GST for Dummies

ARCHIVES 2010

By admin-s On Nov 2, 2010

By Resident Wangsa Maju

By merely increasing the service tax from 5% to 6% in 2011, the Government need not implement Goods and Services Tax (GST) next year. By the stroke of a pen, the additional revenue from the 1% service tax increase has almost achieve the estimated additional revenue of RM1 billion expected from the first year of implementing the GST.

What is GST?
The GST is a broad-based tax consumption tax. Broad-based means almost every person on the street is taxed when one consumes (buys) goods and services (type of goods and services taxed depending on items the Government decides to be taxed). The argument for GST is that is ‘fairer’ than income tax- GST is incurred only when one buys goods or services. If you don’t buy, you don’t get taxed. As opposed to income tax whereby if one has income derived in Malaysia on the tax band the person gets tax as he/ she earns regardless of that person’s spending habits. Hence which is fairer- get taxed when you earn or get taxed when you consume goods? The answer is neither. It depends how the GST is implemented- if essential goods are part of the GST list then everyone gets taxed- high-income people, low-income people and no-income people. The next question is then who can weather the GST storm better- the high-income people or the low-income people?

By the way what is ‘high income’ and what is ‘low-income’? These are the questions you’ll want to point-blank Najib if he pulls a Badawi-petrol-price-increase-adjust-your-lifestyle act for GST.

On paper, not taking into account social structures, not taking into account the taxable workforce, not taking into account unemployment benefits or anything else, Malaysia looks alright when compared against countries across the globe in terms of tax rates. In fact Malaysia’s proposed GST rate of 4% is low.

A common trend amongst countries which has GST implemented is that the GST percentage usually never stayed put- the governments increase the tax rate from time to time (haha– from year to year for certain countries to be exact). Singapore’s GST was 3% when it was first implemented; it is now 7%. This October, the New Zealand Government increased its GST to 15% from 12.5%. UK’s GST will be increasing from 15% to 17.5% in 2011. GST increase is a global trend. So, don’t bet on a decrease in rates once the GST is implemented.

Why GST?
The answer is simple. The Malaysian Government needs more cash to finance its expenditure and petroleum revenue (tax and royalties) are dwindling.