Challenges GST - Critics

There are many complaints and unsatisfied voices and opinions from the businesses and consumers about the implementation of GST in Malaysia. Definitely, the consumers are hurt by the price increases of goods and services due to the implementation of GST together with other factors and the possibility of hardship occurrence due to the increment of cost burden and financial burden on cost of living that might causes other issues such as mentally issue due to the overload of pressure on the cost of living.

How about the businesses?? Some people saying that the businesses would not affected due to the claim basis of GST where the businesses transfer all the increase cost burden to the end users which referring to the consumers. However, is that true? There are few examples which revealing that the businesses were hurt by the GST too. First, the enforcement of system changes within the required time without the full considerations such as adequate timing and cost. Refer back to the previous case which an old hardware store owner suffered from the system changes due to his limited knowledge on the technology and lack of man power and insufficient time to change the required system for the implementation of GST.  

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Challenges GST – Critics , Businesses

There are many negative consequences to the businesses from the implementation of GST which shown in previous articles and examples. The businesses bear financial cost and non-financial costs the caused by the GST where the financial cost is referring to the system upgrading for the implementation of GST. In theory, the businesses would not hurt by the GST due to the claim basis and they can transfer the extra costs to the end users, but is that true? Let's see some example on the effects to the businesses as the result of GST. The most obvious outcome is extra cost incur by the businesses which is non claimable before the implementation of GST.

All the businesses which are fulfilling the requirement of GST are mandatory to register with the respective department and mandatory to change the required system in order to upgrade their existing system. The businesses have to pay these extra costs before the implementation of GST which is non claimable, the amount spent between RM10,000-RM20,000 with RM1000 of allowance from the government. Besides, the large businesses that are involving of various departments and business segments have to pay extra costs with the aim of training their staffs to learn and to enhance the knowledge on the implementation of GST system. The businesses have to pay extra cost which include the cost of upgrading the required system, training costs and consultation fee on the implementation of GST. All these cost incur by the businesses before the implementation of GST and these costs are non claimable.

After all, is that only negative consequences from the implementation of GST to the businesses??? It might looks bad from the system changes which incur extra costs to the businesses, however, the operations of the businesses can be improved with the upgraded system. In the long run, the upgraded system will result in favourable outcome to the society and beneficial to the businesses where the transparency of the transactions improved with the new system implemented and the businesses are able to keep track their record and maintain proper information much more easier which increase the global competitiveness in the long run.  

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Challenges of GST

There is always challenge for a country to implement a new system or policy as it has to consider the widespread effect on individual citizen, businesses, government and the whole economy. The regulators have to balance the interest between the benefits and disadvantages of the new policy along with the long term goal. One of the challenges in the implementation of GST might be the level of technological knowledge of the citizen especially those senior citizen. This is not a discrimination issue but in fact, many senior citizens in Malaysia are not familiar with the technology equipments such as the uses of computer and GST software. For an example, a case from Teluk Intan where a hardware store owner, Chen, 65 tried to commit suicide due to the pressure from trying to implement the Goods and Services Tax (GST).

In order to prevent for the cases and any negative consequences, the regulators have to make sure adequate of time given to the businesses in implementing the GST as changing a company's system and operation's policies is not an easy job especially for those traditional businesses. Many traditional businesses might not able to adapt to the new system and the changes easily due to their technological knowledge and the existence of man power. Can you imagine how pressure is an old man to adapt and implement a GST system without the adequate of time, knowledge and the most important is man power who can really help him in term of solving the technical works and the implementation of GST.

Hence, the regulators should aware of the challenges of GST in order to protect the interest of the public and to avoid any unintended consequences by providing adequate of information to the public, sufficient of time and more training programs should be take place in order to help people who are still struggling on the implementation of the GST.

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Will GST causes the hyperinflation?

While the Malaysian GST started to be effective on 1^st April 2015, public are worried on their daily life due to the increment in cost of living with the same income level, therefore the Malaysian government had maintain the basic food items, education, healthcare and medical to be exempted from the GST in order to ensure the citizen quality of life would not be affected by the GST.

According to our Prime minister Datuk Seri Najib Tun Razak, the petrol of RON 95, diesel and LPG confirmed to be exempted from GST to avoid the increment of cost burden to the public as the result of increases in petrol through the GST. In theory, the products price should not extremely increase due to the exemption of petrol that would not increase the sellers cost burden, however, in practice, the increases of products price might caused by many reasons such as the anxieties of the public, fall in currency rate and others. People are worried and anxieties of the products prices and the anticipation and expectation of future inflation might cause the fluctuation of current products prices and please take note that, the changes in an economy and the prices movement would not only be influence by a single factor but the combination of various factors.  

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GST Imported services and Exported services

Imported services

Under the GST Act, “imported services” means services that are made by a supplier who belongs in a country other than Malaysia or who carries on business outside Malaysia to a recipient who belongs to Malaysia and such services are consumed in Malaysia. In short, any service consumed in Malaysia and are for the business purposes is recognise as imported services and shall be liable for GST for the portion of the services consume in Malaysia. There are few examples extracted from the “general guide on GST” by Royal Malaysian Customs;

Example 12:

MY Co. is the computer database centre for ASEAN region where Kuala Lumpur is the head office. An overseas consultant (UK Co.) was engaged to upgrade MY Co.’s database. The consultation cost of RM 80,000 covers all five regional offices of MY Co. The cost of upgrading MY Co.’s database in

Malaysia is RM30,000 and is liable to GST while the remaining RM50,000 is not liable because the work is done for the other regional offices, that is, consumed outside Malaysia although payment is made by MY Co. based in Malaysia.

Example 13:

Stylo Bhd. is a wholesaler for ‘X brand’ shoes in Malaysia and Thailand. Stylo Bhd. pays royalty to Italy Shoes Co. (holder of rights) at the end of every year. The royalty paid depends on the total amount of shoes sold in the year. Stylo Bhd. paid RM36,000 this year for shoes sold in both countries, which is

RM16,000 for the sale in Malaysia and RM20,000 in Thailand. The amount of imported services liable to GST is RM16,000.

Example 14:

KL Co. engaged a few experts from Europe for a consultation on productivity management for a factory located in Cambodia. The job was performed in Cambodia but payment was made by the KL Co. in Kuala Lumpur. No GST is charged on the consultation services because these services were consumed outside Malaysia .

Reverse Charge

A supplier who does not belong in Malaysia and supplies services to a customer in Malaysia does not have to charge GST. However, the customer who receives the services for the purpose of any business carried on by him is required to account for GST by a reverse charge mechanism.

In short, the customer who receives the services in Malaysia for the purpose of any business is liable for GST. But, if the customer who receives the services from the suppliers who does not not belong in malaysia and not in the intention of any business purposes are not subject to GST.

GST Relief on Imports

Certain goods will be given GST relief on importation under the GST (Relief) Order 20XX and subject to such conditions as may be prescribed.

GST Suspended on Import

Under the GST system, goods are subject to GST upon importation. However, the payment of GST by importers at the point of importation would cause difficulties in terms of cash flow as they have to pay the tax upfront. Thus, a special scheme known as a warehousing scheme is introduced to alleviate the cash flow problem. Under this scheme, GST is suspended on all goods imported and deposited into a warehouse. In short, GST is not chargeable until the goods are released for home consumption in Malaysia.

EXPORTED SERVICES

Generally, all exported services are zero-rated provided the conditions are met as specified under the Goods and Services Tax (Zero Rate Supplies) Order. These services are generally referred to as international services.

To find out more, click here

General Guide -revised as at 27 October 2013

http://gst.customs.gov.my/en/rg/SiteAssets/general_guides/Revised/General%20Guide%20-revised%20as%20at%2027%20October%202013.pdf

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