GST: Some More Arguments

We have yet another writer of the online STAR which gave us his views on the GST.

I append it wholesale.

"GST rate bound to increase

THE current taxes on consumption are sales tax (10%) and service tax (5%). It is understood that GST will replace these taxes. The indicated introductory GST rate is 4%.

By simple mathematical logic, 4% is lower than 5% or 10%. Therefore GST is lower. Products and services may be cheaper due to the lower GST tax rate.

Most consumers are probably not aware that the sales tax and service tax are single-stage taxes.

This means that the sales tax is only collected once, mostly by the manufacturer or importer.

For service tax, it is collected only once, by the service providers. Consumers do not necessarily suffer the full 10% sales tax.

For example, let’s say a product’s retail price is RM12 and the manufacturer’s selling price is RM8. The 10% sales tax on the manufacturer price (RM8) is RM0.80 only. Hence the effective sales tax rate is 6.7% only (RM0.80 divided by RM12 multiplied by 100).

GST is a multi-stage consumption tax. This means GST is imposed throughout the

entire production and distribution chain from raw materials suppliers to manufacturers to wholesalers and distributors to retailers and finally to us, the consumers.

Taking the simple example above, the 4% GST on the product’s final selling price (RM12) is RM0.48 only.

Yes, the tax is lower. This is assuming the GST rate remains unchanged. But is it realistic to expect the Malaysian GST rate to remain forever at 4%?

If the GST rate increases, we could end up paying more. Many countries have introduced GST at lower rates to gain public acceptance, but increased the rates over the years.

We only have to look across the Causeway to Singapore. GST was 3% when first introduced. Today it is 7%.

From what can be seen in other countries’ GST systems, a sophisticated accounting

system is needed to track and reconcile input GST and output GST taxes.

Are our small-time businesses such as food-sellers, small-time contractors and mechanics, pasar malam traders and the like ready for this?

Will businesses pass on the extra cost to the consumers?

No consumer likes to pay more, especially extra taxes, now or in future.

TAX PAYING CITIZEN,

Subang Jaya."