Countries with GST, and Malaysia perspective

To begin with, I'll state here that I am for the implementation of the GST (Goods &Services Tax) in Malaysia. Whether you agree to it or otherwise, 160 countries in the world think VAT/GST is the one that is right for them.

In the ASEAN region, only Malaysia, Myanmar and Brunei have yet to adopt this taxation system.

I read that many people are unhappy with the proposed GST rate of 6% as they are worried that this will quickly be revised and it won't be too long before it becomes double that figure. I think this is unlikely and by right it should not be the case. You don't need to be unduly worried.

Take the following cases for example - many countries did not change their GST/VAT rates after so many years of implementation:


Source: ASTRO Awani 


I say we are in the right direction. We just need to have an efficient way of enforcing the implementation, and transparent way of spending the extra billions of Ringgit collected.

You can find out here what are the goods and services exempted from GST.

GST likely after general election

Quote of the day:

“I guess when the time is right, in the near future, probably after the next general election, we will introduce the GST," - PM, Najib Razak during an interview with Forbes Media, September last year.

Image credit: isarawak.com

Firstly, politics is not my cup of tea, so, the title should be read in no way affiliated to my or anyone's political inclination. This entry is just a reminder to all of us of the imminent implementation of the goods and services tax (GST). Should Malaysia implement it, or should we stick to the current taxation system?

What is GST

GST, also known as VAT (value added tax) in many other countries is a multi-stage consumption tax on goods and services. It is levied on the supply of goods and services at each stage of the supply chain, and the proposed rate is 4% of the value of the supply.

In simple term, if you buy an item (say Manchester United cap) for RM100.00, a goods tax of RM4.00 (4% GST) will be levied on you pay a total of RM104.00 for the merchandise.

Why switch to GST

To replace the current consumption tax i.e. the sales tax and service tax. The government hopes to enhance the efficiency and effectiveness of the existing taxation system by introducing GST. It is also capable of generating a more stable revenue to the nation.

How does it work

Registered businesses charge and collect from buyers/customers GST on the taxable supplies of goods and services made by them. Businesses must be registered under GST if their annual sales turnover has exceeded the prescribed threshold. The collected taxes would then be remitted to the Government. For illustration and if you enjoy lengthy explanation, make a jump to Ministry of Finance website and look for 'How does GST work'.

Is GST widely practiced?

Most developed nations implement GST and as of 2010 there are 146 countries adopting this taxation system. These includes United Kingdom, Germany, France, Italy, Denmark, Netherlands, Portugal, Spain, Australia, Brazil, Canada, China, Japan, Indonesia, India, to name a few. Click to see the list of countries which have implemented GST/VAT.

How about South East Asia?

Indonesia (10%), Philippines (12%), Singapore (7%), Thailand (7%) and Vietnam (10%) are currently implementing GST. The figures in brackets are rate at which GST is levied, as at August 2010.

In comparison, GST rates in other countries are higher. For instance:-
Denmark (25%)
France (19.6%)
United Kingdom (20% as of Jan 2011)
Canada (5%) - notably lower
Japan (5%)
China (17%)
South Korea (10%)
Spain (18%)
Argentina (21%)

Malaysia proposed a GST to be levied at the rate of 4% on the value of the supply. This has not been finalised yet.

How will this affect me and you?

I will quote PM Najib: "Malaysia has a 12 million workforce and only 1.2 million paid taxes" - The StarOnline, Tuesday September 13, 2011.

With the implementation, all 28 million Malaysian will be paying taxes instead of the current 15% (roughly) working population, plus corporate taxes. From this point of view, I would agree to it as I'm currently in the 15% category and I am feeling the pinch of paying high individual tax while others who work and earn more than me pay nothing because of the limited scope of taxation.

Then again, the 85% earning less than the threshold salary, and those self employed earning 'just enough' would be victimised by the GST. A poor farmer would pay the same GST as the high income CEO of a company. It is no surprise then that the proposed GST implementation have come under strong criticism and protest from many quarters.

There has to be a mechanism to discriminate the rich and poor in terms of paying taxes. The well educated and experienced policy makers just need to work harder.