Analysis of Goods and Services Tax (GST) Structure

1. Introduction

Good and services tax (GST) has been launched for few months and all the taxation has changed. After it launched, it has affected too many of the consumers where some of them think that launching of GST is not a better solution to increase the economic growth. Besides that, some of the consumers consider the launching of GST as a result to increase the economic growth. Yet, it also might cause a perception on some consumers that launching of GST will lead to increase or decrease of the goods to them. Therefore, there are many effects that cause the consumers on this GST on a long term of economic growth.

Furthermore, launching of GST should have some of the reason that the government needed to launch it. Factors of launching GST is not a small matter to think of by the government as the implementation of GST could affect most of the consumers and the business people. This is because the types of tax systems that runs by GST probably gives advantages to certain areas but also giving disadvantages to certain areas which will burden them.

2. Effects of Goods and Services Tax (GST) on Economic.

The implementation of GST will cause the economics to become better and will grow more than before implementing GST. This is because before implementation of GST, Malaysia is using a system called as Sales and Service Tax (SST) which are not able to maintain and improve the economic condition. Growing on economics provides better incomes to the Malaysians which able for them to live in a more wealthy lifestyle. Therefore, GST provides most of the best matters to the consumers and business people such as cost of goods will be lowered down.

2.1 Taxation Structure

After GST has been implemented in Malaysia, it has causes the taxation structure in becoming more effective and efficient. With the new system of taxation from GST, it causes its system to become simpler and transparent. According to NBC GST (2015), GST tax system is a more comprehensive, effective, transparent, and business friendly tax system.

2.1.1 Standard-Rated GST

In GST taxation structure, it is divided into three types which bring benefits to the consumers where the cost of the goods has already lowered down. First and foremost, the standard- rated GST will be charging a tax rate of about 6% to every supply chain. Through this taxation system, everything that is bought will be recorded in a receipt and will then pay back to the government. According to Sharen (2014), the tax will be billed and collected by businesses and paid to the government. As refer to figure 2.1 (a), all the parties except the final consumers can claim back all the credits on GST as they have already paid which is known as input tax. There is a view that input tax refers to the GST paid by businesses on the purchase of goods and services used to perform their businesses (Shamasundari, 2015). Habib (2015) summarizes the benefits of standard-rated GST on certain items, stating that:

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‘The cost of television sets, refrigerators, air conditioners, electric irons, hair dryers, diapers and soft drinks are expected to come down with the introduction of the Goods and Services Tax (GST). These goods have a 10% sales and services tax embedded in their prices, but with the GST replacing the SST in April, the lower 6% GST rate will make them cheaper’.

Figure 2.1 (a): Standard-Rated GST (Loan Street, 2014).

2.1.2 Zero-Rated GST

Besides that, zero-rated GST is also one of the taxation structures which able to provide benefits to the consumers after GST have been implemented in Malaysia. A zero-rated GST can be defined as the good and services taxes will not be charged to the consumers. With this taxation structure, the cost of the goods will be much cheaper than before. In zero-rated GST, zero taxes will be charge on the consumers while the supply chain will be charged and able to claim back all the credits from the production process. For example, the basic needs of the consumers such as meats, fish and cooking oil will be implement on zero rated GST. Therefore, the consumers are able to save more on their others uses.

Figure 2.1 (b): Zero-rated GST (Khoo and Lai, 2014).

2.1.3 Exempted-Rated GST

Furthermore, GST also provide another categories of taxation structure which are exempted-rated GST. An exempted-rated GST can be defined as the taxation will not be charge to the consumers and the credits cannot be claimed back by the final supply chain of a particular product. There is a view that the supply means no GST is charged on the supply and there is no entitlement to recover GST (AIA, 2015). Since exempted-rated GST does not charge on the consumers, consumers are able to save an amount of money onto the taxes whenever they purchase on certain products. For example, financial services, private education services and private healthcare services will be exempted from the taxes to the consumers. Therefore, the services that purchase will be much cheaper than before as it only charged on a single supply chain for the GST taxes.

2.2 Accuracy in Data Collection

In implementation of the new tax system, GST, it is able to prevent money from laundering and leads to black money. This means that the business people tend to earn money that is illegal in order to earn more money for them for a better living life. It has been suggested that black money defines it as any legitimately or illegally gain money, which is not stated to the government department, and on which no income tax is compensated to the government (Islam, 2012). Also, this is supported by FMT Reporters (2015), a major impact of the GST will be a reduction in the practices of the black economy and the wickedness of traders who would bribe tax and customs officials to avoid paying adequate taxes and other charges. This is because before the implementation of GST, the receipt of the items were purchased are not shown in it on how much taxes is been charged on particular items being purchased.

Since then when GST is implemented, the printed receipt is shown on how much tax is charged. It has been proposed that in the current Sales and Service Tax (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 (Loh, 2014). Therefore, with the GST system, the printed invoice will show which items have been charged the 6% tax (Loh, 2014).

In addition, implementation of GST also does make a lot of changes to the economy as the black economy from the illegal traders has been greatly reduce. This reflects the suggestion of Malaysia Mail Online (2015), the Goods and Services Tax (GST) implementation on April 1 will help reduce the black economy rate to 10 per cent from 30 per cent at present.

3.0 Factors of Consideration in Implementation of GST

There are many factors that affects the economy of Malaysia the most when to think of implementation of GST. This is because every steps of the government being taken in implementing GST, it could largely affecting the consumers living style and the business people in their businesses whether the launching of GST causes them a burden or a beneficial matters to them.

3.1 Improve Standard of Living

Implementation of GST by the government able to provide a better standard of living to the consumers as most of the cost of the goods and services has been decreased. Before the implementation of GST, it uses a tax system which called as Sales and Service Tax (SST) that will causes the cost of the goods and services much higher. According to Habib (2015), the GST will replace the SST, and because the GST is lower at 6%, this should translate into cheaper prices of the goods and services. For example, a can of carbonated drinks that costs about RM3.90, after implementation of GST, it will cost much cheaper at about RM2.50 per can of carbonated drinks. As refer to figure 3.1, it can be clearly stated that the price of the goods and services have a big differences whereby the cost has been decreased compared to before the implementation of GST and after implementation of GST.

Figure 3.1: Impact on GST on the cost of living (Kumaran and Simpson, 2013).

Furthermore, GST also causes some of the goods and services to be exempted supply from the tax which will lead to much cheaper price of the goods and services. This is because it can decrease the burden of some of the consumers from poor family from purchasing expensive goods and services. For example, the government had proposed that all the basic foods items and services of those education, health and insurances will be exempted from GST. It has been suggested that recognizing that this increased cost may be a burden to the consumer, the government has proposed that certain essential goods (Kumaran and Simpson, 2013). Exempted of certain goods and services could also help to lower down the income used by the poor family as they do not afford much to buy many expensive products. As stated by Lu (2012), it is a very expensive way to help low-income people by having a food exemption, because you are giving a huge break to higher income people at the same time.

3.2 Lower Cost of Doing Certain Business

Before the implementation of GST, the business people tend to pay multiple taxes which costs a high amount of it which lead to the business people in difficulty in growing their own businesses. After it had implemented, they are no more paying additional taxes but able to recover from input tax, thus reducing cost of doing business. It has been suggested that Malaysia will benefit from lower cost of doing business by recovering from input tax,” Najib explained (Cheah, 2015).

Businesses are always needed to import and export of their goods and services to other countries in order to get more profit which can be beneficial to them. So, when the GST has been implemented, all the exported goods and services are zero-rated which means that there are no taxes charges on the export goods and services. An Approved Trader Scheme (ATS) is a scheme which to approved on the exported goods and services in order to benefit export-oriented companies. According to Royal Malaysian Custom (n.d), any taxable person registered under the ATS will be allowed to suspend GST payable on imported goods at the point of importation.

Also, ATS will also give all the export goods and services from a Free Commercial Zone (FCZ) zero-rated taxes whenever they export their goods and services through FCZ. For example, whenever the goods and services of that particular business people who wanted to export them through FCZ, therefore all their goods and services will be counted zero-rated tax. With this type of taxation method applied in GST, many of the business people able to save up on their money on other uses. As stated by Cheah (2015), the ATS will give special focus to companies operating in the Free Commercial Zone where goods imported in the area are not subjected to GST.

Furthermore, even the manufacturer and the retailer of the goods and services will also be affected after the implementation of GST whereby their cost of production of goods and services are much cheaper than before. Cost of the production which is being lowered will lead to lower prices to the goods and services, therefore the business people will not have too much burden and risk on their businesses. This is because the goods and services are needed to go through few supply chain. If taxes were not zero rated but remain as usual like SST, therefore the goods and services will remain as expensive which are quite not able to afford by some of the consumers. Sipalan (2013) summarizes that the causes of implementation of GST to the businesses, stating that :

‘Ahmad Maslan and the Barisan Nasional simplistically believe that just because retailers and manufacturers can claim a refund on GST paid on their costs, therefore this will automatically lower their production costs and allow them to lower prices of the goods and services’ (para. 4).

4.0 Conclusion

In the final analysis, the GST taxation structure compared to before the implementation of GST, it is better and it gives large benefits to the all the consumers and even to the business people in Malaysia. This is because after the new tax system is being introduced, every of the goods and services has been decreased drastically as there are some goods and services which are not counted in the GST. Besides that, GST also able to avoid Malaysia from black economy as there are many of the illegal trader which will cause some of the goods and services to be more expensive.

Launching of GST also made a lot of action to be taken as there are many factors needed to be considering to the consumers and the business people as well. Implementation of GST has been improving most of the consumers living style as most of the goods and services is decreased from much expensive products to cheaper products. It does gives a lot of changes on the price of the goods and services that is normally used by the consumers which has become cheaper than before implementing GST. Yet, business people also tend to be more at advantages side as they will no more be risking and having any burdens in their own business. Therefore, implementing of GST does provide the best and the most benefits to the whole consumers and business people in Malaysia.