Essential items, services to be exempted from Malaysia's GST

MALAYSIA will implement the goods and services tax (GST) at 6 per cent, which will begin on April 1, 2015, said Prime Minister Najib Razak in his 2014 Budget presentation.

 

In his widely-anticipated Budget speech themed "Strengthening Economic Resilience, Accelerating Transformation and Fulfilling Promises" on Friday, Mr Najib said the GST will replace the sales and services tax of up to 16 per cent currently.

 

"The GST will not be imposed on essential items such as flour, rice and sugar, and it is among the lowest among Southeast Asian countries currently," he said in Parliament.

 

Public transportation such as bus and train fares will also be exempted.

 

He said after the GST is implemented, personal income tax will be reduced between one percentage points and three percentage points, while corporate tax will be reduced between one percentage points and two percentage points.

 

Currently, individuals pay up to 26 per cent, while corporates pay up to 25 per cent in taxes currently.

The government is also cutting subsidy by allocating RM39.41 billion (S$15.42 billion) on essential items such as cooking oil, flour and sugar this year, 15.6 per cent lower than the RM46.7 billion allocated last year.

 

Revenue for 2014 is expected to be RM4 billion higher at RM224.1 billion, while the government plans to spend RM264.2 billion on development programmes and administrative expenditure.

The economy is expected to grow between 4.5 per cent and 5 per cent this year, and between 5 per cent and 5.5 per cent in 2014.

 

According to the Economic Report released by the Finance Ministry on Friday, public debt in 2013 will continue to rise to RM541 billion or 54.8 per cent to gross domestic product from 53 per cent last year.

 

However, its budget deficit this year is lowered to 4 per cent, from 4.5 per cent last year, and said it will continue to lower to 3.5 per cent in 2014.

 

http://www.straitstimes.com/breaking-news/se-asia/story/essential-items-services-be-exempted-malaysias-gst-20131025

 

Budget 2014: Concern over GST and removal of sugar subsidy

THE foremost concerns of Malaysians following the Budget 2014 are the rise in sugar prices following the removal of its subsidy and the implementation of the Goods and Services Tax (GST).

 

With many saying that they are already struggling with the high living costs, they expect to further tighten their belts.

 

Insurance agent Jason Tan, 24, said daily life was already a struggle, especially for those who were just starting out in their careers.

 

“Although the price rise of sugar is only 34 sen per kilo, shops are going to increase the prices of their drinks by at least 10 sen per glass. Other prices will go up as well and the pinch will be felt by us,” he said.

 

Tan said he was also concerned about the implementation of GST, adding that he did not think that the exemption or reduction of income tax would bring much benefit.

 

The GST, fixed at 6%, is scheduled to be implemented on April 1, 2015, – 17 months from now – and will replace both the sales and services taxes.

 

At the same time, both the individual income and corporate tax rates are to be reduced by between 1% and 3%.

 

Lecturer Sudhashini Nair said she hoped that proposals spelt out under the Budget 2014 would help the lower and middle income group.

 

“The costs of living is so high now that we cannot even think of having more than one child,” she said.

 

PhD student Nithiya Arumugam, who returned from Japan three years ago, said the removal of the sugar subsidy would affect her the most.

 

“When I came back home, I was shocked by how much the food prices have increased. This is just going to make things worse,” she said.

 

Approving the Government’s move to set aside funds to improve the public transportation system, Nithiya said currently, the main focus was only the city centre.

 

“I hope to see the system extended and also for an increase in efficiency,” she said.

 

Engineer S. Kulendran said he was sceptical about GST, claiming that although many countries were alre­ady applying the system, they had high per capita income.

 

“They have reliable public transportation systems and affordable raw resources but we do not have that,” he said.

 

“The GST will affect the spending of the middle class and with lower salary increments, the situation will be worse,” he said.

 

Aircraft engineer Nazir Maslan felt that the removal of the sugar subsidy would impact the lower and middle income the most.

 

Nazir said he was hoping to see a positive result from the implementation of GST, adding that the 6% was a “reasonable amount” and “one of the lowest”.

 

“The only thing is that in countries like Britain, they pay more taxes but they also get back more. For example, the public transportation there is so good that it is a hassle to own cars.

 

“But I only see that happening here in the next 10 years,” he said.

 

http://www.thestar.com.my/News/Nation/2013/10/26/Concern-over-GST-and-removal-of-sugar-subsidy.aspx

GST-free 40

KUALA LUMPUR: Basic foodstuffs like rice and fresh vegetables and part of utilities such as water and electricity will be exempted from the proposed goods and services tax (GST).

They are part of some 40 basic goods and services that will be free from GST, Second Finance Minister Datuk Seri Ahmad Husni Mohamad Hanadzlah said when opening a one-day national conference on the GST in Kuala Lumpur yesterday.

It is understood that sugar, poultry, eggs, public transport and health services, among others, will also be exempted from GST. The exemption on these items will help consumers, especially those in the lower-income group, in line with earlier statements by the government that the GST would not burden this particular group.

The government plans to introduce GST at four per cent next year.

It is a multi-stage and broadbased consumption tax on goods and services. It will replace the current sales tax and service tax.

The Goods and Services Tax Bill was tabled for first reading in Parliament last December. The second reading has been scheduled for next month.

More than 140 countries have implemented GST, also known as valued-added tax in some nations. Countries with populations with less purchasing power like
Venezuela, Kazakhstan, Brazil, South Africa, Thailand, Sri Lanka and Sudan, already have the tax regime in place.

Businesses are expected to save RM4 billion with the GST, while exporters stand to save up to RM1.4 billion.

“The possibility of revenue loss through the understatement of taxable value at an earlier stage in the production and distribution chain would be overcome with the implementation of GST,” Husni said.

“With higher tax compliance, the government can generate additional revenue which will go back to the rakyat through socioeconomic development.”

The government is keen to hear public views so that fine-tuning can be made to ensure successful implementation of the GST.

GST brings bigger savings

Pay less for phone bills, food and beverages.

Telephone bills, food and beverage may become cheaper but computers, properties and gym memberships could cost more with a Goods andServices Tax (GST).

Analysts say this is the expected impact of the GST, which the government plansto introduce in 2011 as it seeks to widen its revenue source.

As it is, only a tenth of all workers pay income tax while earnings from oil make up about 40 per cent of federal government revenue.

The GST will replace the current sales and service taxes. At four per cent, it would be lower than the current sales and service taxes of five to 10 per cent, although essential goods like cooking oil would be exempt from GST.

PricewaterhouseCoopers senior executive director Wan Heng Choon said however,several other things would be more expensive, among them computers and houses.

“The rich will have to pay higher tax as they consume more. The lower incomegroup will benefit from the GST."

As for businesses, companies with revenues of less than RM500,000 would not have to pay GST. Wan said the GST, which taxes money spent, would have a neutral effect on businesses, but this would also depend on whether the companies understood how the tax worked.

He said the GST would hurt companies that did not put into place processes that would allow them to claim the input tax on time and monitor cash- flow.

"GST is a credible tax. People should give the tax a chance and not dismiss it for the wrong reasons. Companies should understand the tax and implement it properly so no one loses out."

Wan said businesses could benefit from the GST, provided they had good control over their taxes.

"If they don't do that, then the tax will become embedded and businesses will pass it on to consumers. If companies do not claim properly, it would be their loss."

The Real Estate and Housing Developers' Association Malaysia (Rehda) expects developers to pass on cost increases to buyers to maintain their profits.

Datuk Richard Fong, a developer, said houses would cost more from 2011, but he did not expect a severe effect on property transactions as the market was improving.

"Whether the GST will affect sales and how it will impact the industry, we have to wait and see until it is introduced," said Fong, who is Glomac Bhd group executive vice-chairman.

Deloitte Malaysia country tax leader Ronnie Lim said companies should take action soon to ensure they were GST- compliant.

"Businesses have to start upgrading their systems now."

"We advise businesses to start early as resources, especially the personnel and information technology, will be stretched when it comes to the crunch."

"Australia introduced GST in 2000. As demand within a limited period outstripped supply, GST experts from Britain, South Africa, Canada and New Zealand were brought in to augment the supply. Imagine the costs involved in the Malaysian context."

GST implementation requires two main services experts, for which there are not many in Malaysia.

"There are also not enough experts to modify the software to cater to the new tax regime."

Second Finance Minister Datuk Seri Ahmad Husni Mohammad Hanadzlah said the implementation of GST was a means of placing the country's economy at a level that was at par with those of developed nations and in keeping with changing times.

It gave the government an advantage, particularly in enhancing income flow, which could then be used to implement projects for the benefit of the people, he told Bernama in Ipoh yesterday.

"Only three Southeast Asian countries do not practise this taxation system, and they are Malaysia, Brunei and Myanmar."

"We will join 143 other countries in implementing the GST," he said after a gathering at the Tambun parliamentary constituency mobile service centre here yesterday.

Ahmad Husni said the people were becoming more rational now and those groups who wanted the government to postpone or review the implementation should have a strong reason for it.

4% GST expected to come into effect in middle of 2011

KUALA LUMPUR: The 4% Goods and Services Tax (GST) is expected to be implemented by the middle of 2011.

The GST Bill was tabled for the first reading in Parliament by Finance Minister II Datuk Seri Ahmad Husni Hanadzlah yesterday.

He told the house that the second reading of the Bill was scheduled for March next year.

Speaking to reporters at the Parliament lobby later, Husni said the GST implementation would be a win-win situation for all, as the Government would receive an additional RM1bil in revenue for the first year while the business and export sectors would save RM4.1bil and RM1.4bil, respectively.

“The Government is proposing GST at a rate lower than the (current) sales and services tax rates, and to allow certain exemptions from GST, especially on essential goods such as padi, vegetables, basic food (rice, sugar, flour, cooking oil), fish, meat and chicken, to ensure it will not burden the rakyat, especially the lower income group.

“The main purpose for introducing GST is to make the current taxation system more comprehensive, efficient, effective, transparent and business friendly. The sales and services tax will be abolished and replaced with GST,” he said.

The current sales and services tax is from 5% to 10%.

“Based on the proposed model, businesses are expected to benefit in terms of lower cost of doing business.

“GST will be able to reduce bureaucratic practices in the management and administration of the country’s tax system, and overcome various inherent weaknesses that exist in the sales and services tax.”

He said companies with a revenue of RM500,000 and below would be exempted from GST, and also, about 70% of SMEs would be exempted.

Husni said the Government had done a comprehensive study on the GST.

“Under the sales and services tax system, the burden on the poor is 2.38%, but under the GST, it will be 2.17%.

“For the higher income group, their tax burden will be reduced from 3.13% to 2.74%,” he added.

“The overall savings for households will be between RM14.52 and RM346.92 yearly. On all grounds, we will benefit more from the GST,” he said.

Govt may impose GST at 4%

The government plans to impose goods and services tax (GST) at 4%, said Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah.

“We are replacing the current sales and services tax, which is currently at 5% to 10%,” he told reporters at the Culture, Ideas and Values Workshop organised by Foundation For the Future at Country Heights Resorts in Kajang.

He said the GST implementation was important for the country’s future.

“The revenue source must be sustainable. If we can get sustainable revenues, we can get a good budget,” he said.

He said the Consumer Price Index (CPI) would not increase as a result of the GST implementation.

Some selected items especially essential goods like rice, sugar, cooking oil and flour as well as domestic transportation would not be subject to GST.

Husni said the Bill on GST would be tabled in Parliament for the first reading this year while the second reading in March next year.

GST would be implemented 18 months after the second reading.

The government expected an additional RM1bil revenue annually after the first year of its introduction. -- Bernama

How GST affects small, medium businesses

Awareness of compliance requirements vital before it’s introduced

THE goods and services tax (GST), if implemented, will not only affect big businesses. The compliance requirements apply once a business achieves a certain prescribed annual sales turnover level. This registration threshold has not been announced.

However, it is worthwhile noting that the licensing threshold for sales tax and service tax, which GST will replace, currently ranges from RM100,000 to RM300,000. If this is any indication, GST registration will be an obligation for many smaller businesses. This is taking into account that GST will be imposed on practically all supplies of goods and services and at every stage of the supply chain.

Credit offset mechanism: In simple terms, businesses supplying taxable goods and services have to charge GST on supplies made (referred to as output tax). The GST paid on purchases (input tax), including capital equipment, supplies and materials can be offset against the output GST. This is referred to as the credit offset mechanism.

The net amount would have to be remitted to the Royal Malaysian Customs. Businesses that are largely export-oriented are likely to be in a refund position. To claim the credit offset, businesses are required to obtain and keep tax invoices from suppliers. While this may sound simple, the tracking, record keeping and reporting can be a challenge to many businesses.

Below are some thoughts for small and medium-scale enterprises (SMEs) as the Government ponders on the implementation of the GST, particularly the registration threshold.

Awareness of responsibilities:

Notwithstanding the size of the business, the law imposes the same compliance obligations once the registration threshold is reached. Once the registration threshold is announced, affected businesses will need to follow closely the developments and to understand their responsibilities under the GST regime.

While the business is essentially just collecting and remitting GST for the Government, non-compliance will result in penalties on the business itself.

It is hoped that the Government would leverage off the experience from other countries that have successfully implemented GST and roll out comprehensive awareness programmes to help, in particular SMEs, prepare for the GST. These could include organising briefings at various locations, setting up small offices, kiosks, helpdesks and hotlines throughout the country.

Compliance cost:

GST imposes additional compliance costs for businesses. These come in the form of additional work to account for the tax, tracking of the input taxes paid, undertaking reconciliations and filings of GST returns.

In addition, where a business pays cash or has short credit periods from its suppliers, this may result in the business needing extra finances to purchase supplies when GST is first introduced. This is a timing issue which should iron itself out over time as credits are claimed. In this respect, there have been requests that the tax return cycles for SMEs be extended to ease the cashflow burden under the GST regime.

Customer reactions:

As often happens, customers react to news of discounts or price increases. It is generally anticipated that GST will result in a price hike on certain goods.

The level of increase depends partly on the rate of tax announced. Experiences in other countries have shown that customers generally go on a shopping spree shortly before the introduction of the tax, followed by a period of relative inactivity after the tax is introduced.

Anticipating this, it may be necessary to do some stock planning to cater for a pre-GST rush. This, however, has to be balanced by the fact that stock in hand when GST is introduced, may not be entitled to any input tax credit.

Purchase of business assets:

Like customers, businesses should also plan their purchases during the GST transition period. This is because currently many goods (particularly capital goods) have an embedded sales tax in them which is not deductible or creditable.

On the other hand, buying the same goods by the business after GST would allow the business to claim a credit for the GST (which will replace sales tax). This is an advantage for the business and the effective cost of the goods would then be lower (other things remaining equal).

As a rule of thumb, while household consumers are likely to shop before GST is introduced, businesses which are GST registration candidates should perhaps delay purchases to a time when GST is effective. This does, however, require some assumption that prices will otherwise remain static.

To register or not to register:

Some businesses will inevitably fall below the registration threshold. While it may appear a good thing that the business is not subject to the compliance burden of the tax, other factors need to be taken into consideration whether or not to register.

For one, unless the business is licensed, it would not be entitled to claim the input tax credits on purchases. This leads to input tax paid being a cost to the business (this may be a good thing from the customers’ perspective; GST is not imposed when they purchase the goods).

However, in a situation where the customers of the business are other GST registered businesses, the supplier may be obligated to license itself as it is likely that the customer would insist on buying from another registered person to enable him to claim the input tax credit.

Noting the additional burden that GST puts on SMEs, the Government could consider making concerted efforts in conducting education campaigns as well as addressing and deciding on compliance issues before the introduction of GST. Treatment of specific transitional issues needs to be announced upfront to facilitate a smooth transition to the GST regime.

The writers are executive directors of KPMG Tax Services Sdn Bhd.

Bill on goods and services tax to be tabled

Prime Minister Datuk Seri Najib Tun Razak said a bill relating to the proposed introduction of the goods and services tax (GST) will be tabled for first reading at the end of the current Dewan Rakyat sitting.

The Prime Minister said the move was agreed to at the last Cabinet meeting.

"This will allow the public to give their comments, engage them, and if we find it necessary to fine tune it, we'll do so," he told Malaysian journalists covering his working visit to New York on Monday.

Najib, who is Finance Minister, met the press after attending a series of gatherings and meetings with American investors and fund managers as well as top corporate figures.

He stressed that if the government decided to introduce the GST in Malaysia, it would do so "very gently".

"It's not going to be an abrupt introduction," Najib said, adding that if the GST materialised, the rate would not burden the poor or middle-class Malaysians.

"And, it would not lead to inflation," he added.

The proposed GST would replace the current sales and service tax.

The Prime Minister pointed out that Malaysia was one of the few countries in the Southeast Asian region that had yet to implement the GST.

"Basically, the whole world has introduced the GST," he said.

While tabling Budget 2010 in October, Najib said the government would take firm measures to strengthen its financial position and recognised that adequate revenue collection was vital to support rising expenditure as well as reduce the nation's increasing debts.