TABLE OF CONTENT
INTRODUCTION TO TAX
Based on Fajar Bakti dictionary tax is the money paid by the people (according to income, purchase rate, land value etc) to the government for state expenditure.
Taxes are necessary for the development of a country. More taxes are collected, more development and projects can be run by the government in the interests of all parties. There are several types of taxes among them are direct taxes and indirect taxes. Direct taxes are
a type of tax whose tax burden cannot be disbursed or transferred by the payer to another person. There are various type of direct taxes like income tax, corporate tax, wealth tax, gift tax, estate duty, expenditure tax and fringe benefit tax. For example is corporate tax, this tax is the largest source of government revenue. This tax is imposed on profits earned by a limited company. In Malaysia, taxed charged at 18% to 24%. Other than that is income tax are applies to various forms of individual income. Individual income forms include income from employment, business, allowances, bonuses, dividends, benefits and rentals. The percentage of individual taxes that charged in Malaysia at 1% to 28% based on income.
Indirect taxes is a type of tax that contains the tax may be distributed or transferred in full or part to another person. There are various types of indirect taxes is service tax, sales tax, excise duty, value added tax, custom duty, securities transaction tax (STT), stamp duty and entertainment tax. Sales tax is indirect taxes imposed on local and import items, taxes are taxed once. Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers . These two types of taxes are very closely related to Sales and Service Tax (SST) used in Malaysia.
SALES AND SERVICE TAX
Starting September 1, 2018, Sales and Service Tax (SST) administered by the Royal Malaysian Customs Department (RMCD) will be enforced in Malaysia . Taxes SST is a one-tier tax where this tax is only applicable to certain manufacturers and producers and cannot be claimed. This tax is considered as a cost to the business. Rate for sales tax and service tax are two different. First, the sales tax is known as a single stage tax where this tax is only charged once by a manufacturer cost or import cost of 5% to 10% rate depending on the item. Secondly, service tax imposed by 6% on certain services when offered to consumers.
Unknowingly, almost half of the 11,197 items listed under GST have been converted into a list of SST of 6,405 items imposed. Consumer products at 793 can be taxed at 5%, while 5,612 other items are 10% and services chargeable at 6% under SST 2.0. The government expects SST to be more tax-appropriate for the middle-income economy and better serve the people economically. The re-introduction of SST has also triggered doubt and misunderstanding among consumers that they feel the burden of paying 16% on purchased items. This is a misunderstanding because the SST mechanism does not work in that sense. In fact, SST will increase the purchasing power of Malaysians, since SST is a single-tier tax and imposes a lower burden on daily spending. In short, we can only expect to see some differences and adjustments in product prices depending on the type of service or well paid.
Therefore, Sales Tax will be imposed on goods produced by individuals or companies with annual returns above RM 500,000 and goods imported into Malaysia. Here are some 5%-10% sales tax of camel meat and rabbits, seafood, dairy products, cooking oils, processed meats, dry foods, sugar, cocoa, liquor, cigarettes, cosmetics, perfumes as well as soap. Whereas, everyday items and health goods that are excluded by SST are chickens, ducks, fish, cattle, goats, chicken eggs, duck eggs, noodles, yellow noodles, kuey tiaw, pasta, soup leaves, salt, spices , cereals, oats, vegetables, fruits, vitamins, medicines, First-Aid items, sodium killer poisons. Other that that motorcycles with a capacity of 250 cc and below and the bicycles commonly used by the people are also exempted from SST.
Malaysia Service Tax is a form of indirect tax imposed on any provision of taxable services against the continuation of any business by taxable persons in Malaysia. The following is a 6% service charge that includes food and beverage provision such as cafe, restaurant, catering, insurance, Takaful, hotel, nightclub, betting and gambling such as casinos and lotteries, provision of electrical goods, telecommunications services and TV channels paid, parking, security, motor vehicle service or repair, credit or charge card, IT services, as well as advertising.
The advantage of SST is this tax system is more simple and straight forward. SST is easier for traders because it is a one-stop tax means that manufacturers and importers and service providers charge taxes and pay them to customs without having to make credit claims as GST thereby reducing operating expenses especially for small companies involved. Other than that in SST no refund issues to business operators. We compare with Goods and Services Tax (GST) that issue the government not give back that money to company that government promises in the agreement GST. This is because in SST counted as business cost. SST also people friendly because SST is seen as comfortable for the people as it does not involve costs for all products and taxes only apply to certain products. SST is easier for traders as it is a one-stop tax means the manufacturers and importers and service providers tax and pay them to customs without having to make credit claims as GST thereby reducing operating expenses, especially for small companies involved. SST which only accounts for 38 percent of the CPI Goods Basket compare to GST taking 60 percent.
Disadvantage about SST is allowing a handful of importers, manufacturers, retailers or wholesalers to not declare the proper taxes. Next SST is a business cost and deduction is only available when there is a sale. This would mean that business cost would be higher as Sales Tax is part of the inventory cost and to be deducted as cost of sales when goods are sold or exported. In simple terms, no sales, no deductions. SST also hits the lower, more than the higher, income group, as the lower income group will spend more of their gross income on food than the higher income group. SST will coused the old trend of tax breaks and increase activity in the dark market. For example, manufacturers reduce costs in the early stages so that paid SST taxes are low. But in the meantime, it has other companies that are related to each other and take advantage of raising the price of goods.
The SST is expected to generate more disposable income is people have more income to spend and are expected to boost consumer spending as well as business activities. Disposal Income is the amount of income received by all individuals in a country after deducting personal income tax. Disposal Income can be used for expenses and savings. Disposal Income is an individual income that can be spent by households for goods and services after deducting personal income tax within a certain period of time . Tax burden is expected to decline in RM10 billion to RM15 billion. This amount is an increase in disposable income to consumers or Malaysia overall. According to Lim Guan Eng, the SST collection is expected to be RM23 billion less than the GST collection.
Goods and Services Tax
Good and Service Tax (GST) is a consumption tax based on the value-added tax concept applied to goods and services at all levels of the business. The tax is paid when the consumer is shopping. Tax payments are made at all levels by intermediaries in the production and distribution process. GST is imposed on goods and services at every stage of manufacture, production, distribution, supply, wholesale, business, and retail including importation of goods and services. The introduction of GST tax is aimed at reforming the country’s tax system, diversifying national income sources, and enhancing tax collection efficiency. Goods and services (GSTs) began in France as early as the 1950’s. On April 1, 2015, Malaysia became part of more than 160 countries in the world to implement a value-added tax system as part of a country’s revenue source.
The 6th Prime Minister, Datuk Seri Najib Tun Razak, who is also Finance Minister, announced the implementation of the GST effective April 1, 2015 at 6% in the 2013 Budget presentation at the Dewan Rakyat on October 25, 2013. Goods and Services Tax (GST) is a fair taxation system because it distributes tax burden amongst the wider population based on the amount of usage and determines the tax and tax quantities that a consumer has to pay for the goods and services it uses. Implementation of the GST is one of the measures taken by the government to restructure the country’s tax system so that it is more effective, equitable, efficient and transparent. The government’s intention to propose GST at a lower rate is to neutralize the impact of the GST on the people and consumers so as not to burden the people, especially the low-income group. By charging GST at a lower rate, it is hoped that consumers will benefit from price reductions in most goods and services.
There are three types of GST to be implemented differently on certain goods and services. First, the goods and services tax is rated “Standard”. All goods and services in this category will be charged at a 6% GST tax rate. GST tax will be imposed on the use of goods and services at each stage of the supply chain. This means that there are input tax and output tax in the “Standard” GST system. In addition, each party (except end users) in the supply chain can reclaim their input tax (GST) and this will avoid duplication in taxes. However, end-users are not eligible to reclaim input tax credit and have to bear the standard rated output tax burden of 6%. The tax is collected by the Royal Malaysian Customs Department and incorporated into the Consolidated Fund. Funds from the Consolidated Fund will be distributed within the annual budget then invested in the development and welfare issues of the Malaysian population. Therefore, the end user must bear the entire tax burden. Examples of items in this category are shirts, cars, and fruits.
Second, zero-rated GST. Goods and services in this category will be charged with 0% GST. This means that GST will not be imposed on end users who are measuring the standard rated GST tax burden of 6%. Similarly, goods and services exported overseas will not be taxed. However, business entities can still reclaim their input taxes. Examples of items in this category are basic foods (meat, fish and cooking oil) and the first 200 units of electricity per month.
Third, GST exclusions. Goods and services in this category will not be taxed and not subject to GST at the output stage (stage where goods are sold to end users). This means GST will not be imposed on end users. Business entities, especially the last party in the supply chain (before the end user) cannot reclaim their input tax credits even though they may be subject to GST tax on input purchases. Examples of goods and services in this category are property and health services.