What is GST?
As you may have know, the government has decided that they will implement GST in Malaysia and will be effective on 1st April 2015. It is made know to the public but some misunderstanding has taken place. It is assumed that GST stands for government tax. However, it is not. GST stands for goods and services tax.
Not only that, it is believed that an additional of 6% of tax throughout a supply chain which by the time the end user receives the goods itself, there is a 24% increase in the price of the goods itself. The image on the right demonstrates the statement mentioned above. This is not how the Malaysian GST works as it is far more complex than the illustration above.
So now we know it is goods and services tax, what is it really all about? It is a new tax concept which is a multistage transaction based tax system will replace the 2 following taxes (single tax system) : sales tax and service tax. Every stage of business transaction is affected up to the retail stage of distribution and it is imposed on the supply of goods and services. Hence 1st April 2015 onwards, the two existing taxes will be scrap and GST will takeover.
GST in Malaysia focuses on consumption (spending). Therefore, the more you spend, the more you pay. It is a much more effective tool in determining ones individual purchasing power. GST here captures what the income tax couldn’t capture. This method of taxing makes GST an indirect tax as opposed to income tax which is a direct tax.
The Malaysian GST is a fairer tax as it is based on consumption. It is fair as everyone including those not (or adequately) reporting their income and also the millions of foreigner, will be in net.
The GST Mechanism
GST in Malaysia works in this manner. There are two key components; the input tax and the output tax. Input tax is the tax charge on the purchases of goods and services for example: the purchases of raw materials, machinery or professional services. Output tax however is charge when goods and services are supply. The image below will show a snapshot of the model of the Malaysian GST.
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