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OUMH2203ENGLISH FOR WORKPLACE COMMUNICATIONMAY 2015 SEMESTER________________________________________________________________________

NAME : SHARON FOO YEE CHIENMATRIC NO : 941024025136001I/C : 941024-02-5136PH.NO : 016-4459167E-Mail : yeechien.foo@gmail.com

CONTENTS

WHAT IS THE GOODS AND SERVICES TAX?.......................................................................3-4 EXPERIENCE OF OTHER COUNTRIES..5 WHY GST?...................................................................................................................................5-6 TYPES OF GST....6 Standard-Rated GST Zero-Rated GST Exempt-Rated GST BENEFITS OF GST TO THE MALAYSIA ECONOMY...7-8 Efficient and Effective Tax Structure Greater Compliance Reliable Source of Income Than Income Price-competitive in Foreign Markets THE BENEFITS OF GST THAT OFFER TO THE MALAYSIAN CONSUMER AND BUSINESS..9-10 Lower Cost of Doing Business Improved Standard of Living Nation Building Enhanced Delivery System Fairness and Equality Increase Global Competitiveness Enhanced Compliance Reduces Red Tape Fair Pricing to Consumers Greater Transparency CONCLUSION...11 REFERENCES

Ladies and gentleman,

The biggest announcement arising from the recent budget speech is undoubtedly the long awaited and long dreaded Goods & Services Tax (GST) at a 6% rate. Malaysia has implemented the goods and services tax (GST) in April 2015. The purpose of its introduction will be replace the current sales and service tax that has used in Malaysia over the last few decades. Much ink has already been spilt leading up to this announcement and cyberspace has already contributed many opinions for and against the GST.

GST is particularly useful as a revenue raising tool given its wide base. Indeed, GST in one form or another, can be found in approximately 160 countries. GST is imposed on supplies of goods and services. By designating certain supplies as zero rated or exempt, the impact of GST can be softened in line with Government policies.

As GST is levied on supplies (typically sales) of goods and services the number of people paying tax is far higher than under SST or Income Tax. There is therefore, a more equitable sharing of the tax burden.

With anything new, it is important that GST is properly understood.

Im Sharon Foo Yee Chien, one of team member workforce of GST from the Ministry of Finance, I'm pleased to have the golden opportunity to stand before all of you this afternoon to talk about What is GST : Understanding the GST Concept and Fundamental

WHAT IS THE GOODS AND SERVICES TAX (GST)?

Known across the world as either GST or VAT (value added tax), it is a broad-based consumption tax that tax on your spending. Which affects all parties in a multi-stage taxation system across the value chain from manufacturing to sales, it is based on a tax-on-value-add concept which avoids duplication of taxes. This is in contrast to both the Sales and Service Tax in Malaysia which is just added at one stage (Sales Tax at manufacturer level, and Service Tax at consumer level).

In his 2005 Budget speech the Prime Minister Tun Abdullah bin Haji Ahmad Badawi stated:

The government proposes to replace both these taxes (Sales Tax and Service Tax) with a single consumption tax, based on the value-added concept. The new tax, known as the Goods and Services Tax (GST), will be more comprehensive, efficient, transparent and effective, thereby enhancing tax compliance

GST is a consumption tax based on the value-added concept. It is a form of indirect taxation and is imposed on taxable goods and services at each stage in the supply chain. This means that ultimately consumers will bear the tax. A key concept in GST is that of a supply. SST in comparison are both single stage taxes.

PRESENT TAXATION SCHEMEPROPOSED GST

NAMESales and service taxGoods and service tax

TYPE OF TAXSingle stage taxes Multi- stage tax (for suppliers) Consumption tax (for final customer)

TAX RATE Salex tax generally 5% to 10% Service tax 6%

Goods and service tax 6%

WHEN IT IS CHARGE Sales tax is charge on locally manufactured and imported goods Service tax is charge on selected service Charged only once (single stage) Applies to goods and service (unless exempted) as well as to imported goods and services Incurred by supplier (input tax) Charged to customer (output tax)

EXPERIENCE OF OTHER COUNTRIES Over the years, many developed countries such as the United Kingdom, Australia, Germany and Spain have experienced a regressive nature of VAT amongst the lower, middle and higher income groups. The reason for this is the minimal zero rating of basic essential and exemptions that have been practised by these countries when implanting the VAT. For example, a study conducted on the distributional impact of the VAT/ indirect tax package in Australia showed that the VAT impact was equivalent to a burden of 4.4% of income for the bottom 20% of households compared to 1.4% of income for the top 20% of households. The result was the same Japan, Colombia and Peru as the VAT was found to be aggressive, with little effect from exemptions.

On the other hand, several developing countries such as Vietnam and Ethiopia have experienced progressive VAT as they adopted the zero rating of basic essentials and exemption when implementing the VAT. In Pakistan too, the VAT was found to be progressive owing to exemptions

WHY GST?With the introduction of GST, Government revenues will be less reliant on direct tax and instead there will be greater funding from the wider indirect tax base. This reduction in Government revenues from direct taxes and greater yields from indirect taxes, is a global phenomenon. Being a broad based tax, GST can be charged on practically all supplies of goods and services, although this is tempered with some supplies being designated zero-rated or exempt where GST will not be charged.

Although the introduction of any new tax may be viewed with some degree of trepidation, a number of arguments can be advanced to support the introduction of GST including:

Unlike income tax, GST does not depend on profit but rather is based on consumption. As a consequence, the Government would benefit from a more certain revenue stream.

The income of many individuals falls below the threshold for income tax. As a result, the footprint for income tax is relatively small and the tax burden is arguably inequitable. As GST is based on spending there is the potential for many more individuals and businesses to contribute to the Governments tax coffers.

Under the current indirect tax system, SST are embedded production costs which may be reflected in higher prices. GST in comparison, through its input tax credit system, can reduce the cost of production for businesses. In parallel, the zero rating of supplies to persons outside Malaysia would increase the competitiveness of Malaysian exports.

In countries where it is has been implemented, GST is said to have increased tax compliance. This is primarily because of the need for businesses to be able to provide GST Invoices which requires that they be registered with, and known to, the tax authorities; hence there is greater transparency.

GST can also be said to provide an efficient tax collection mechanism as the payment obligation is dealt with directly by the supplier.

TYPES OF GSTThere will bethreedifferent categories of goods & services under the GST scheme in Malaysia. They are:

1. Standard-Rated GSTGoods and services in this category will be charged a tax rate of 6% at every stage of the supply chain. The tax is billed and collected by businesses and paid to the government. Every party except the final consumer can claim back credits on the GST they already paid (known as input tax). Examples of the goods in this category are cloth, car and fruits.

2. Zero-Rated GSTGoods and services in this category will be charged a GST rate of 0%. This means that GST is not charged to the final consumer but businesses can claim back credits on their input tax. Goods involved such as: Basic food items, unprocessed food items, most education materials.

3. Exempt-Rated GST Goods and services in this category will be non-taxable and are not subject to GST. The final party in the supply chain cant claim back credits on their input tax even if they might have incurred it. So there is no GST cost to consumer. Examples of goods such as: Residential property and healthcare.

BENEFITS OF GST TO THE MALAYSIA ECONOMY

The Goods and Services Tax or GST is a long awaited indirect tax reform which, when implemented, will be a vital factor in spurring growth in Malaysias economy. When introduced, it will not only make the tax system more efficient, effective and transparent but will also help in boosting tax revenues and will make exports more competitively priced. It is expected that, as a result of implementing GST, the countrys Gross Domestic Products (GDP) will increase by 0.3% and our exports by 0.5% in 2015 and 2016 respectively.

This can be achieved as:1. A more efficient and effective tax structure will be set in place.2. Tax revenue will be increased because of greater compliance.3. GST will provide the country with a more reliable source of income than income tax.4. Our goods and services become more price-competitive in foreign markets.

Efficient and Effective Tax StructureGST sets in place a more efficient and effective tax structure. With a single tax taking the place of multiple taxes on a product or service, the tax structure is expected to be much simpler, less bureaucratic and more transparent.

Paperwork will become simpler and it will reduce accounting complexities for businesses.

A simple taxation regime will make the manufacturing sector more competitive and save both money and time. This will have a direct bearing on the economy and will help boost the countrys GDP.

Greater ComplianceTax revenue will be increased as GST can bring about greater compliance, thus increasing the number of taxpayers and tax revenues for the Government.

One of the main advantages of a GST system is that it provides an incentive for businesses to comply with. This is because it is a multi-stage tax which means that they are able to claim offsets against GST paid on inputs which will bring them into the tax collection net. This widens the scope of coverage and increases the number of goods and services that are taxed.

Another point is that with higher compliance, there should be less tax evasion which will in turn ease the growing budget deficit and strengthen fiscal management of the Malaysian economy.

Reliable Source of Income Than IncomeGST as a consumption tax will provide the country with a more reliable source of income than income tax. Currently, there is a worryingly small number of people paying tax (1.7 million in a population of about 28 million) in the country. With GST, expatriates, illegal immigrants and even tourists visiting the country will be paying tax through consumption. This will help increase tax revenue for the country which can be channeled to develop infrastructures in the country.

Also, unlike the present sales tax, consumers under GST will know exactly which goods are subject to tax and how much tax they are paying. One of the biggest benefits of GST is that goods and services will be taxed on a common basis.

Price-competitive in Foreign MarketsUnder the present sales tax and service tax, even when tax is already paid at one stage in the supply chain, the same tax is considered as cost to be passed on to the next stage as the sales price. Consumers pay higher in the end. Under GST, this will be eliminated because each party in the supply chain can get a refund of the GST paid to the Government, or in other words, they can now claim input tax. As such, the tax element does not become part of the cost of the product.

When the cost of production falls in the domestic market, this will have the effect of making Malaysian goods and services more price-competitive in foreign markets. This, combined with the fact that under GST on all exported goods will be zero-rated will be very beneficial for exporters who compete with manufacturers abroad facing a lower cost structure.

THE BENEFITS OF GST THAT OFFER TO THE MALAYSIAN CONSUMER AND BUSINESS

Various benefits that GST can offer to Malaysian consumers and business are : Lower Cost of Doing BusinessUnder the current system, some businesses pay multiple taxes and higher levels of tax-on-tax (cascading tax). With GST, businesses can benefit from recovering input tax, thus reducing cost of doing business.

Improved Standard of LivingThe revenue from GST could be used for development purposes for social infrastructure like health facilities and institutions, educational infrastructures and public facilities to further improve the standard of living.

Nation BuildingGST is a better and more efficient method of revenue collection for the government. More funds can be channeled into nation-building projects for progress towards achieving a high income nation.

Enhanced Delivery SystemGST will be administrated in a fully computerized environment, therefore speeding up the delivery, especially for refund claims. This makes it faster, more efficient and reliable.

Fairness and EqualityWith the GST, taxes are levied fairly among all the businesses involved, whether they are in the manufacturing, wholesaling, retailing or service sectors.

Increase Global CompetitivenessPrices of Malaysian exports will become more competitive on the global stage as no GST is imposed on exported goods and services, while GST incurred on inputs can be recovered along the supplies chain. This will strengthen our export industry, helping the country progress even further.

Enhanced ComplianceThe current SST has many inherent weaknesses making administration difficult. GST system has in-built mechanism to make the tax administration self-policing and therefore will enhance compliance.

Reduces Red TapeUnder the present SST, businesses must apply for approval to get tax-free materials and also for special exemption for capital goods. Under GST, this system is abolished as businesses can offset the GST on inputs in their returns.

Fair Pricing to ConsumersGST eliminates double taxation under SST. Consumers will pay fairer prices for most goods and services compared to SST.

Greater TransparencyUnlike the present sales tax, consumers would benefit under GST as they will know exactly whether the goods they consume are subject to tax and the amount they pay for.

CONCLUSIONIn Malaysias case, the overriding rationale to introduce the GST is to modernize our tax system and to overcome the inefficiency of the indirect tax system in the country. Moreover, GST also provides the opportunity to enhance fiscal sustainability. From the studies done by the MOF and the customs, it is evident that zero-rating of basic food, the critical sectors such as housing, public transportation, health, education, land and financial service including life insurance, has made the Malaysian Model a progressive one rather than a regressive one. This is due to ghe fact that the government is not taxing or taxing very lightly on goods and services on which poor households spend most of their income.

REFERENCE

1. Implementation of Goods and Service Tax (GST) In Malaysia, www.yycadvisors.com/overview-of-gst-malaysia.html. ( retrieved on 11July2015)2. GST Malaysia | Goods and Services tax, www.gstmalaysia.co/. (retrieved on 13July2015 )3. A Waiting Game? , Malaysian business, Craig Charlton, 1December2014. (retrieved on 13July2015)4. GST for you and me, Malaysian Business,15July2014. (retrieved on 15July2015)

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