GST Simplified

Malaysians have been hearing these words GST for several years now and some still can’t make sense of it. What exactly is it and how will it affect your life. Here is a simple explanation to make sure you are prepared for it when the GST is implemented in the future.

GST basically means Goods And Services Tax, a form of taxation that covers goods and services. It will replace the existing current sales tax (five to ten percent) and the services tax (six percent).

We are all familiar with taxes, as we pay all kinds as good citizens. We have the income tax, road tax, property tax, business tax which the government uses to develop the nation, for the economic welfare, pay for our children education so there is no school fees, pay for civil service, medical services and many other uses to make our lives more pleasant and easier.

There is more to taxes than just development. It also plays a role to reduce economic inequality and increases economic efficiency. This occurs when goods that are taxable are traded less in view of the tax burden. 

The local trader gains when imported goods are taxed – as it encourages more people to buy the cheaper local goods. This is an essential trade strategy used by nations worldwide to protect the interest of its locals.

Then there is excise duty which is levied on alcoholic beverages and cigarettes Added tax burden ensures that drinking and smoking don’t proliferate in the country that it would hurt social development.

The proposed GST is adapted on the model practiced in 160 countries. It has been tested and proven to work in many developed countries such as in Europe, Australia, New Zealand and prove to work well in modern economies.

The reason for the introduction of GST is because the inherent weaknesses in the structure and the implementation of Sales Tax and Service Tax. For example, the current system at times results in a cascading effect where an item may be taxed twice. Other weaknesses include the ‘pyramiding effect’ where business along the distribution chain will normally apply mark-up on the tax element and the cost of product sold.

The GST affects a broader tax base because any consumer who consumed taxable goods and services will have to pay GST.