Goods & Services Tax (GST),Malaysia Budget 2014,Malaysia Tax & LHDN (IRB) 26 October 2013

Budget 2014: The introduction of Goods and Services Tax (GST)

GSTIt was announced by the government in Budget 2014 that Goods and Services Tax (GST) will be implemented effective from 1 April 2015 and GST rate will be fixed at 6 (%) per cent.  

Sales tax and service tax will be abolished by then.

Currently, Sales tax and service tax rates are 10% and 6% respectively. 


Budget 2014: Are you paying less tax in GST? nbc-hot6

FAQ: Goods & Services Tax (GST) nbc-hot6


 

What are promises from the Government for GST?

  1. GST system will make consumers pay tax once only and the price of goods should be cheaper (Note: This is not true as the countries who started GST all suffered significant increase in INFLATION RATE in first & second years, means all major prices have gone up)
  2. You are given 17 months notice that GST will be started on 1 April 2015
  3. This is guaranteed that we will be the lowest among ASEAN countries (10% in Indonesia, Vietnam, Cambodia, the Philippines, and Laos and 7% in Singapore and Thailand)
  4. No GST on basic food items (such as rice, sugar, salt, flour, cooking oil, lentils, herbs and spices, salted fish, cencalok, budu and belacan)
  5. No GST on water, and the first 200 units of electricity per month
  6. No GST on Government Services (health and school education)
  7. No GST on Transportation services (bus, train, LRT, taxi, ferry, boat, highway toll)
  8. No GST on Sale, purchase and rental of residential properties as well as selected financial services are exempted from GST

What do you get when GST is launched?

  1. Additional cash assistance of RM300 to households who are BR1M recipients (Note: Non-BR1M recipients get nothing here)
  2. Individual income tax rates be reduced by 1% to 3% percentage points for all tax payers to increase their disposable income. (About 300,000 persons with monthly income of RM4,000 will no longer need to pay income tax)
  3. Company income tax rate for first RM500,000 profit reduced by 1 % from 20% to 19% in 2015
  4. Company income tax rate for above RM500,000 profit be reduced by 1 % from 25% to 24% in 2015
  5. Cooperative income tax rate be reduced by 1% to 2% from 2015
  6. Secretarial fee and tax filing fee are allowed as tax deductions from 2015
  7. Cost of purchasing ICT equipment and software is given Accelerated Capital Allowance until year of assessment 2016
  8. Expenses incurred for training in accounting and ICT relating to GST be given further tax deduction for years of assessment 2014 and 2015
  9. Training grant of RM100mil will be provided to businesses that send their employees for GST training in 2013 and 2014.
  10. Financial assistance amounting to RM150mil will be provided to SMEs for the purchase of accounting software in 2014 and 2015.

 


Extracted from Budget 2014 Speech:

Goods and Services Tax (GST)

97. The Government takes cognisance that the current sales tax and service tax have certain weaknesses such as the impact of double taxation on consumers, the absence of full tax relief on exported goods and transfer pricing issue. These weaknesses ultimately will result in losses to the consumers and the Government.

98. In Budget 2013, the Government intended to take bold measures to strengthen the fiscal position of the nation. In fact a Bill in relation to the GST had been previously read in this august house. Since then we have received various views, both positive and negative.

99. The Government has taken a few years to conduct detailed and comprehensive studies, and has considered the views of all segments of society, including the chambers of commerce, investors, economists, academicians, consumer associations and NGOs.

100. Thus, based on the principal of People First, the Government has decided to expeditiously implement a fair and comprehensive tax system that benefits all Malaysians.

101. In this regard, the Government proposes that the sales tax and service tax be abolished. These two taxes will be replaced by a single tax known as the Goods and Services Tax (GST). I must stress that GST is not a new tax.

102. Currently, the inflation rate is low at 2%. The Government believes that this is the best time to implement GST as the inflation rate is low and contained.

103. With the implementation of GST, the Government will be able to address the weaknesses in the current taxation system. As an example, if we were to buy a carbonated drink in a restaurant today, we would not notice that we are paying double taxes which are sales tax and service tax.

104. Put differently or explained in simple terms, with the GST system, consumers will only need to pay tax once and the price of goods should be cheaper.

105. We feel disheartened that certain irresponsible groups tried to take advantage by confusing the general public on the understanding of GST. They claimed that when GST is implemented, the price of goods will rise, and that the poor and low-income group will bear the burden.

106. More than 160 countries have already implemented GST. This clearly demonstrates that GST is proven to be a transparent, effective and fair tax system. The vast majority of nations in the world would not have implemented GST, if it is disadvantageous to the people and the country. Most of the developed nations have long implemented GST or Value Added Tax (VAT). Even ASEAN countries such as Indonesia, the Philippines, Laos and Cambodia, as well as countries such as Burkina Faso, Burundi, Zimbabwe, Rwanda and Kenya have implemented GST.

107. On the part of the Government, GST legislation, computerised systems, training of officers, GST infrastructure and a comprehensive communication plan have been completed.

108. The proposed GST model to be implemented in Malaysia is as follows:

First: The GST rate is fixed at 6% and to be effective from 1 April 2015, approximately 17 months from today.

This rate is the lowest among ASEAN countries compared with 10% in Indonesia, Vietnam, Cambodia, the Philippines, and Laos and 7% in Singapore and Thailand;

Second: GST will not be imposed on basic food items such as rice, sugar, salt, flour, cooking oil, lentils, herbs and spices, salted fish, cencalok, budu and belacan;

Third: GST will not be imposed on piped water supply, and the first 200 units of electricity per month for domestic consumers;

Fourth: GST will not be imposed on services provided by the Government such as the issuance of passports, licences, health services and school education;

Fifth: Transportation services such as bus, train, LRT, taxi, ferry, boat, highway toll as well as education and health services are exempted from GST; and

Sixth: Sale, purchase and rental of residential properties as well as selected financial services are exempted from GST.

109. Upon the implementation of GST, the Government is committed to providing various forms of assistance to the rakyat during the GST transition period. The assistance and support are as follows:

First: One-off cash assistance of RM300 to households who are BR1M recipients;

Second: Individual income tax rates be reduced by 1 to 3 percentage points for all tax payers to increase their disposable income. With this measure, 300,000 persons who currently pay income tax will no longer pay tax. Generally, families with monthly income of RM4,000 will no longer have tax liability. Other existing tax payers will also enjoy tax savings; and

Third: Individual income tax structure will be reviewed to enhance the competitiveness of the nation as well as to retain and attract talent and skilled workers into the country. To ensure a more progressive tax structure, the chargeable income subject to the maximum rate will be increased from exceeding RM100,000 to exceeding RM400,000. The current maximum tax rate at 26% will be reduced to 24%, 24.5% and 25%.

These measures will be effective from 2015.

110. In this regard, to ensure smooth implementation of GST by businesses, the Government proposes the following additional packages:

First: Corporate income tax rate be reduced by 1 percentage point from 25% to 24%. Whereas income tax rate for small and medium companies will be reduced by 1 percentage point from 20% to 19% from the year of assessment 2016;

Second: Cooperative income tax rate be reduced by 1 to 2 percentage points from the year of assessment 2015;

Third: Secretarial fee and tax filing fee are allowed as tax deductions from the year of assessment 2015;

Fourth: Cost of purchasing ICT equipment and software is given Accelerated Capital Allowance until year of assessment 2016;

Fifth: Expenses incurred for training in accounting and ICT relating to GST be given further tax deduction for years of assessment 2014 and 2015; and

Sixth: Training grant of RM100mil will be provided to businesses that send their employees for GST training in 2013 and 2014. In addition, financial assistance amounting to RM150mil will be provided to SMEs for the purchase of accounting software in 2014 and 2015.

111. With the various special packages provided by the Government, certainly no parties should take opportunity to increase prices of goods and services unscrupulously. Prices of goods will be constantly monitored. The Government will publish prices of goods and services as a guide for consumers to compare prices.

112. Consumers are urged to make rational choices, spend prudently and report unethical traders to the authorities. In this regard, the Ministry of Domestic Trade, Cooperatives and Consumerism will intensify enforcement efforts through the Price Control and Anti-Profiteering Act 2011.

113. In addition, to ensure the smooth implementation of GST, a GST Monitoring Committee will be established and chaired by the Honourable Second Minister of Finance with members from Government agencies as well as representatives from industries and NGOs.

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Author:
Mr. Tony Ng B.C. is Founder and Managing Partner of NBC Professional Group.
Tony Ng BC has written 86 articles for NBC Blog.

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