KUALA LUMPUR, June 2 ― The Goods and Services Tax (GST) was zero-rated starting yesterday, but why is it important and what should you know?
Here's a quick list of facts that will help you:
1. What is the GST?
The Goods and Services Tax was introduced on April 1, 2015 at a tax rate of six per cent.
The GST replaced the sales tax and services tax (SST) regime, and meant that consumers had to pay an additional six per cent on top of the price of goods and services as tax.
Fun fact: The GST has inspired songs, like the one featuring a group of Customs Department officers dancing along to lyrics promoting the new tax system as being transparent.
It even got the current Finance Minister Lim Guan Eng into a spot of trouble previously, over modified lyrics to the tune of the ABCD song which parodied the GST by blaming it for a rise in prices and purportedly causing Malaysians to resort to eating instant noodles.
(Part of the song goes: ABCD GST / harga semakin tinggi / tak naik lagi gaji / mesti makan maggi mee / semua kena GST / bayar untuk 1MDB)
2. Hop on to the time machine
Let us go back quickly to when Budget 2014 and Budget 2015 were tabled in Parliament, where Malaysia’s GST rate of six per cent was touted to be the lowest in the Southeast Asian region.
Check out this infographics of some of the items announced in those two budgets as being exempted from GST and also what the government did with the initial collection of GST:
Back when Datuk Seri Najib Razak was prime minister, he had repeatedly spoke of how he made the tough decision of introducing GST and how the tax proved to be the "saviour” of Malaysia amid a drop in global oil prices.
In just nine months in 2015 since its April debut, the GST contributed RM27.012 billion or 12.3 per cent of the entire government revenue.
The GST later contributed RM41.206 billion or 19.4 per cent of the government income in 2016, which is almost one-fifth of the revenue.
It was projected to contribute RM41.5 billion or 18.4 per cent to government coffers in 2017 (this was later confirmed in January 2018 to be RM44 billion), and was predicted last year to contribute RM43.8 billion or 18.3 per cent of the government revenue for 2018.
In 2015 where SST was replaced by the GST, RM8.261 billion of SST was collected and contributed to 3.6 per cent of government revenue.
4. ‘It's painful,’ say Malaysians
While it may have helped the government cover the shortfall in revenue caused by the dip in oil prices and while economists were in favour of what was seen as an economic reform, Malaysians in general complained about the added burden of having to pay GST.
According to Bank Negara Malaysia’s 2015 annual report, GST led to higher inflation that year for most categories of consumer goods and services, with especially notable price hikes in the categories for furnishings, household equipment and routine household maintenance; communication and miscellaneous goods and services.
But overall headline inflation measured through the annual percentage change in the Consumer Price Index (CPI) declined to 2.1 per cent in 2015, with GST also said to have an impact that was lower than expected as some companies absorbed the tax initially and the spillover effects were reduced with active government enforcement against excessive price hikes.
Last month, BNM governor Tan Sri Muhammad Ibrahim said prices of goods and services are expected to come down with the zero-rating of GST, but said then that it would be too early to calculate the impact on the inflation rate.
According to the Department of Statistics Malaysia’s latest figures, the April 2018's consumer price index (CPI) went up by 1.4 per cent year-on-year.
In March 2018, CPI went up by 1.3 per cent year-on-year, the lowest since July 2016’s 1.1 per cent.
Pakatan Harapan promised to do 10 things within 100 days of taking over Putrajaya, including abolishing GST. ― Picture by Yusof Mat Isa
5. What did Pakatan promise?
Pakatan Harapan promised that it would abolish the GST if it took over the federal government in the 14th general elections, pledging to do so within 100 days of forming government.
It said it would replace GST with a "fairer” Sales and Services Tax and "people-friendly and entrepreneur-friendly” tax.
6. Hooray?
While the federal government has not yet formally scrapped the GST, zero-rating the GST from yesterday onwards has a similar effect.
And that's barely over three weeks since Pakatan Harapan took over. It is also only over three years since GST was introduced.
So with the GST at zero rate now, that means no GST will be collected from you when you pay for any services or goods.
But businesses still have to do the paperwork and tax invoices for now, since the GST tax regime is still in place albeit with a zero rate.
7. Tax holiday
Yes, the Sales and Services Tax (SST) will be back and will replace the GST, but only on September 1 at a rate yet to be determined.
That's right. For three whole months, Malaysians won't have to pay any tax on goods and services.
So with no GST collection and the break, the Finance Ministry on Thursday said Malaysians will have approximately RM17 billion in savings for the rest of the year that would otherwise have been collected as tax.
That’s not the only good news from the Finance Ministry, as Malaysians are expected to save RM3 billion from the fixing of RON95 petrol and diesel prices at RM2.20 and RM2.18 per litre, while a special assistance of RM700 million will be given to civil servants ranking Grade 41 and below and pensioners for Hari Raya.
All in all, that’s RM20.7 billion that will be in Malaysians’ pockets this year, which the ministry believes will boost consumer spending and business profits.
No GST will be collected when you shop now. ― Picture by Choo Choy May
8. ‘Ok lah, I just want to know what will be cheaper’
Although not all prices may drop overnight, no GST will be collected now on things such as banking products and services, electricity use, parking at MRT stations, purchases of offices and commercial properties.
The savings can be as little as 30 sen to even thousands of ringgit per transaction, depending on what you are paying for.
If you go into a store and it still shows the price inclusive of six per cent GST, you just have to pay the price excluding GST.
Companies who are not able to immediately replace all price tags can display a notice at a prominent place to tell customers of the change in GST rate. They will have until June 30 to change all the price tags.
Even before yesterday, car companies Proton and Perodua had offered a six per cent rebate to customers.
9. Keep your lungs healthy
While ensuring that your pockets are at healthy levels, the federal government also wants to make sure that cigarette prices don't go down because of the the zero-rating of GST.
Health Minister Dzulkefly Ahmad had on Thursday explained why cigarette prices would be maintained: "This is to ensure that the prohibitive price is there to help control tobacco use.”
10. Will our country be okay?
Following the Pakatan Harapan federal government's announcement that Malaysia's total debt and liabilities actually amounts to RM1 trillion (that's RM1,000,000,000,000 with 12 zeroes), many Malaysians have been really concerned.
Malaysians' desire to chip in to somehow lessen the debt amount even led to the Finance Ministry setting up the Tabung Harapan Malaysia, which raised over RM18 million so far.
So, can Malaysia really afford not having the GST at this point of time? The GST that amounted to almost one-fifth of the government revenue or income?
Well, the Finance Ministry is confident that there will not be any problem even with the GST scrapping causing a revenue loss of RM21 billion, as the government plans to review, defer or renegotiate at least RM10 billion worth of projects.
It also believes that the federal government will be getting an estimated RM14.4 billion in additional income this year, including from higher corporate and petroleum income taxes from oil firms on the back of higher oil prices (RM5.4 billion) and higher dividends from government-linked companies like Khazanah Nasional, Bank Negara Malaysia, and Petronas (RM5 billion).
Out of the RM14.4 billion estimate, SST is expected to contribute RM4 billion this year after its return in September.
So with the expected extra income and mega-projects review and despite the GST scrapping and fuel price stabilisation, the government expects to only see its budget deficit increase from the original projected RM39.8 billion to RM40.1 billion.
Which means the government expects to meet the initial 2018 target of budget deficit at 2.8 per cent of the Gross Domestic Product (GDP) as seen in this chart below:
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