What is GST

INTRODUCTION

  • GST which is also known as VAT or the value added tax in many countries is a multi-stage consumption tax on goods and services.
  • GST is levied on the supply of goods and services at each stage of the supply chain from the supplier up to the retail stage of the distribution.
  • Even though GST is imposed at each level of the supply chain, the tax element does not become part of the cost of the product because GST paid on the business inputs is claimable.
  • Hence, it does not matter how many stages where a particular good and service goes through the supply chain because the input tax incurred at the previous stage is always deducted by the businesses at the next step in the supply chain.      

 

What is GST - 001

SCOPE

  • We need to pay taxes so that the government can finance socio-economic development; which includes providing infrastructure, education, welfare, healthcare, national security etc.
  • Over the past few decades, the worldwide trend has been for the introduction of a multi-stage GST system. Today, almost 90% of the world's populations live in countries with GST, including China, Indonesia, Thailand, Singapore and India.
  • GST supports the widening of tax base as more tax payers are required to pay, no end user gets to escape from the GST. It also heightens the compliance by making sure taxpayers actually do pay.

Threshold 

  • GST threshold consists of 3 variables: GST Rate on “Standard-rated” items, the list of “excluded” items (ie: zero-rated and exempt items), and also threshold below which businesses do not need to collect GST.
  • GST rate at 6% (for standard-rated items) x Tax base = GST Revenue to RMC. The tax base is affected by the list of excluded items (zero-rated and exempt items) and also the threshold (RM500000 per annum). 

  • Upon adoption of GST, the existing threshold under service tax will be reset to the GST threshold of RM 500,000.

  • By introducing GST, the government is able to: replace the numerous different thresholds under service tax regime, and reset the threshold to reflect changing times and current levels without being overly burdensome for truly small businesses.

Computation 

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  • Zero-rated supply, which does not carry any GST, is nonetheless included in the threshold determination, & even businesses providing zero-rated supplies must constantly monitor the threshold.

Policy Implications

  • —GST is collected only by the Federal Government. GST being a federal tax and thus would be no inter-state competition on rate fixing.
  • The policy implications includes: the number of GST-registered business, the number of tax officers required for administration, resources for training and government audit, the level of tax payer’s compliance, and the magnitude of the task of public education.

Anti-Fragmentation

  • According to Anti-fragmentation Rule (S23 of GST Bill), where there is artificial splitting of business units, the RMC may treat the fragmented businesses as a single taxable person (i.e. exceeding GST Threshold)

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