible impact of GST on the low and medium-income group, the government will continue with the special cash assistance, among others the Bantuan Rakyat 1Malaysia (BR1M) and RM300 cash for BR1M recipients, when GST is implemented.”

GST has been implemented in 160 nations and the rate of 6% is the lowest in the world compared with Singapore (7%) and Indonesia (10%), the Philippines, Thailand, Cambodia, Laos and Vietnam

‘Many SMEs not ready for GST’


THE Malaysian commerce landscape has another 13 months to go until the implementation of the goods and services tax (GST), the consumption tax that will replace the existing sales and service taxes, and yet, many small and medium enterprises (SMEs) are still unaware of what is required of them.

“We hold GST workshops for SMEs and the two most frequent questions we heard are: ‘Will the GST really be implemented this time?’ and ‘Will this affect my business?’, which shows that people are still unaware of what is required of them,” YYC Tax Services Sdn Bhd tax director Elaine Wong told Business Times.

She said most people are not confident that the GST will be implemented on April 1 next year.

“Most people who come to us are reluctant to undergo the exercise and the system changes that come with GST, either believing or hoping that the government will do away with GST again as it did in the past.

“But this time, it is for real and with another 13 months to go, these companies do not have time to waste,” added Wong.

Yap Shin Siang, a partner at the tax firm, agrees with Wong.

“A whole new system is set to come in and they need to know what changes they have to make. Putting it off is bad for business and can land them in hot water with the government.”

She said mum-and-pop shops and food operators that are not charging the six per cent service tax but are making more than RM500,000 in revenue per annum will be most affected.

“These places, like your neighbourhood nasi ayam shop, are probably making more than RM500,000 a year.

“Right now, they are not charging the six per cent tax but when GST comes into effect, they will need to,” she said.

A number of tax agencies, including YYC, have begun offering GST implementation seminars for SMEs to minimise the confusion come April 1 next year.

Wong said YYC provides seminars for small groups and its clients will usually invite their own clients and suppliers to attend the seminar.

“This way, all will know what their roles are. Education and awareness are the keys to making SMEs’ transition into the GST system as seamless as possible,” she added.


Read more: ‘Many SMEs not ready for GST’ – Nation – New Straits Times



Why Tax Invoice is Important ?


Post GST implementation, tax invoice will be one of the most important document. Tax invoice is used for

  1. support a registered person’s claim for the deduction of GST (input tax) incurred on his standard rated purchases
  2. trigger the time of supply as the invoice date will determine when GST is to be accounted for by a registered person on the supply of goods and services (accounting on invoice basis);
  3. determine which supplies made by him should be included in a particular taxable period;
  4. determine when he may claim his input tax based on the tax invoice received from his supplier;

Referring to website on the “TAX INVOICE AND RECORDS KEEPING LATEST.pdf”

In view of this, many measures have been taken to ensure the tax invoice is legitimate copy.  For example, tax invoice issuer  must also ensure that necessary measures need to be taken to prevent the input tax being claimed twice by the customer.

Refer to the same document note 36.

“Lost or Misplaced Tax Invoice” 
36. Whenever a tax invoice of a particular supply is lost or misplaced, you may
request the supplier to provide a certified true copy of the tax invoice as it is an
offence to issue more than one tax invoice per taxable supply. This certified copy of
tax invoice can be used for claiming input tax as long as the document is clearly
marked “COPY” by the supplier.”

In view of this, accounting software  is also required to make the necessary change to ensure not only the tax invoice comply to Custom’s Tax invoice requirement, it must also be trackable and accountable for. Without proper accounting and billing system, it is near impossible to achieve this.