Wednesday, April 1, 2015

First Day Of GST

…and the world hasn’t ended. Car prices have even come down, as predicted (so will furniture, and quite a few imported manufactured goods). There will no doubt be teething troubles along the way, but Malaysia’s most significant tax reform in a generation is now established.

But confusion abounds. Take this article from yesterday:

Students claim GST in university fees and services despite exemption

KUALA LUMPUR, March 31 — University students have complained that they will be charged the goods and services tax (GST) on their fees despite Putrajaya insisting that education is exempted from the tax.

Malay daily Sinar Harian reported students as saying that their costs will rise significantly as they have received notices of increase in school fees, room and board fees and miscellaneous charges, all due to GST.

“The government promised a few items and services are exempted from GST. Among them the health sector, public transportation sector and education,

“Yet, we doubt the effect of GST exemption on such services as service providers still charge GST on administration costs. Even though the user of the service is exempt from GST, the price of the service is still increased and university students are the victims,” Sinar Harian quoted president of the National Association of Muslim Students in Malaysia (PKPIM) Mohammad Fazril Mohd Saleh as saying.

OK, let’s go through this s-l-o-w-l-y. There are four different categories of goods and services under GST:

  1. Out of scope – where its difficult to determine value-added (e.g. investment or interest on loans). The government is also out-of-scope, for obvious reasons (though there are exceptions, where government services compete with private sector activities e.g. air time sales by RTM);
  2. Standard rate – where 6% is levied across the entire value chain, and where producers and retailers can claim back input credit on any GST they paid for inputs. The final tax is borne by consumers;
  3. Zero-rated – exactly the same as the standard rate, except the final 6% on final sale to consumers is waived. These are goods with GST embedded but because of the input credit claims, the government gets nothing, and consumers are not charged either;
  4. GST exempt – under this category, consumers are not charged GST, BUT producers and retailers CANNOT claim input tax credits.

There’s also a category of mixed supply, where a company has to manage one or more categories of goods and services. Banks for instance are mostly out of scope or exempt, but fee based charges are subject to the standard rate.

Education, public transport and healthcare are mostly exempt, and this is where most of the confusion lies. The word exempt here means that no GST is charged to the final consumer, but the cost of goods and services provided still have an element of GST embedded, as service providers CANNOT claim back the GST cost on their inputs. This is actually the most penal tax category, as it is almost guaranteed to raise final costs.

GST exempt does NOT mean there is no tax burden involved, only that there’s no levy on the final consumption stage. It still exists in previous stages, and because producers have to absorb the cost, prices will have to rise. So returning to the article above, there’s no grounds for complaint – the real confusion is over the terminology.

Some countries have tried to make this clearer – Australia for instance uses the term “input-taxed sales” – and the use of the word exempt in this instance is unfortunate. In that sense, the government could have done a better of job of communicating this. But the fact remains that “exempt” means you’re going to get taxed, just not overtly.

30 comments:

  1. So, it is true that price of university fee increase because of GST. I understood it that way. I think that is what the students meant.

    Although they are not GSTed, an increase is still an increase, and GST is responsible, even though not charge at final consumption level. Muted voice from them before might be because of not understanding this (exempt concept) information.

    "The government promised a few items and services are exempted from GST. Among them the health sector, public transportation sector and education."

    This will not be pretty!

    ReplyDelete
    Replies
    1. just remember that those universities had been paying for sales tax embedded in the goods that they bought before and some of the services that they procured. And they also were not allowed tax refund on those expenses as is now. So no doubt some increment more would arise from the procured services that were taxed before this, but the increment should not be 6%. Maybe increase around 2-3% taking into account sales tax saving.

      Delete
    2. Oops..
      arise from procured services that were NOT taxed before this

      Delete
  2. My usual chicken rice : RM4.50
    Today: RM5.00 

    4.50 + 6% GST = RM4.77. Difference: RM 0.23

    Is that allowable?

    ReplyDelete
    Replies
    1. @anon 3.03

      1. Did you get a receipt, with the seller's GST registration number?

      2. If yes, you have the right to make a complaint to KPDNKK/Customs

      3. If not, sorry, there's not much you can do except exercise a consumer's right not eat there any more

      Delete
  3. I remember reading somewhere the implementation of GST will cause inflation to rise, this can be clearly seen in Australia, UK, New Zealand and etc.

    To counter this, a rise in Interest Rate is required. In our case, our household debt is so high, should we and can we increase the interest rate, if not, why?

    ReplyDelete
    Replies
    1. @NGan

      Central banks do not respond to what we call supply side inflation - inflation due to changes in product prices (such as crude oil), or from changes in policies or taxes. The reason for this is that this type of inflation cannot be influenced by changes in interest rates.

      If BNM does change the OPR, it will not be due to GST.

      You might also want to read this post for reference.

      Delete
    2. Bos.. the link is non existent.

      Mat Bonk

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    3. http://econsmalaysia.blogspot.com/2013/05/gst-and-inflation-part-iii-economists.html

      Delete
    4. @anon 10.51

      Thanks. Yes that's the correct link

      Delete
  4. Hi, as a consumer it is very hard for us to check whether prices should indeed go up or down with the implementation of GST. As I understand it if sales tax was previously charged and it was more than 6% the price of items now with no sales tax but with GST should be lower. I thnk what the Customs should do is have a comprehensive guide of products with their sales tax % and GST (whether standard or zero rated) so that we as consumers can be aware. i know that some guidebooks have been issued on this but they are only selective items. Better a comprehensive database in their website.

    ReplyDelete
    Replies
    1. En Hisham has helpfully posted it... i think.
      Couple of days ago... and there are Apps tat asist on GST identification

      On 28th March, i think.

      Mat Bonk

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    2. Yes, I have seen those guides and they are not comprehensive. Will try the apps.

      Thanks

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    3. @anon 6.14

      There is no way for Customs (or anybody else) to come up with a "comprehensive" price database.Whereas SST used a positive list (these are the items that attract a tax), GST uses a negative list (these are the items without GST).

      In other words, ALL goods and services are subject to GST, except where gazetted.

      The specific gazettes involved are as follows:

      Zero-rated
      Exempt
      Relief

      There's apparently some changes to the zero-rated list, but they haven't been gazetted yet.

      Delete
    4. Sorry, the zero rated link is here

      Delete
  5. The whole issue has not been helped by the muddle created by our hare-brained politicians and their supporters as well as opportunistic traders. The kind of nonsense being spread via the social media and word of mouth is unbelievable. Every day my wife comes home from the market or the local provision shop carrying some thing new and ridiculous.

    To say that people don't know which goods and services are subjected to GST is hard to swallow with the comprehensive coverage by the govt via the news channels, news papers, etc. The problem is that most Malaysians just don't bother. However the same person who claim ignorance will trawl the internet to find the most obscure stories about the "1MDB scandal" or about Rosmah.

    ReplyDelete
    Replies
    1. I agree with the bit about "hare-brained politicians and their supporters"....lol.

      It may be more accurate, though, to alter that phrase slightly to substitute "ministers" for "politicians" and "bureaucrats" for "supporters"!

      Because, as most Malaysians know by now, members of political parties aren't experts in economics, finance, technology, good governance or anything else.

      Our think tanks and universities, which would have been expected to take up the slack have fallen woefully short in critiquing policy making in the country.

      Today's Singapore Business Times reported it as " Malaysia's GST kicks off after years of delay".

      That pretty much sums it up.

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    2. @anon 3.25

      LHDN and Customs have been working on this for a decade. The idea was actually first mooted in Tun Daim's time IIRC.

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    3. You mean they thought that the budget deficit would disappear by magic and that the country's narrow tax base is a figment of imagination?

      Doesn't say much for the collective brainpower in LHDN, Customs and MOF from Tun Daim's time!

      Delete
    4. @anon 9.14

      No, what I mean is that political opposition against GST has been so virulent since the 1980s, that it took nearly 30 years to get it in the books.

      Delete
    5. It is easy to dish out goodies during the Budget and spend on populist measures such as BRIM but takes a lot of political testicular fortitude to remove subsidies and introduce new taxes. There is no question that GST and the scrapping of fuel subsidies are the right way forward. Responsible citizens should support such initiatives.

      I find it perplexing that the political opposition demands the govt. to cut wastage, plug leakages and the outward flow of monies yet accuses the GST and fuel subsidy scrapping as repressive.

      Delete
  6. Just a small question. What happened to the sales tax that is replaced by GST? It would have been in the original price tag and should be removed before adding the GST. It hasn't.

    ReplyDelete
    Replies
    1. Is that practical?

      All the while the layman sees a price tag on the shelf. It would have included the sales tax. Now the same person sees a new price tag on the shelf. The number is bigger than previously. He automatically thinks it was because of GST alone, little realizing it is now 6 per cent on 110 per cent and not 100 per cent.

      If he does not know that, you reckon he will know he can report, even where to go, what to bring and who to see, and whether it will be worthwhile for a 0.6 per cent price difference if at all possible for him to prove first what was the original price without the sales tax?

      But that small amount magnifies to multi-millions in daily sales.

      Your reply shows you do not even realize a pandora's box has been opened. Educated but lazy and myopic motherfuckers.

      Delete
    2. @anon 7.19

      Sales and services taxes (they're actually legally separate) have both been abolished, except for sales tax on fuel IIANM (sales tax on fuel is under a separate Act of Parliament).

      If retailers are just adding on 6% GST on top of the previous price, than it should be reported as anon 2.02 says.

      Please take note however, that not every good had sales tax (only about a third of the CPI basket IIRC). There will be many cases where there was no previous sales tax, and the price will just increase 6% with GST.

      Second, please make sure you're not confusing sales and services taxes with service charges, which is not a tax and has nothing to do with the government.

      Delete
    3. @anon 8,24

      I gave you a solution.The ONLY solution you can do.You want something more aggressive ? Buy a gun,shove up it up the owner's throat.

      Delete
    4. Anon 4:03,

      If only Malaysians could exercise gun diplomacy...there will be no cheating traders, snatch thieves and no need for hudud too

      Delete
  7. I am a homemaker. I am solely responsible for buying food and other grocery items. I have calculated the amount i need to pay annually for GST (charged in supermarkets). It will cost me an additional RM800.
    To some folks out there it is not much but to me and other ordinary citizen, it is still MONEY spent. I only hope that the Gov't put the money to proper use and spend it for the benefit of all citizens.

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  8. Thank you for sharing your tips! This is very helpful and informative! I’m looking forward to seeing more updates from you.

    Tax Advisor

    ReplyDelete