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Know your goods and services tax
May, 13th 2014

The Government will gear up efforts to ensure the public’s understanding of the goods and services tax (GST), which is one of its Strategic Reform Initiatives under the Economic Transformation Programme (ETP).

The GST, which will be implemented in April 2015, has been proposed at a 6% rate and will replace the current sales and service tax (SST).

Not only will the Government continue to organise awareness programmes, but it also intends to increase the publicity on the GST via both the mainstream and new media. It will also upload new information for consumers on the GST portal and conduct roadshows at public places.

According to the ETP Annual Report 2013, the Government will also collaborate with consumer associations and non-Governmental organisations to educate consumers.

The biggest hurdle in the implementation is actually public acceptance of the tax, as many remain concerned that prices will rise once the GST is implemented. While it may result in a slightly higher tax burden on consumers, this is highly dependent on consumer consumption patterns. The Government is considering offering tax and non-tax packages to ease any possible increases in the tax burden.

Several basic items such as rice, poultry, meat, vegetables, flour, cooking oil, sugar, residential and agriculture properties, education and health services will be zero-rated and be exempted from the GST.

The Government will also enforce strict measures to ensure traders do not abuse the GST to raise prices unnecessarily.

The GST, which was introduced during Budget 2014, represents one of the Government’s initiatives to reduce the budget deficit to around 3% by 2015 and hopefully be budget neutral by 2020. Unlike the SST, the GST is a broad-based tax, which is imposed at each value-adding stage of the supply chain.

In the report, the Performance Management and Delivery Unit, or Pemandu, said the GST will help to correct the imbalance created by Malaysia’s growing dependence on a direct tax revenue compared with an indirect tax revenue as well as the dependency on oil revenue.

Pemandu said the implementation of the GST is expected to improve the efficiency, effectiveness and transparency of Malaysia’s taxation regime.

It also allows businesses to claim the GST incurred on their business inputs.

There has also been encouraging results in the Government’s efforts to reduce the fiscal deficit. Over the past few years, the fiscal deficit has shrunk from 6.6% of gross domestic product in 2009 to 4% in 2013.

One key aspect of narrowing the fiscal deficit is more prudence in managing Government expenditure, as reflected in the implementation of a phased subsidy rationalisation to ensure a more targeted approach in providing financial assistance.

The report noted that reducing the fiscal deficit was important to maintain the health of Malaysia’s credit rating.

A downgrade of the national credit rating would make Government debt more expensive, with detrimental implications for the national economy.

Taking a leaf out of the experiences of countries which have avoided fiscal reforms when necessary, Malaysia is taking disciplined action towards growing the economy while instituting fiscal reform, putting in place measures to ensure that the country does not face dramatic and dangerous economic slowdowns.

Pemandu said it was crucial that the Government retained clarity and remained focused on trimming the deficit by both broadening its revenue base and optimising expenditure.

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