IN a recent interview with Nikkei Asia, Prime Minister Datuk Seri Ismail Sabri Yaakob indicated that the government was keen to bring back the goods and services tax (GST) as a means to expand the nation’s revenue base and replenish the federal coffers.
He added that the government will aim for a rate that does not burden the rakyat, but at the same time is reasonable enough to achieve the tax’s intended purposes of expanding tax revenue.
Prior to the reintroduction of GST, the government would ensure that the public is informed and educated on the importance of GST as a transparent tax collection system.
Why is the reintroduction of GST being considered? Some of the reasons that the reintroduction of GST is being considered include:
> GST would enable the government to widen the scope of tax, increase its revenue collections, and reduce reliance on corporate income tax and petroleum income tax, hence easing the pressure on government coffers.
Historically, the GST brought in an average of RM40bil in annual revenue, while the sales and service tax (SST) only brought in an average of RM25bil annually.
> GST is a more efficient tax system than SST, as GST mitigates the tax cascading effect due to the irrecoverability of SST incurred.
Under the GST system, businesses would be able to recover the GST incurred as input tax credits, GST would generally not be a cost to businesses and would be borne by the final consumer.
GST is more business-friendly as it is less ambiguous, where the tax system would also allow for automated tax identification and reporting.
This would reduce the tax administrative burden and potentially reduce tax controversy.
For example, under the existing SST regime, multiple exemptions and facilities have been introduced to provide some form of relief and address additional business costs due to the mechanisms of the SST.
These exemptions and facilities come with various conditions which must be complied with by taxpayers, who would need to defend their positions in the event of any queries or challenges from the Royal Malaysian Customs Department.
Further, given the fact that SST, unlike GST, only applies on prescribed taxable services provided by taxable persons, there is a greater element of judgement and analysis involved, which can lead to a lack of clarity and penalties where an incorrect position is taken.
The burden is not just on taxpayers, as the Royal Malaysian Customs Department also needs to review the SST positions taken by taxpayers and their compliance with relevant conditions.
> In view of the input tax credit mechanism in place and the potential preference for businesses to deal with other GST registered persons, the GST would in fact encourage businesses to be registered.
In turn, this would help minimise the hidden economy and tax leakages as there would be greater transparency at all stages of the supply chain.
> The reintroduction of GST may bring greater comfort to foreign investors, and encourage greater international trade, as GST or value added tax, which is similar in operation to GST is a tax regime which is commonly applied in up to 160 countries.
> Consumers will have visibility of what they are being taxed on and how much tax they are paying.
Key considerations in reintroducing the GST
For the GST to be successfully reimplemented in Malaysia, support from the public and businesses is paramount.
In order to achieve this, the government needs to ensure that the implementation of the GST is efficient, with minimal disruption to businesses and without undue burden to the end consumers.
The government may consider periodically assessing the impact on and the views of potential stakeholders through a review process, to ensure that GST is introduced and administered effectively.
To minimise the impact on inflation, the government should aim for zero-price hikes via strict price controls and anti-profiteering measures, and ensure that the tax savings of businesses due to the availability of the input tax credit mechanism are passed on to consumers.
Taking into account the challenges from the previous GST regime, the government must ensure that GST refunds are more streamlined and made as promptly as possible, potentially adopting the “refund first, audit later” approach.
The government may also set up a “self-audit” initiative by working together with accredited tax consulting firms or individuals, for businesses to achieve an acceptable level of compliance.
The GST treatment of goods and services should be streamlined, with the number of exempted supplies reduced and the zero-rated category being limited to essential goods and services.
Other supplies should be standard rated at a more palatable tax rate, which will not burden the rakyat.
Finally,the government should provide sufficient time for businesses to prepare for the re-introduction of GST, in respect of company system recallibrations, training or people upskilling, and process realignment.
Jalbir Singh Riar is a partner at Ernst & Young Tax Consultants Sdn Bhd. The views expressed here are the writer’s own.