GST is a consumption tax based on the value-added concept. GST is imposed on goods and services at every production and distribution stage in the supply chain including importation of goods and services.
GST has replaced the previous consumption tax, ie sales tax and the service tax (SST). The difference between GST and the previous consumption tax is in terms of its scope of charge which is more comprehensive, inclusive of the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on business inputs. When compared with the previous consumption tax system, the sales tax is imposed only at the manufacturing stage that is at the time when the goods are manufactured or when the goods are imported. On the other hand, service tax is imposed on specific services at the time when the services are provided to the consumer.
GST is a more comprehensive, effective, transparent, and business friendly tax system. GST overcame the various weaknesses inherent in the previous consumption tax system. The inherent weaknesses under the previous tax system are the cascading tax, double tax and pyramiding tax, tax erosion and leakages through transfer pricing and other means. Besides that, GST is expected to increase tax compliance and is easier to administer in view of its self policing method. Besides that, the business are required only to submit simplified tax returns based on prescribed formats. All records and documents relating to the relevant transaction are required to be kept in the business premises for audit by the GST auditor.
The GST implementation is part of the government's tax reform programme to enhance the capability, effectiveness and transparency of tax administration and management.
The rate of tax is fixed at 6 percent (%) on the supply of goods or services or on the importation of goods.
The purpose of the government to fix the GST at a lower rate is to neutralize GST impact on the rakyat and consumers so as not to unduly burden the rakyat especially the lower income group. By imposing GST at a lower rate, it is expected that the consumers will benefit from the price reduction in most of the goods and services.
GST is charged and collected on all taxable goods and services produced in the country including imports. Only businesses registered under GST can charge and collect GST. GST collected on output must be remitted to the government. However, businesses are allowed to claim the input tax credit through the following mechanism and method.
Input tax is the GST charged on the purchase of goods and services used in the business activity. Output tax on the other hand, is GST charged and collected on sales/supplies of goods and services. Input tax credit means tax input claimable by businesses registered under GST.
Standard rated supplies are taxable supplies of goods and services which are subject to the standard rate. Zero rated supplies are taxable supplies which are subject to a zero rate, but eligible to claim input tax credit. Exempt supplies are non taxable supplies which are not subject to GST at the output stage that is, when supplied to the consumer. However, the GST paid on input by the businesses cannot be claimed as tax credit.
GST can only be collected by person who is registered under GST and the tax shall be remitted to the government within the stipulated period.
To ensure that business remit the right amount of tax, the government will conduct an early detection program through desk audit and transaction audit on the tax returns submitted by the businesses for every taxable period. The GST audit team will conduct field audit on records and accounts of businesses to ensure there is no tax manipulation by businesses. Besides that, the GST risk assessment system, a computerized checking system, will trigger alerts relating too high risk cases.
The main objective of the government is to ensure the smooth and efficient implementation of the GST. The government has no plans to increase the GST rate like what has been done by the Singapore government. The government is concerned and always take into consideration the interest and welfare of the rakyat before making any policy changes. It is important to note that even though the sales tax was implemented since 1972, the rate has been increased only once in 1983, whilst the rate of service tax has never been increased since its introduction in 1975.
In principle, GST is imposed on all goods and services produced in the country including imports. However, certain basic foodstuff likes rice, sugar, flour, cooking oil, vegetable, fish and meat, eggs and essential services such as health and private education, public transportation, residential property and agriculture land are not subject to GST. Such exemption is to ensure that the lower income group is not burdened by GST.
In principle, the GST is not a cost to business as the GST paid on the business inputs can be claimed as tax credit. As such, it is estimated that the cost of doing business will decrease. The reduction in the business costs will make the local products and services more competitive in the domestic and international markets. In addition, the GST is expected to improve tax compliance and is easier to administer due to its self-policing feature. With GST, bureaucracy in the government's delivery system will be significantly reduced.
Only businesses with annual sales turnover of RM500,000 and above are liable to be registered under GST. Businesses having an annual sales turnover of less than this amount are not liable to be registered under the GST. However, such businesses can apply for voluntary registration.
The annual threshold is fixed at RM500,000 to ensure that the small businesses are GST-free and are not required to bear the costs of registration (start up cost and compliance cost) under the GST. Based on studies, it is estimated that about 78% of the total business establishments will not fall within the GST system. As such the consumers has the choice of making their purchases of basic needs from the businesses which do not charge the GST. Indirectly, the consumers especially the rakyat in the rural areas will not be burdened by the GST.
The calculation of the threshold shall be determined based on the following method:
Businesses which have not reached the threshold can voluntarily apply to be registered under the GST. However, once registered, the businesses must remain in the system, for at least 2 years.
The government encourages online GST registration. However, manual registration is also available.
Online application can be made by using the Taxpayer Access Point (TAP) system from the Customs' GST website.
Businesses which have reached the RM500,000 threshold shall apply for registration within 28 days from the end of the month in which the threshold is reached. Applications for manual registration shall be submitted to any nearest Customs Offices. Online applications can be submitted direct to the One Stop Processing Centre. Online applications can also be made by using the computer and internet facilities provided at all GST offices nationwide.
There is no any charges for the GST registration process.
Exports of goods and services subject to GST at zero rate. This is to ensure that exports are more competitive in the international market.
The scope of charge of GST extends to all sectors of the economy including the agricultural activities. As such, farmers are also required to be registered under the GST subject to the threshold that has been stipulated. However, where the agricultural products are goods not subject to GST (subject to tax at zero-rate), the farmers can request to be exempted from registration.
The scope of change of GST extends to all sectors of the economy including the fisheries activities. As such, fishermen are also required to be registered under the GST subject to the threshold that has been stipulated. However, where the fisheries products are?goods?not subject to GST (subject to tax at zero-rate), the fishermen can request to be exempted from registration.
The government will take stern measures to ensure that the businesses do not take advantages of the GST implementation to increase prices of goods to make excessive profits. Measures to be taken by the government include introducing the Anti Profiteering Act, intensifying enforcement action through the National Pricing Council, distribution of Shoppers' Guide, as well as making the hypermarkets act as price setters. Heavier fines and penalties will be imposed to make sure that the businesses comply with the rules and procedures formulated. These measures are aimed at changing the profit-centred attitude and unethical practices of the businesses.
The NGOs will be subjected to the GST if they are involved indirectly in any business activity of making taxable supplies.
Charitable institutions such as the institutions of disabled persons, orphanages and home for the senior citizens will not be subject to the GST where the services provided are solely for the members of the institutes only and there is no payment in return. Where the activities conducted by the charitable institutions are profit motivated, such institutions shall have to register under the GST.
The implementation of GST has replaced the Sales Tax and Service Tax. As such, both type of taxes has been abolished on the date of the implementation of GST.
The government has decided that the Royal Malaysian Customs Department (RMC) manages and administers the GST to be implemented in Malaysia.
To deal with the issues relating to non-compliance and fraud, various approaches will be used by the government as follows:
Besides this, it is also pertinent to engage in information sharing with other enforcement agencies. With the approached and methods stated above, it is anticipated that non-compliance and fraud activities will be reduced significantly.