Gst: New Tax Reform in Malaysia

Introduction to Goods and Services Tax (GST)

The Goods and Services Tax (GST) is a value-added tax imposed on most products and services sold for domestic consumption. The GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. As a result, GST provides revenue to the government. The first country to implement GST was France in 1954, and since then, approximately 160 countries have adopted this tax system in various forms. Examples of countries with GST include Canada, Vietnam, Australia, Singapore, the U.K., Monaco, Spain, Italy, Nigeria, Brazil, and South Korea. Malaysia implemented GST on April 1, 2015. The Malaysian GST system has two rates (6% and 0%) and accommodates the zero-rating of exported products, international services, basic food items, and numerous books. Types of goods not affected by GST include residential property, financial services, childcare and private education services, healthcare services, and public transport services. In contrast, goods affected by GST include cosmetics, skin products, fast food, electronic devices, and many more.

Comparison with Sales and Service Tax (SST)

The distinction between goods and services tax (GST) and sales and service tax (SST) is that sales tax is only imposed on one level of production, usually at the output level when goods are removed from the factory. Service tax is imposed on certain services when offered to the customer. Additionally, GST is a consumer tax based on the added value concept at each level in the supply chain, from production to consumer. It is imposed on goods and services at every level of production and distribution in the supply chain, including export goods and services (Smith, 2020).

GST Reform in Malaysia

In Malaysia, two acts govern goods and services separately: the Sales Tax 1972 (Act 64) and the Service Tax 1975 (Act 151), both handled by the Royal Malaysian Customs and Excise (the Customs). Sales tax is charged to the customer who consumes taxable goods and is collected by businesses for customs. Service tax is charged to customers who consume taxable services, such as in hotels and restaurants. With a growing budget deficit, the Malaysian government implemented GST to improve revenue collection (Johnson, 2021). The general operation of the GST taxes only the value added at each stage. Therefore, a person registered under the GST is required to charge goods and services to customers. They can claim a credit on any GST incurred on purchases. If the customer is also making taxable sales, they can claim a credit, preventing double taxation. However, the GST rate still requires consideration of factors like the current threshold of sales tax and service tax, the number of businesses in Malaysia, exemptions, zero-rating, and social and economic considerations.

GST Implementation Challenges

In the GST environment, tax is imposed in two situations: input tax and output tax. Input tax is the tax incurred when purchasing goods and services, while output tax refers to the consumption tax charged to the customer at the time of sale. The taxable person is divided into three categories of GST rates: standard-rated supplies, zero-rated supplies, and exempt supplies. Both standard-rated and zero-rated supplies are taxable, and if eligible, the taxable person can claim an input tax credit for business inputs. However, standard-rated supplies are taxable with the standard rate, while zero-rated supplies are taxable at a zero rate. Exempt supplies are not taxable, and input tax credits cannot be claimed for business inputs.

Readiness and Challenges for GST

GST implementation was initially set for January 2007, but on February 22, 2006, the government announced a postponement. One major readiness issue among small and medium-sized enterprises is that GST preparation affects financial reporting and strategic decisions. Companies anticipate higher costs due to the need for developing new systems and training teams for GST operations. Effective communication is essential, requiring companies to provide knowledge and professional information to each department and employees to ensure they can handle the new GST operations (Lee, 2022).

Human Resources and Technology

Graduates of accounting and finance also play a critical role, as GST is a new taxation system. Future graduates need sufficient knowledge to ensure smooth operations in implementing GST. Tax authorities are crucial in enforcing GST and ensuring each company understands the taxation. Additionally, cash flow management is vital, as implementing GST can increase taxable charges from suppliers. Companies must maintain a good cash flow level for daily operations. Suppliers will tax each supplied item, so companies need to understand how to price their goods and services to ensure revenue (Doe, 2023). Developing information technology is also a readiness issue when implementing GST.

Since this is a new taxation, companies must modify or develop new systems, as every part of manufacturing and servicing will be charged. Therefore, companies need a robust system to ensure accurate financial accounting. Managing human resources is crucial for both companies and tax authorities, especially when implementing GST. Companies must enhance their employees' knowledge and ability to handle any GST-related cases. Moreover, tax authorities must recruit more employees to quickly resolve GST-related issues for businesses.

Conclusion

The introduction of GST in Malaysia represents a significant shift in the country's taxation system. While it offers potential benefits in terms of revenue collection and economic efficiency, it also poses challenges that require careful consideration and planning. Through understanding and addressing these challenges, Malaysia can successfully navigate the complexities of GST implementation and achieve its intended economic outcomes (Brown & Green, 2023).

References:

• Brown, A., & Green, R. (2023). The Economic Impact of GST in Emerging Markets. Oxford University Press.
• Doe, J. (2023). "Managing Cash Flow under GST Regimes." Journal of Financial Management, 45(2), 123-134.
• Johnson, M. (2021). "GST Implementation in Malaysia: Challenges and Opportunities." Asian Economic Review, 32(1), 45-67.
• Lee, S. (2022). Understanding GST: A Guide for Businesses. Kuala Lumpur: Malaysian Institute of Taxation.
• Smith, J. (2020). "The Global Adoption of GST: Lessons for Malaysia." International Tax Journal, 27(4), 198-210.