What is GST?

The Goods and Services Tax is a tax on spending or consumption as opposed to the conventional income tax. The 6% tax will be implemented from 1 April 2015.

Why has the government decided to implement it now?

This has been put off for a few years due to fierce opposition – there were calls to consider other forms of revenue raising which are less income-sensitive like addressing corruption and cutting down on excessive government expenses among others.

The budget deficit issue (government spending more than tax revenue collected) has been going on for a few years. The cost of running the government is rising and putting more pressure on the budget. The government is not getting enough money right now from the people they are taxing. As only 10-15% of the Malaysian working force pay taxes, the tax net had to be cast wider. The government had been able to announce GST implementation after winning the general elections in May 2013.

How is it different from Sales and Service Tax (SST)?

GST is essentially the same in concept as both are consumption taxes, but the SST was focused mainly on the F&B industry. The GST replaces the SST and is a tax that extends to spending on all goods and services.

Which goods will be exempt from GST?

Fruits, vegetables, fresh meat, poultry and fish, bread, coffee powder, tea powder, cocoa powder, mee hoon, kuey teow, laksa and yellow mee, various essential medicines, reference books (such as text books and dictionaries) and newspapers. The first 300 units of electricity will also be exempt, as will RON95, diesel and LPG.

Update: All books will be exempt from GST, as announced on 26 March 2015.

Which group of Malaysians will be most affected?

Those currently not paying income taxes, ie. people in the lower income bracket, will experience a rise in cost of living. This is like having a higher tax rate slapped on them. Merchants will also have to spend money investing in IT to capture GST. Tax consultants and other related service providers will make money from advising people on how to implement the GST.

Is there any good news at all?

The government will try to neutralise the higher cost of living for the lower income group through various forms of direct and indirect financial assistance including BR1M and reducing income tax rates. However, this is probably not going to fully recover the GST impact.

The other good news is that tax cheating or leakages will greatly be reduced as everyone has to pay taxes the moment they spend money, whether they are criminals, income tax evaders or foreigners.

Julian Ng is a producer/presenter on BFM 89.9’s The Morning Run on weekday mornings from 7 am – 10 am.

First published December 2013. Updated October 2014 and March 2015.

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