Why GST

GST is proposed to replace the current consumption tax i.e. the sales tax and service tax (SST). The introduction of GST is part of the Government's tax reform programmed to enhance the efficiency and effectiveness of the existing taxation system.

GST is proven to be a better tax system as it is more effective, efficient, transparent and business friendly and could spur economic growth as well as increase competitiveness in the global market.

GST is capable of generating a more stable source of revenue to the nation because it is less susceptible to economic fluctuations.

It is important to replace the existing SST in order to eliminate its inherent weaknesses such as cascading and compounding effects, transfer pricing and value shifting, no complete relief on goods exported, discourage vertical integration, administrative bureaucratic red tape, classification issues and etc.

Various benefits that GST can offer to Malaysian consumers and businesses are: 

• Improved Standard of Living

  The revenue from GST could be used for development purposes for social infrastructure like health facilities and institutions, educational infrastructures and public facilities to further improve the standard of living.

• Lower Cost of Doing Business

  Under the current system, some businesses pay multiple taxes and higher levels of tax-on-tax (cascading tax). With GST, businesses can benefit from recovering input tax, thus reducing cost of doing business.

• Nation-Building

  GST is a better and more efficient method of revenue collection for the government. More funds can be channeled into nation-building projects for progress towards achieving a high income nation.

• Fairness and Equality

  With the GST, taxes are levied fairly among all the businesses involved, whether they are in the manufacturing, wholesaling, retailing or service sectors.

• Enhanced Delivery System

  GST will be administrated in a fully computerized environment, therefore speeding up the delivery, especially for refund claims. This makes it faster, more efficient and reliable.

• Increase Global Competitiveness

  Prices of Malaysian exports will become more competitive on the global stage as no GST is imposed on exported goods and services, while GST incurred on inputs can be recovered along the supplies chain. This will strengthen our export industry, helping the country progress even further.

• Enhanced Compliance

  The current SST has many inherent weaknesses making administration difficult. GST system has in-built mechanism to make the tax administration self-policing and therefore will enhance compliance.

• Reduces Red Tape

  Under the present SST, businesses must apply for approval to get tax-free materials and also for special exemption for capital goods. Under GST, this system is abolished as businesses can offset the GST on inputs in their returns.

• Fair Pricing to Consumers

  GST eliminates double taxation under SST. Consumers will pay fairer prices for most goods and services compared to SST.

• Greater Transparency

  Unlike the present sales tax, consumers would benefit under GST as they will know exactly whether the goods they consume are subject to tax and the amount they pay for.

Goods & Service Tax 2015

Last Updated : 24/1/2014 16:40

GST is not new The concept behind GST was invented by a French tax official in the 1950s. In some countries it is known as VAT, or Value-Added Tax. Today, more than 160 nations, including the European Union and Asian countries such as Sri Lanka, Singapore and China practice this form of taxation. Roughly 90 percent of the world's population live in countries with VAT or GST. Here are some of the tax rates of countries around the world who have implemented GST or VAT. Malaysian Tax History In Malaysia, our tax system involves several different indirect taxes: Import duty On goods brought into the country Export duty On goods produced for sale outside the country Government Sales Tax On a wide range of goods at the point of import or at the manufacturer's level, with four tax rates at 5%, 10%, 20% and 25% Service Tax On services provided by restaurants, hotels, telecommunications services, professional services by architects, engineers, lawyers etc. Excise Duty On luxury and 'sin' products such as automobiles, liquor, beer and tobacco products The proposed GST will replace the Government Sales Tax and the Service Tax. Current Consumption Tax a) SALES TAX Sales Tax was introduced on the 29th February 1972 as a single stage consumption tax, levied, charged and paid on goods manufactured in Malaysia and imported. Currently, the rates of sales tax are as follows:- Reduced rate of 5% for non-essential foodstuff and building materials A general rate of 10% Specific rates for petroleum products Licensing Manufacturers of taxable goods whose annual sales turnover exceed RM100,000 is required to be licensed under sales tax act. Those with annual sales turnover does not exceed RM100,000 are required to apply for a certificate of exemption from licensing. Scope of Tax Sales tax is levied on locally manufactured goods at the time the goods are sold or otherwise disposed of by the manufacturer. It is called a single stage tax because sales tax is to be charged once only, either at the input or at the output stage. List of goods subject to sales tax at 10% List of goods subject to sales tax at 5% b) SERVICE TAX Service tax was introduced on the 1st March 1975 as a single stage consumption tax, levied, charged and paid on specific services provided by a taxable person in Malaysia. Currently, the rates of service tax are as follows:- Flat rate of 5%; Specific rates for credit card - RM50.00 (effective from 1st January 2010) Licensing Any person who carries on business of providing taxable services in any prescribed establishment is required to be licensed under the service tax act. Licensing is based on the following threshold:- Threshold Level Taxable Services No Threshold a. Hotel of having more than 25 rooms (Group A) b. Restaurant, Bar, Snack-Bar, Coffee Houses located in hotel having more than 25 rooms (Group B1) c. Night-Clubs, Dance Hall, Cabarets, Health Centre, Massage Parlours, Public Houses and Beer Houses (Group D) d. Provision of insurance services to business organisation e. Provision of telecommunication services f. Provision of services for the clearing of goods from customs control g. Provision of accounting services by the Public Accountant h. Provision of legal services by the Legal Firms i. Provision of engineering services by the Professional Engineers j. Provision of architecture services by the Architect k. Provision of surveying services by the surveyor l. Provision of Consultancy services by the Consultant Companies m. Provision of management services by Management Companies n. Provision of credit card or charge card services Annual Sale Turnover of RM 150,000 and above Services provided by Professional under Group G as follows:- a. Provision of parking spaces for motor vehicles b. Provision of courier delivery services c. Provision of motor vehicles service and repair centres by the Workshop d. Provision of security guard or body-guards services by the Private Agency e. Provision of employment services by the Employment Agency Annual Sale Turnover of RM300,000 and above a. Restaurants, Bar, Snack-Bars, Coffee Houses located in the Hotel having 25 rooms and less (Group B2) b. Services provided by Private Clubs including golf clubs (Group E) c. Services provided by Private Hospitals (Group F) d. Services provided by operators of hire-an-drive or hire-car companies (Group G) e. Services provided by advertising agency (Group G) Annual Sale Turnover of RM3,000,000 and above (effective from 1stJuly 2008) Restaurants, Bar, Snack-Bars, Coffee Houses located outside the Hotel including food courts (Group C)   Scope of Tax Service tax is charged and levied on selected taxable services as prescribed in the Second Schedule of the Service Tax Regulations 1975. List of prescribed services subject to service tax at 5% How service tax works