What is GST – 5 things you would want to know
In this article:
- Quick facts
- What is GST?
- Collecting and Charging GST
- Items with 0% GST
- Why the Goods And Service Tax?
What Is GST?
GST in Malaysia is a valuable added tax which stands for “Goods and Service Tax”. This is also known in some countries as VAT (Valuable Added Tax), they are one of the same. Goods And Service Tax has now replaced the old Sales And Service Tax (SST).
There is a distinct difference between the two tax systems. Value Added Tax is a form of indirect tax that is imposed at different stages of production on goods and services. The added tax on the other hand is levied on imported goods as well as the same rate of the local products produced.
The former Malaysia SST (Sales and service tax), as compared to valuable added tax, is the percentage of revenue imposed on the retail sale of goods. Unlike the GST we know in Malaysia, sales tax is imposed on the total value of goods and services purchased.
Collecting and Charging GST
VAT and GST is a tax on consumer expenditures and in theory should not fall on business activities, but it really depends on how much input and output tax you have in the industry your in.
Just to clarify what input and output tax means. It is a term used for all the GST that is going in and out of your business.
Input tax = GST paid on your business purchases (e.g. local purchases or imported goods).
If you are a manufacturer and have to buy supplies to produce goods, they are all seen as input tax as long as the materials you’re purchasing are not exempted tax items. You can say that the input tax is all the invoice’s you receive from your service providers and suppliers which has GST added.
Output tax = GST charged to your customers for goods and services you sell.
When you have produced your final product and sold it with GST, your output tax might be higher because the product is sold for a lot more than the goods directly used for the manufacturing.
You must then periodically sum up the input tax and deduct it directly from the output tax paying the excess output tax or receiving the input tax from RMCD (Royal Malaysian Customs Department), which is responsible for collecting and reimbursing the amount.
Lower output tax – higher input tax = you receive from RMCD
Higher output tax – lower input tax = you pay RMCD
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Why the Goods And Service Tax?
I have contemplated many written articles and information on official governmental websites stating how beneficial the new tax would be and how the new value added tax would not cause prices to increase.
- The elimination of the old 10% SST would benefit the consumer with no more double taxation
- Taxes would be disputed more fairly among all the businesses involved
- No general cost and price increase
…or at least thats how in theory the GST should work. Now shortly under a year running, the implemented GST shows that it has not really gone the way it was predicted.
So what is good about the tax you may ask yourself?
Well, even though some goods and services have had a price increase, there are still benefits that overshadow the above mentioned.
Two of the main advantages I have come across are, it will create a greater transparency and enhance compliance, thus help decrease tax evasion. The GST system has an in-built mechanism to make the tax administration self-policy and therefore makes it harder to go undetected, hence making a greater transparency in the Malaysian market.
Since sales tax is a single-point tax, evasion of this tax especially on the first sale an item can go completely untaxed throughout the entire supply chain. This is the key factor to why I believe it can help Malaysia to better cope with corruption and lift the country as a whole.