IN the 1989 Budget, the Government indicated its intention to introduce a Sales and Service Tax or SST. Elaborate preparations were made by the Customs Department to prepare the way for this new tax. Manpower was beefed up, extensive studies were carried out and a number of Customs personnel were trained in this field.
The stage for the SST seemed set and the authorities were optimistic when suddenly the whole project was shelved due to unforeseen circumstances.
However, the SST fever did not subside. In fact, since then, a number of economists and tax consultants have continued to be keen proponents of the value-added tax (VAT)-type of consumption tax for Malaysia. It is about time, they say, that Malaysia comes up with something similar to Singapores Goods and Services Tax (GST).
Many tax consultants would say that the time is ripe for changes to be implemented in the local taxation system.
The time may be ripe, but are we ready? It is easy to say there is a need to bring about changes, but one has to bear in mind that there are many factors to be considered before implementing a new type of consumption tax.
The existing sales tax and service tax were introduced in 1972 and 1975 respectively. Ever since these taxes were introduced, they have not really been well received by the business community.
Sales tax is levied on imported and locally manufactured goods. Many manufacturers in Malaysia are either not aware or have not bothered to find out if they are affected usually until sales tax officers begin knocking on their doors.
Many were hauled up for not applying for a sales tax licence, and most of them ended up paying all the back taxes plus hefty penalties. It was the same for service tax evaders. Since the Customs Department started stepping up enforcement three years ago, many businesses were booked for non-compliance.
But many still dont bother applying for a licence, preferring to play hide and seek with the Customs Department. Although some 30 years have passed, the Customs Department is still trying to educate the public on the importance of complying with the Sales Tax Act 1972 and Service Tax Act 1975.
The main reason for this is because some Malaysian businessmen feel that a sales tax of between 5% and 25% and a service tax of 5%, which are levied on the invoice value are quite high and eat deeply into their profit margin, because in many instances they have to absorb the taxes in order to compete for business.
Coming up with a new taxation system involves not only changing the mindset of the populace to becoming more responsible taxpayers but also preparing the administrative machinery to efficiently enforce the laws.
Customs is the most likely department to be given the task of implementing the Sales and Service Tax if it is passed by Parliament as it is the only government department with the experience. But again, before passing any law, the department's staff have to be trained and prepared to enforce the act. This entails a tremendous amount of preparation, not only in mobilising existing personnel but also in recruiting and selecting additional staff, training and educating them, and placing them in the appropriate chain of command. And because this is going to be a relatively new type of tax, teething problems are bound to occur in the early stages.
At a time when Malaysia is busy implementing the changes required by the Asean Free Trade Area and principles of the World Trade Organisation, it would be pertinent to question whether we should consider implementing a new taxation system, or wait until we have ironed out the wrinkles in our rapidly changing economy.
·Thomas Selva Doss is a Senior Customs Consultant at BDO Binder Tax Services Sdn Bhd
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