KUALA LUMPUR: The introduction of the Goods and Services Tax (GST) will reduce the Government’s dependence on income tax and oil revenue as well as reduce the size of the country’s shadow economy, says Finance Ministry tax division under secretary Datuk Siti Halimah Ismail.
Siti Halimah said the contribution of indirect taxes, such as sales and service taxes, to the Government’s revenue had decreased significantly over the past few decades.
As a result, she said the Government was currently highly dependent on income tax revenue, which contributed 58% or RM127bil of total revenue in 2013.
She said oil revenue had made up 30.6% or RM67.6bil of total revenue for 2013 but as petroleum products were depleting resources, new sources of revenue were needed to be beefed up.
Siti Halimah said studies had also indicated that the percentage of shadow economy, or the underground economy as some will call it, was 30% of the country’s gross domestic product. “With the GST, it will disincentivise the entities to continue operating under the shadow economy. It is expected that some of these businesses will eventually come under the GST regime and contribute more revenue,” she told the International Seminar on GST here yesterday.
Siti Halimah was elaborating on the Malaysian GST model, which she said, was in the final stages of completion ahead of its implementation next April.
She noted there were inherent weaknesses in the existing sales and service tax (SST), which contributed towards double taxation, transfer pricing and absence of complete relief on exported goods and services.
“This is a common problem in other jurisdictions which have single stage consumption tax,” she said, adding that this was why so many countries had embraced the GST as an alternative tax system.
She said the GST would reduce bureaucracy as business would not need to apply for exemptions or refunds as all the input incurred could be claimed as credit.
She said there was also a cross-checking element under the GST, as it was mandatory for every business to issue tax invoices with prescribed particulars.
“This will lead to increased tax compliance amongst businesses,” she said, adding that it was mandatory for businesses earning above RM500,000 per annum to register under the GST system.
Siti Halimah said that the Malaysian GST model was a progressive and not regressive tax, pointing out that a regressive tax imposed a greater burden on the lower income group.
She said that Malaysian model included zero-rated and exempt supplies based on the consumption pattern identified by the Government.
She said between 60% and 70% of the lower income group’s household income was spent on housing and utility, food and non-alcoholic beverages and transportation.
A breakdown by the Department of Statistics shows that the lower income bracket spends around 40% on food and non-alcoholic beverages, 27.5% on utilities and 4.2% on transportation.
“In Malaysia, lower income households spend most of their earnings on goods and services which are either zero rated or exempted. Hence, GST in Malaysia is naturally progressive,” she stressed.
Under the GST, Siti Halimah said there would be three types of supplies – standard rated at a 6% rate, zero-rated and exempt.
She said zero rated supplies were taxable supplies which were subject to a zero rate at the output stage and included foodstuff, agriculture products, seafood and the first 300 units of electricity for domestic use.
“Exempt supplies are non-taxable items which are not subject to the GST at the output stage, which is when they are supplied to consumers. However, the GST paid on input by these businesses cannot be claimed as tax credit,” she said.
Siti Halimah said these included public transport, highway toll as well as private health, education and financial services.
Additionally, she said that the three duty-free islands of Pulau Langkawi, Pulau Tioman and Labuan were designated as areas where no GST would be imposed on supplies made between or within these areas. In a bid to make the Malaysian GST structure business-friendly and reduce compliance costs, she said there were special schemes to be introduced in legislation and under the GST system.
“These include the tourist refund scheme, approved trader scheme, approved jewellers scheme and warehousing scheme,” she said.
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