Responsibility friends are responsible for GST success

Posted by sfconsultingfirm on May 27th, 2019

As the party responsible for the future of the People and the country, the Government has no option to reject the GST from being implemented. GST is an urgent economic need that is formulated to provide the sustainability of resources as well as to ensure stability in the country's financial system to meet the changing demands of the world's environment.

At the Budget 2014 Consultation which took place at the Ministry of Finance Malaysia on 18th June 2013, the Prime Minister and Minister of Finance of Malaysia received a strong response from industry players (traders) who had hoped the Government would soon implement the GST in the interest of the country's economy. This indirectly shows that there is an increased level of understanding among industry players on GST and its importance.

In the GST cycle, there are three main parties who play a role in coordinating GST movements, namely Government, traders and consumers. The Government is responsible for preparing the policy and monitoring the compliance of GST governance. Meanwhile, traders are the ones who will collect the GST on behalf of the Government. The final role in the GST cycle will be played by end-users who will spend and pay the GST for the goods and services provided by the dealers.

The GST is formulated to replace the existing consumer tax system, Sales Tax and Service Tax (SST). Currently, Sales Tax is rated at 10% at the sales level by the manufacturer only, while a 6% Service Tax is imposed when a service is offered to consumers. This SST tax receives accounting services as the cost element that must be borne by the parties who use it either the merchant or the end-user.

Generally speaking, if traders who bear the SST tax as a cost, then they are sure to redistribute them back into their margin of profit margin sales. For example, a trader who acts as a wholesaler, will be charged a 10% Sales Tax on the purchase of goods from the factory and incurred a 6% Service Tax charge for using the transportation company's services to bring the goods purchased at the factory to its storage. To cover these additional costs, wholesalers will be distributing SST elements into sales invoices as profit margins to retailers and subsequently retailers are channeling to end users.

In the GST era, traders will no longer have to bear SST tax expense on any purchase of goods or services for business purposes. They will also not be charged with GST because the GST mechanism will allow them to reclaim from the Government, GST that has been paid after being deducted by the GST collected from the customer. However, in the event of a surplus on the GST collected from the customer, then the dealer must return it to the Government as much as the surplus.

The GST mechanism clearly shows that traders have the space to lower the price of goods and services on the market to a maximum level of 10% (SST 16% - GST6%) when GST is implemented. At the same time, traders are still able to maintain profits at existing rates, as only the SST tax element is removed from the cost calculation for margin profit margin sales. Hence, the reduction in costs due to the abolition of SST taxes should be channeled back to the users entitled to enjoy it. Traders should not hide this fact from the consumer as the deduction is made by the Government rather than from the internal cost management of the dealer itself.

In addition, there is no significant increase in costs that the traders have to bear during the implementation of the GST. The only cost is the pre-implementation costs of GST ie the cost of upgrading or altering the accounting system to comply with the GST claims and the cost of consulting and training on GST.

To offset the pre-implementation of the GST and to avoid the distribution of any costs related to GST implementation to consumers, the Government is expected to allocate special funds to assist traders by providing subsidized GST-based software, training and business incentives to enable GST administration to be implemented more both by traders. For the record, the same thing has been done by the Government of Singapore and Australia when they implemented their respective GST in 1994 and 2000 respectively.

GST is actually a more transparent, efficient and business-friendly tax formula. GST will generate value benefits to traders where the Government has committed to providing specific incentives such as rationalizing the Company's Income Tax rate to generate growth in the overall business sector. Hence, traders should be positive and look forward to availing of the upcoming economic opportunities resulting from the implementation of GST.

In general, the success of GST implementation in Malaysia is largely dependent on the accountability of traders in their transactions with consumers and the Government. If traders practice pure ethics by abandoning greed in gaining profit, the GST aspiration to prosper merchants and consumers will be successful.

The author is the Head of GST Department and GST Project Manager at SALIHIN GST Services Sdn. Bhd.

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Joined: March 21st, 2019
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