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Understanding the GST

The maths component is essential when one wants to fully understand the workings of the soon-to-be implemented goods and services tax.

IN this article, the spotlight is on the mathematics component of science, technology, engineering and mathematics (STEM) and the importance of mathematical knowledge in understanding the goods and services tax (GST) and how GST ultimately affects the jobs, products, services and the country’s economy.

The formal announcement on the plan to introduce Goods and Services Tax (GST) to replace the existing Sales and Services Tax in Malaysia was made by Prime Minister Datuk Seri Najib Tun Razak last year during the tabling of Budget 2014 in Parliament. This was further reaffirmed in the tabling of Budget 2015 last month with the announcement of more items that will be either exempted from GST or would fall under the zero-rated (0%) category.

Effective April 1, 2015, all parties, individuals, businesses and entities must be prepared for the commencement of GST.

Despite the concerns among consumers, there are several benefits that GST can offer to Malaysian consumers and businesses:

l Improved standard of living

The revenue derived from GST may be used for development purposes for social infrastructures (health facilities/institutions), educational infrastructure and public facilities that contribute to the improvement of the standard of living in Malaysia.

l Lower cost of doing business

Currently, many businesses pay multiple taxes and higher levels of tax-on-tax (cascading effect). With GST, businesses can benefit from recovering input tax (this means that businesses can claim back the GST paid by businesses when making purchases), thus reducing the cost of doing business.

l Fairness and equality

With the GST, taxes are levied fairly among all the businesses involved, whether they are in the manufacture, wholesale, retail or service sectors.

l Increase global competitiveness

Prices of Malaysian exports will become more competitive globally as no GST is imposed on exported goods and services. At the same time, GST incurred on inputs can be recovered along the supplies chain. This will strengthen Malaysia’s export industry and contribute towards the enhancement of the Malaysian economy.

l Enhanced compliance

The current sales and service tax (SST) system has been criticised for having many weaknesses, causing difficulties in its administration. The GST system is said to be more efficient with an in-built mechanism to make the tax administration self-policing and will thus enhance compliance.

l Fair pricing to consumers

GST eliminates double taxation under SST. Consumers will thus pay fairer prices for most goods and services compared to SST.

l Greater transparency

Relative to the existing system, under the GST regime, consumers would benefit as they will know whether the goods they consume are subject to tax and the amount of tax they would have to pay.

l Getting to the basics

Businesses (also known as the “registered person”) producing taxable supplies are required to be registered under GST if their annual turnover for taxable supplies for past 12 months or future 12 months exceeds the prescribed threshold of RM500,00 per annum.

Only a registered person (e.g. individuals, partnerships, firms etc) for GST can charge and collect GST on the taxable supplies of goods and services made by the entity. GST shall be charged on the value (selling price) of the products or services.

The amount of GST incurred on input (input tax) by a business can be deducted from the amount of GST charged (output tax) by the registered person.

If the amount of output tax is more than the input tax in the relevant taxable period, the difference shall be remitted to the government. However, if the input tax is more than the output tax, the difference will be refunded by the government.

The tax computations depends on the type of supply of goods or services, and they are classified as follows:

l Standard-rated supplies

These are taxable supplies of goods and services which are subject to a rate of 6%. Any goods or services that do not belong to the zero-rated or exempt supplies lists would automatically be considered a standard-rated supply. A taxable entity that is registered under GST has to collect GST on the supply and is eligible to claim input tax credit on its business inputs in making taxable supplies.

l Zero-rated supplies

These are taxable supplies of goods and services which are subject to GST at 0% rate. Businesses do not collect any GST on their supplies but are entitled to claim credit on inputs used in the course or furtherance of the business.

l Exempt supplies

These are supplies of goods or services that are not subject to GST. Businesses under this category do not collect any GST on their supplies and are not entitled to claim credit on business inputs.

l Supplies not within the scope of GST:

Supplies which do not fall within the charging provision of the GST Act include non-business transactions, sale of goods from a place outside Malaysia.

GST shall be levied and charged on the taxable supply of goods and services made in the course or furtherance of business in Malaysia by a taxable person. GST is also charged on the import of goods and services.

A taxable supply is a supply which is standard-rated or zero- rated. Exempt and out of scope supplies are not taxable supplies.

GST is to be levied and charged at the rate of 6% on the value of the supply. GST can only to be levied and charged if the business is registered under GST (as mentioned earlier). A business is not liable to be registered if its annual turnover of taxable supplies does not reach the prescribed threshold of RM500,000 per annum. Therefore, such businesses cannot charge and collect GST on the supply of goods and services made to their customers. Nevertheless, businesses can apply to be registered voluntarily.

l Updates from Budget 2015

The finalised GST exemption list has finally been released. Basic food items, education, childcare and healthcare services will not be subjected to GST.

During the Budget 2015 session, the Prime Minister announced that there will be no GST on RON 95, Diesel and LPG fuel while the GST exempt for basic food list, medicine and education has also been expanded.

Similarly, the GST zero-rated finalised list has also been released. There are a total of 900 basic items (including sheep, cattle, goats, poultry, fish, crustaceans, fruits and vegetables and many more) and 2,900 medicine items which will be zero-rated.

The list of items that falls under the categories of exempt and zero-rated supplies may be found in the website for GST by the Royal Malaysian Customs Department.

The GST is not a new system and it will replace the sales and services tax in Malaysia. Experience from other countries has shown that the GST system is a good system for a better taxation system in Malaysia. As explained earlier, the GST indeed will bring many benefits to Malaysia since it will facilitate the government by creating “fiscal space” (financial well-being of the government).

There will be greater portions of funds available for the government to spend on the Malaysian citizens, in particular, areas such as education, transportation, health, facilities and so on. In turn, many of the government’s ambitious plans under the Economic Transformation Programme may then be implemented.

The fact of the matter is that Malaysians must no longer doubt whether GST will be implemented. The answer is: YES, it will indeed be implemented.

Accordingly, it is indeed useful and important for all parties in each and every field of study to be aware of GST, in terms of:

How it works; the computations required; the returns that businesses need to make on a regular basis in each reporting period and the amount of GST that should rightfully be remitted to the Government.

There is also the need to be aware of the penalties that businesses would be subject to arising from failure to comply with the rules of the GST Act.

Students also need to know and understand the challenges that businesses face when GST is implemented.

It’s crucial that they have a good foundation in mathematics in order to understand the concepts, and to sustain interest in the subject for further studies in accounting and finance and learn to compute figures in financial reporting.

Since the GST will impact various sectors of the industry in the country, students seeking employment will need to understand the basics in GST.

There would also be a high demand for graduates who are familiar with the various GST Accounting softwares, and be able to contribute towards decision-making, reporting and filing the correct returns.

Businesses in turn have to conduct impact studies to understand the areas (in particular the business areas) that would be affected by GST and make preparations for GST implementation.

Most importantly, GST and its impact cuts across all types of businesses, whether it is manufacturing, construction, services and so on. Students must learn to understand the importance of having the right knowledge on the subject and how such knowledge can contribute towards enhancing one’s career, besides complying with the GST requirements. Ng Kean Kok is deputy dean while Tuam Kwok Choon and Dr Aik Nai Chiek are both assistant professors at the Department of Accountancy, Faculty of Accountancy and Management, Universiti Tunku Abdul Rahman (UTAR). This article is the seventh in a series of STEM for life-themed articles. The STAR Home News Education November 16, 2014

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