OCT 2 — The GST buzz is in town, causing so much confusion, apprehension and anger especially amongst the educated urbanites that it makes me wonder if Malaysian consumers are aware that they are already paying double taxes – one at the manufacturers’ stage, called sales tax (5-10 per cent) and the other at the outlet they consume, called service tax (6 per cent). Alas, for many, the SST is unheard of or barely understood.
The beauty of the sales tax, which is applied to most goods manufactured, is that we don’t see it on the sales receipts. It’s nicely hidden and embedded in the price of what we buy, and that’s why we are less disgruntled by the SST.
Human beings are naturally put off by taxes so much so that only 1.7 million Malaysians and 12.4 per cent of corporates religiously declare their income. So much so, that the talk of introducing the GST in Malaysia has brewed hot and empty debates amongst Netizens especially.
Never mind that the country is one of the last in the world to implement a consumption-based tax system. Never mind that the SST is so outdated and inefficient, for so long as the broad-based GST is not introduced to Malaysian citizens.
Let’s unveil the SST piece per piece. First, the sales tax has a cascading effect. Just like the waterfall – it begins at the manufacturers level, then goes down to wholesalers, then to the suppliers and lastly to us, the consumers. At the end of the day, the cost is all passed down to end-users. And if we happen to consume at a restaurant or café, another 6 per cent is added on top of that 5-10 per cent. Thank you very much!
But what you see in your receipt is just the 6 per cent bit. The 5-10 per cent portion is nowhere to be traced because the tax is already embedded in the price. For the longest time, we have been paying double taxes, and for most of us, we were happy to pay it, simply because we are completely ignorant of the 5-10 per cent paid at the check-out counters. This is what we call Ignorance is Bliss.
On the other hand, the GST – Goods and Services Tax – is a transparent taxation system that will strike off the double taxes and replace it with just one single consumption tax.
Under SST, by the time the goods reach the consumers, the sales tax that is paid at the manufacturers’ level would have cascaded at each level of distribution and supply chain, and this results in higher prices. With GST, businesses at every stage are able to get a refund on the GST paid on the goods and services acquired or used for the purposes of their business.
This will eliminate the cascading effect suffered under the current sales and SST, provided the company is registered with Customs and their annual sales turnover exceeds RM500,000.
An example on hand is a glass of Coke which we consume at a hotel.
Say a can of Coke at the manufacturers’ level costs RM2. When the manufacturer sells it to a wholesaler, he adds on the 10 per cent sales tax that he had to pay to the government. Therefore, the Coke is now sold at 2.20. Then, when the wholesaler sells it off to its distributor, he adds on his cost and value-add – and the coke is now priced at RM2.50. By the time we consume it at restaurant or café, the same can of Coke is sold at double or triple its original cost, and on top of that we pay an additional 6 per cent for service tax.
The combo of 10 per cent and 6 per cent is what we call Sales and Services Tax (SST).
No doubt, the introduction of GST has been postponed one too many times, and one of the reasons behind it is because consumers need to be properly educated and that process is, of course, time-consuming. Although the GST system is transparent and consumers will know what tax they will be paying and how much, we are still adverse to its implementation.
Amongst the empty talk is that GST is a new tax. Wrong. It is only a replacement tax meant to replace the current SST. At present, we are already paying a sales tax of 5-10 per cent and services tax of 6 per cent on goods and services. Now, with GST, suppliers and manufacturers can get a refund on what they pay as GST to produce their goods. (Also called Input Tax)
With the GST regime in place, they would have to remove those elements from their cost and pass down the savings to the consumers. This is why GST is dubbed as business-friendly. When manufacturers, wholesalers, suppliers get a refund on their input tax, it is good for business, as it brings their production cost down. And when their costs are reduced, they can sell their products at a cheaper price to their customers.
At the customer level, since we have already been paying an embedded tax of 5-10 per cent on many items prior to the GST, prices should not vary much. However, for certain goods and services that are now not subject to any sales or service tax, there will be an increase in price with the GST but the rate should not be more than the proposed GST rate.
As the GST covers a wider range of products, some prices will go up, some will drop and some will remain the same. Should manufacturers, suppliers or traders try to profiteer from the GST by not passing on their cost savings to the customers, action can be taken under the Price Control and Anti-Profiteering Act that has been in place since April 2011. The enforcement comes under the Domestic Trade and Consumer Ministry which is looking into establishing a price monitoring council to combat profiteering.
But the most important thing to remember is that essential food items and key services will not be affected. So far, the government has identified a basket of 40 essential items which will be exempted from GST. Either way, a shoppers’ guide will be distributed to the rakyat so that we are guided on how much we should be paying and not be cheated by traders or merchants.
In conclusion, is the GST really more bark than bite?
We don’t know. What we do know is that the GST will come as a shock to us in the beginning, as we visibly see the line of tax on each and every bill. Like everything new in life, it will take time to adjust and accept reality when it kicks in. But personally, I believe that if we educate ourselves sufficiently, shop intelligently and modify our habits, we should be able to cushion the impact a little, if not a lot!
* This is the personal opinion of the writer or publication and does not necessarily represent the views of The Malay Mail Online.
